Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2019
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-12793
StarTek, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 84-1370538 | |
(State or other jurisdiction of | (I.R.S. employer | |
incorporation or organization) | Identification No.) | |
6200 South Syracuse Way, Suite | ||
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
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
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 filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of April 26, 2019,June 1, 2020, there were 37,663,23938,591,021 shares of Common Stock outstanding.
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 Condensed Consolidated Balance Sheets as of March 31, Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 Condensed Consolidated Statement of Stockholders' Note 1 Overview and Basis of Preparation ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ITEM 4. Controls and Procedures PART II - OTHER INFORMATION ITEM 1. ITEM 1A. Risk Factors ITEM 3. ITEM 5. Other Information ITEM 6. Exhibits SIGNATURES 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. 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 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. ITEM 1. FINANCIAL STATEMENTS STARTEK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED (In thousands, except per share amounts) (Unaudited) Three Months Ended March 31, 2020 2019 Revenue Warrant contra revenue Net Revenue Cost of services Gross profit Selling, general and administrative expenses Impairment losses and restructuring/exit cost Operating (Loss) / Income Share of (loss) / profit of equity accounted investees Interest expense, net Exchange gain / (loss), net Loss before income taxes Income tax expense Net loss Net income attributable to non-controlling interests Net loss attributable to Startek shareholders Other comprehensive income (loss), net of tax: Foreign currency translation adjustments Change in fair value of derivative instruments Pension amortization Comprehensive loss Comprehensive income attributable to non-controlling interests Comprehensive loss attributable to Startek shareholders Net loss per common share - basic and diluted Weighted average common shares outstanding - basic and diluted See Notes to Consolidated Financial Statements. CONDENSED CONSOLIDATED BALANCE (In thousands, except share data) (Unaudited) March 31, December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents Restricted cash Trade accounts receivable, net Unbilled Revenue Prepaid and other current assets Total current assets Property, plant and equipment, net Operating lease Right-of-use assets Intangible assets, net Goodwill Investment in associates Deferred tax assets, net Prepaid expenses and other non-current assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Trade accounts payable Accrued expenses and other current liabilities Short term debt Current maturity of long term debt Current maturity of operating lease liabilities Current maturity of finance lease obligations Total current liabilities Long term debt Operating lease liabilities Other non-current liabilities Deferred tax liabilities, net Total liabilities 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 Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Equity attributable to Startek shareholders Non-controlling interest Total stockholders’ equity Total liabilities and stockholders’ equity See Notes to Consolidated Financial Statements. CONDENSED CONSOLIDATED (In thousands) (Unaudited) Three Months Ended March 31, 2020 2019 Operating Activities Net loss Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization Profit on sale of property, plant and equipment Provision for doubtful accounts Warrant contra revenue Share-based compensation expense Deferred income taxes Share of (loss) / Profit of equity accounted investee Changes in operating assets and liabilities: Trade accounts receivable Prepaid expenses and other assets Trade accounts payable Income taxes, net Accrued expenses and other current liabilities Net cash (used in) / generated from operating activities Investing Activities Purchases of property, plant and equipment Net cash used in generated investing activities Financing Activities Proceeds from the issuance of common stock Payments on long term debt Proceeds from (payments on) other debt, net Net cash generated generated from financing activities Net increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents and restricted cash Cash and cash equivalents and restricted cash at beginning of period Cash and cash equivalents and restricted cash at end of period Components of cash and cash equivalents and restricted cash Balances with banks Restricted cash Total cash and cash equivalents and restricted cash See Notes to Consolidated Financial Statements. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (In thousands, except share data) (Unaudited) Common Stock Additional paid-in Accumulated Foreign currency 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 Issuance of common stock Share-based compensation expenses Warrant expenses Net income (loss) Other comprehensive loss for the period Balance at March 31, 2020 Balance at December 31, 2018 Issuance of common stock Share-based compensation expenses Warrant expenses Net income (loss) Other comprehensive loss for the period Balance at March 31, 2019 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, (In thousands, except share and per share data) (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 Startek has proven results for the 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 (" 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 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 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 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, Revenue On April 1, 2018, the Company adopted Accounting Standards Codification 606, Revenue from Contracts with Customers, (Topic Leases On January 1, 2019, the Company adopted Accounting Standards Codification 842, Leases 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, 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. 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 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 Stock-Based Compensation We recognize expense related to all share-based payments to employees, including grants of employee stock options, based on the Common Stock Warrant Accounting We account for common stock warrants as equity instruments, based on the specific terms of our warrant agreement. For more 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") In June 2016, FASB issued ASU In 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 Goodwill As of March 31, Reporting Units Amount 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 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, 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 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 The following table presents the changes in goodwill during the period: Amount Opening balance, December 31, 2019 Impairment Ending balance, March 31, 2020 Intangible Assets The following table presents our intangible assets as of March 31, Net Intangibles Customer relationships Brand Trademarks Other intangibles 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, Years Ending December 31, Amount Remainder of 2020 2021 2022 2023 2024 Thereafter The company follows a 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 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 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. 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 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 Disaggregated Revenue Revenues by our clients' industry vertical for the three months ended March 31, Three Months Ended March 31, Vertical: 2020 2019 Telecom E-commerce & Consumer Financial & Business Services Media & Cable Travel & Hospitality Healthcare & Education Technology, IT & Related Services All other segments Gross Revenue Less: Warrant Contra Revenue Net Revenue 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. The Company always maintained Startek's 2008 Equity Incentive Plan (see Note Three Months Ended March 31, 2020 2019 Anti-dilutive securities: Stock options 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 Employee related Facilities related Total Balance as of December 31, 2019 Accruals/(reversals) Payments Balance as of March 31, 2020 Employee related In 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 Facilities related In 2018, Upon closure of site in Argentina, the Company recognized provision for facility related costs and we expect to pay the remaining costs of 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. From January 1, 2020 to The following table shows the notional amount of our foreign exchange cash flow hedging instruments as of March 31, 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 Canadian Dollar 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 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 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, 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, 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 Interest rate swap 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 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 Total fair value of assets measured on a recurring basis Liabilities: Interest rate swap Foreign exchange contracts Total fair value of liabilities measured on a recurring basis As of December 31, 2019 Level 1 Level 2 Level 3 Total Assets: Foreign exchange contracts Total fair value of assets measured on a recurring basis Liabilities: Interest rate swap Foreign exchange contracts Total fair value of liabilities measured on a recurring basis March 31, 2020 December 31, 2019 Short term debt and current portion of long term debt Working capital facilities Current maturity of long term debt Current maturity of finance lease obligations Total Long term debt Term loan, net of debt issuance costs Equipment loan Secured revolving credit facility Finance lease obligations Total 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 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. Years Amount Remainder of 2020 2021 2022 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, 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 As of March 31, Non-recourse factoring We have entered into factoring agreements with financial institutions to sell certain of our accounts receivable under non-recourse agreements. 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 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. 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 The second tranche of 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, 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. In line with ASU 2019-08, the 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, Accumulated other comprehensive loss consisted of the following items: Total Balance at December 31, 2019 Foreign currency translation Reclassification to operations Pension remeasurement Balance at March 31, 2020 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 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 Three Months Ended March 31, 2020 2019 Revenue: India & Sri Lanka Malaysia Middle East Argentina & Peru Rest of World Total Americas India & Sri Lanka Intangible amortization Property, plant and equipment, net by geography based on the location of the assets is presented below: Property, plant and equipment, net: Americas India & Sri Lanka Malaysia Middle East Argentina & Peru Rest of World Total 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 The components of lease expense were as follows: Three months ended Three months ended March 31, 2020 March 31, 2019 Operating lease cost Finance lease cost: Amortization of right-of-use assets Interest on lease liabilities Total finance lease cost Supplemental cash flow information related to leases was as follows: 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 Operating cash flow from finance leases Financing cash flows from finance leases Right-of-use assets obtained in exchange for lease obligations: Operating leases Finance lease Supplemental balance sheet information related to leases was as follows: As of As of March 31, 2020 March 31, 2019 Operating Leases Operating lease right-of-use assets Operating Lease Liabilities-Current Operating Lease Liabilities-Non-Current Total operating lease liabilities Finance Leases Property and equipment, at cost Accumulated depreciation Property and equipment, at net Finance Lease Obligation-Current Finance Lease Obligation-Non Current Total finance lease liabilities As of As of March 31, 2020 March 31, 2019 Weighted average remaining lease term Operating leases Finance leases Weighted average discount rate Maturities of lease liabilities were as follows: Operating leases Finance leases Year ending December, 31 Remaining of 2020 2021 2022 2023 2024 Thereafter Total lease payments Less imputed interest Total 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 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 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 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 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 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 Considering the uncertainties, the current results and financial condition discussed herein may not be indicative of future operating results and trends. RESULTS OF OPERATIONS — Revenue Our gross revenues for the Our For the Three Months Ended March 31, 2020 For the Three Months Ended March 31, 2019 Revenues Net Revenue Our net revenues adjusted for warrant contra revenue for the For the Three Months Ended March 31, 2020 For the Three Months Ended March 31, 2019 Verticals: Telecom E-commerce & Consumer Financial & Business Services Media & Cable Travel & Hospitality Healthcare & Education Technology, IT & Related Services 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, 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 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, Three Months Ended March 31, As % of Revenue 2020 2019 2020 2019 Employee Benefit Expenses Rent expense Depreciation and amortization Other Total 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. Employee Benefit expenses as a percentage of revenues increased to Rent expense: Depreciation and amortization: Other expense includes technology, utility, travel and outsourcing costs. As a percentage of revenue, these costs increased from As a Selling, general and administrative expenses Selling, general and administrative expenses (SG&A) as a percentage of revenue Impairment Losses and Restructuring/Exit Cost, Net Impairment losses and restructuring costs, Acquisition related cost Acquisition related cost for the Interest Income tax expense Income tax expense for the 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. Cash and cash equivalents and restricted cash As of March 31, 2020, cash, cash equivalents and restricted cash held by the Company and all its foreign subsidiaries Cash flows from operating activities For the Cash flows used in investing activities For the Cash flows generated from financing activities For the Debt For more information, refer to Note CONTRACTUAL OBLIGATIONS Smaller reporting companies are not required to provide the OFF-BALANCE SHEET ARRANGEMENTS 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 . 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 CRITICAL ACCOUNTING POLICIES AND ESTIMATES In preparing our consolidated financial statements in conformity with Please refer to Note As Startek has now qualified for Smaller Reporting Company status, this disclosure is not required. As of March 31, To address the material weakness Notwithstanding the material 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. None. None. Not applicable. None. INDEX OF EXHIBITS Exhibit Incorporated Herein by Reference No. Exhibit Description Exhibit Filing Date 31.1* 31.2* 32.1* 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) * 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. By: /s/ Aparup Sengupta Date: June 10, 2020 Aparup Sengupta Global CEO (principal executive officer) By: /s/ Ramesh Kamath Date: Ramesh Kamath Chief Financial Officer (principal financial and accounting officer)and 2018 (Unaudited)20192020 (Unaudited) and December 31, 20182019 (Audited)and 2018 (Unaudited)equityEquity for the Three Months Ended March 31, 2020 and 2019 (Unaudited) Note 2 Summary of Accounting Policies Notes to Condensed Consolidated Financial Statements (Unaudited)9 612ITEM 2.Note 4 Revenue 13 Note 5 Net Loss Per Share 15 Note 6 Impairment and Restructuring/Exit cost 15 Note 7 Derivative Instruments 16 Note 8 Fair Value Measurements 16 Note 9 Debt 18 Note 10 Share-Based Compensation 19 Note 11 Accumulated Other Comprehensive Loss 19 Note 12 Segment and Geographical Information 20 Note 13 Leases 20 Note 14 Subsequent Event 21 Legal proceeding ITEM 2. Unregistered sales of equity securities and use of proceeds Defaults upon senior securities ITEM 4. Controls and ProceduresMine safety disclosure PART II - OTHER INFORMATIONITEM 1A.Risk FactorsITEM 5.Other Informationcertain 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; andother statements regarding matters that are not historical facts.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.STATEMENTSSTATEMENT OF COMPREHENSIVE INCOME (LOSS) 161,177 161,142 (278 ) - 160,899 161,142 (140,841 ) (133,928 ) 20,058 27,214 (17,255 ) (24,079 ) (24,322 ) (1,129 ) Acquisition related cost - 35 (21,519 ) 2,042 (8 ) 342 (3,506 ) (4,465 ) 1,928 (691 ) (23,105 ) (2,772 ) 2,876 385 (25,981 ) (3,157 ) 576 189 (26,557 ) (3,346 ) (4,392 ) 567 (672 ) (65 ) 396 176 (30,649 ) (2,479 ) 739 276 (31,388 ) (2,755 ) (0.69 ) (0.09 ) 38,528 37,522 (Unaudited) Three Months Ended March 31, 2019 2018 Revenue $ 161,142 $ 115,095 Cost of services 133,928 93,938 Gross profit 27,214 21,157 Selling, general and administrative expenses 24,079 14,405 Restructuring and other merger related cost 1,093 6,257 Operating income 2,042 495 Share of profit of affiliates 342 64 Interest expense, net (4,465 ) (4,129 ) Exchange losses, net (691 ) (1,278 ) Loss before income taxes (2,772 ) (4,848 ) Income tax expense 385 332 Net loss $ (3,157 ) $ (5,180 ) Net income attributable to non-controlling interests 189 972 Net loss attributable to Startek shareholders (3,346 ) (6,152 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 567 (961 ) Change in fair value of derivative instruments (65 ) — Pension amortization 176 (297 ) Comprehensive loss $ (2,479 ) $ (6,438 ) Comprehensive income attributable to non-controlling interests 276 833 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 diluted 37,522 20,600 SHEETS 27,795 20,464 11,862 12,162 100,152 108,479 40,586 41,449 19,516 12,008 199,911 194,562 34,133 37,507 79,370 73,692 108,225 110,807 196,633 219,341 477 553 3,009 5,251 15,568 16,370 637,326 658,083 20,004 25,449 89,600 82,598 32,387 26,491 18,666 17,601 20,761 19,677 750 632 182,168 172,448 123,387 130,144 59,404 54,341 12,881 11,140 17,739 18,226 395,579 386,299 — — 385 385 277,852 276,827 (10,853 ) (6,022 ) (73,115 ) (46,145 ) 194,269 225,045 47,478 46,739 241,747 271,784 637,326 658,083 (Unaudited) As of March 31, As of December 31, 2019 2018 ASSETS Current assets: Cash and cash equivalents $ 14,595 $ 16,617 Restricted cash 11,093 7,952 Trade accounts receivable, net 102,548 107,836 Unbilled Revenue 50,499 42,135 Prepaid and other current assets 17,454 18,850 Total current assets $ 196,189 $ 193,390 Property, plant and equipment, net 41,638 42,242 Right-of-use assets 76,983 — Intangible assets, net 118,726 121,336 Goodwill 226,505 225,450 Investment in affiliates 2,440 2,097 Deferred tax assets, net 4,075 5,048 Prepaid expenses and other non-current assets 17,562 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 liabilities 82,796 84,881 Short term debt 26,522 21,975 Current maturity of long term debt 12,600 9,800 Current maturity of operating lease liabilities 23,204 — Current maturity of capital lease liabilities 1,394 1,816 Total current liabilities $ 173,273 $ 145,358 Long term debt 149,582 152,100 Operating lease liabilities 55,016 — Other non-current liabilities 14,286 11,907 Deferred tax liabilities, net 17,127 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 capital 268,256 267,317 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 interest 45,631 45,356 Total stockholders’ equity $ 274,834 $ 276,373 Total liabilities and stockholders’ equity $ 684,118 $ 604,639 STATEMENTSSTATEMENT OF CASH FLOWS $ (25,981 ) $ (3,157 ) 7,093 7,304 Impairment of goodwill 22,708 - - (251 ) 154 630 278 - 291 425 1,879 (659 ) 8 (342 ) 4,503 4,384 (7,658 ) (8,789 ) (4,722 ) (79 ) (672 ) (948 ) 12,287 1,105 $ 10,168 $ (377 ) (2,884 ) (3,495 ) $ (2,884 ) $ (3,495 ) 43 515 (4,200 ) (1,400 ) 4,956 6,102 $ 799 $ 5,217 8,083 1,345 (1,052 ) (226 ) 32,626 24,569 $ 39,657 $ 25,688 27,795 14,595 11,862 11,093 $ 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 amortization 7,304 6,025 Profit on sale of property, plant and equipment (251 ) — Provision for doubtful accounts 630 374 Share-based compensation expense 425 — Deferred income taxes (659 ) (918 ) Share of profit of affiliates (342 ) (64 ) Changes in operating assets and liabilities: Trade accounts receivable 4,384 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 liabilities 1,105 (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 stock 515 — Payments on long term debt (1,400 ) — Proceeds from other debts, net 6,102 488 Net cash provided by financing activities $ 5,217 $ 488 Net (decrease) increase in cash and cash equivalents 1,345 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 period 24,569 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 banks 14,595 17,693 Restricted cash 11,093 5,226 Total cash and cash equivalents and restricted cash $ 25,688 $ 22,919 Change in fair value of 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 ) - - - - - - 16,088 - 43 - - - - 43 - 43 - - 291 - - - - 291 - 291 - - 278 - - - - 278 - 278 - - - (26,557 ) - - - (26,557 ) 576 (25,981 ) - - - - (4,392 ) (672 ) 233 (4,831 ) 163 (4,668 ) 38,541,724 $ 385 $ 277,852 $ (73,115 ) $ (8,960 ) $ (197 ) $ (1,696 ) $ 194,269 $ 47,478 $ 241,747 37,446,323 $ 374 $ 267,317 $ (31,127 ) $ (3,989 ) $ (15 ) $ (1,543 ) $ 231,017 $ 45,356 $ 276,373 115,421 1 514 - - - - 515 - 515 - - 425 - - - - 425 - 425 - - - - - - - - - - - - - (3,346 ) - - - (3,346 ) 189 (3,157 ) - - - - 567 (65 ) 90 592 86 678 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 MARCH2019(Unaudited)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.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.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.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 POLICIESPrinciples of consolidation 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 Statementsaudited 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.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.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.842)842)withthe transition approach. However, the Company has accounted the lease for the comparable periods as per the Accounting Standards Codification 840.other current liabilities,long-term debt, accrued expenses and other long-termcurrent liabilities in our consolidated balance sheets.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.
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.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.11,10, “Share-Based Compensation” for further information.11,10, "Share-Based Compensation."2018-14, 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.2016-13, 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.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.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.3. BUSINESS ACQUISITIONSAegis TransactionsOn 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 assets 46,094 Property, plant and equipment, net 15,930 Identifiable intangible assets 28,960 Goodwill 64,337 Other non-current assets 3,204 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 ASSETS2019,2020, 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 Americas 64,315 India 15,180 Malaysia 47,543 Saudi Arabia 54,840 South Africa 1,578 Argentina 4,991 Australia 8,186 Ending balance, March 31, 2020 $196,633 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.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). 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. impaired. Amount Opening balance, December 31, 2018 $ 225,450 Measurement period adjustments 1,055 Ending balance, March 31, 2019 $ 226,505 $ 219,341 (22,708 ) $ 196,633 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 Gross Intangibles Accumulated Amortization Weighted Average Amortization Period (years) $ 66,220 $ 12,078 $ 54,142 6.5 49,500 8,647 40,853 7.1 13,210 1,495 11,715 7.5 2,130 615 1,515 4.9 $ 131,060 $ 22,835 $ 108,225 $ - 20192020 is as follows: $ 7,762 10,350 10,350 10,306 10,252 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. REVENUEfive-stepfive-step process in accordance with ASC 606, for revenue recognition that focuses on transfer of control, rather than transfer of risks and rewards.60-9060-90 days.The identification, operation, management and maintenance of facilities, IT equipment, and IT and telecommunications infrastructureManagement of the entire human resources function, including recruiting, hiring, training, supervising, evaluating, coaching, retaining, compensating, providing employee benefits programs, and disciplinary activitiesASC 606-10-50-14transaction 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 lessASC 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.2019 2020 and 2018,2019, respectively: 55,697 65,824 25,958 24,344 13,439 13,320 23,194 21,757 15,803 16,514 13,448 10,529 5,050 2,437 8,588 6,417 161,177 161,142 (278 ) - $ 160,899 $ 161,142 Three Months Ended March 31, Vertical: 2019 2018 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 SHAREIn connection with the Aegis Transactions, the11,10, "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): 2,316 2,782 Three Months Ended March 31, 2019Three Months Ended March 31, 2018Anti-dilutive securities:Stock options2,782—7. RESTRUCTURING AND OTHER MERGER RELATED6. IMPAIRMENT LOSSES & RESTRUCTURING/EXIT COSTother 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 related Facilities related Total 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 $ 1,326 $ 514 $ 1,840 1,583 31 1,614 (1,168 ) (178 ) (1,346 ) $ 1,741 $ 367 $ 2,108 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.$941$20 by the end of fourthsecond quarter 2019. 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.$162$8 by the end of the fourthsecond quarter of 2019.2020.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.Contents8.7. DERIVATIVE INSTRUMENTSUnrealized gains and losses are recorded in accumulated other comprehensive income (“AOCI”) and will be re-classified operations as the forecasted expenses are incurred, typically within one year. During the three months ended March 31, 20192018, our cash flow hedges were highly effectiveCanadian-dollar non-deliverable forward and hedge ineffectiveness was not material.2019: Local Currency Notional Amount U.S. Dollar Notional Amount Canadian Dollar 1,600 $ 1,254 Philippine Peso 2,736,000 51,642 $ 52,896 1,597,000 30,650 769,000 14,361 3,300 2,437 1,400 1,047 $ 33,087 $ 15,408 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. (860 ) 65 188 - 2019:2020 and 2019: $ 1,771 $ 26 $ (340 ) $ 228 Derivatives not designated under ASC 815 For the Three Months Ended March 31, 2019 Foreign currency forward contracts $ 26 Interest rate swap $ 228 9.8. FAIR VALUE MEASUREMENTSliability.liability: $ — $ 3,458 $ — $ 3,458 $ — $ 3,458 $ — $ 3,458 $ — $ 758 $ — $ 758 $ — $ 557 $ — $ 557 $ — $ 1,315 $ — $ 1,315 $ — $ 1,823 $ — $ 1,823 $ — $ 1,823 $ — $ 1,823 $ — $ 544 $ — $ 544 $ — $ 22 $ — $ 22 $ — $ 566 $ — $ 566 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 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 $ 29,004 $ 23,179 Loan from related parties 3,383 $ 3,312 17,850 16,800 Equipment loan 816 801 750 632 $ 51,803 $ 44,724 $ 100,204 $ 105,075 409 619 21,935 23,097 839 1,353 $ 123,387 $ 130,144 $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.
Principal payments due on the term loan are as follows:Years Amount 2019 8,400 2020 16,800 2021 21,000 2022 88,200 $ 134,400 12,600 21,000 88,200 Total $ 121,800 20192020 amount to $5.2$3.7 million.$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.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.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.$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.Capital11.10. SHARE-BASED COMPENSATIONwill 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. AsMarch212,766 Warrant Shares vested on May 31, 2019. The amount of contra revenue attributed to these Warrant Shares is $730.no additional Warrant Shares have vested.BecauseWarrant 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.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 Foreign Currency Translation Adjustment Derivatives Accounted for as Cash Flow Hedges Defined Benefit Plan Equity attributable to Startek shareholders Non-controlling interests $ (4,568 ) $ 475 $ (1,929 ) $(6,022 ) $ (1,597 ) $ (7,619 ) (4,392 ) - - (4,392 ) - (4,392 ) - 188 - 188 - 188 Unrealized losses - (860 ) - (860 ) - (860 ) - - 233 233 163 396 $ (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 translation 567 — — 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 INFORMATIONhashave been identified as the Chief Operating Decision Maker ("CODM"), reviews financial information mainly on a consolidatedgeographical basis.Basedevaluationresults 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: India 27,346 32,934 Middle East 31,118 32,248 Malaysia 17,079 14,490 Argentina 11,111 16,344 United States 29,744 — Australia 7,356 9,809 Philippines 12,809 — Rest of World 24,579 9,270 Total $ 161,142 $ 115,095 Americas 68,168 63,603 24,252 28,209 11,885 12,448 34,517 31,118 10,208 12,584 11,869 13,180 $ 160,899 $ 161,142 Operating income (loss): $ 926 $ 865 (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 - 2,582 2,628 Total operating income $ (21,519 ) $ 2,042 As on March 31, 2019 As on December 31, 2018 Property, plant and equipment, net: India 12,442 13,287 Middle East 5,983 6,507 Malaysia 5,093 5,058 Argentina 1,277 1,341 United States 5,341 5,349 Australia 311 345 Philippines 2,376 2,835 Rest of World 8,815 7,520 Total $ 41,638 $ 42,242 14. LEASES As on As on March 31, 2020 December 31, 2019 13,282 14,156 9,689 10,772 4,018 4,375 4,405 4,722 1,653 1,701 1,086 1,781 $ 34,133 $ 37,507 $ 7,259 $ 7,540 327 484 43 28 370 512 Three months ended March 31, 2019 Operating lease cost $ 7,540 Finance lease cost: Amortization of right-of-use assets 484 Interest on lease liabilities 28 Total finance lease cost $ 512 Three months ended March 31, 2019Cash paid for amounts included in the measurement of lease liabilities:Operating cash flows from operating leases7,563Operating cash flow from finance leases28Financing cash flows from finance leases653Right-of-use assets obtained in exchange for lease obligations:Operating leases76,983Finance lease— 7,183 7,563 43 28 116 653 13,558 76,983 - - As of March 31, 2019 Operating Leases Operating lease right-of-use assets $ 76,983 Other current liabilities 23,204 Operating lease liabilities 55,016 Total operating lease liabilities $ 78,220 Finance Leases Property and equipment, at cost 10,899 Accumulated depreciation (8,679 ) Property and equipment, at net $ 2,220 Other current liabilities 1,394 Other long-term liabilities 184 Total finance lease liabilities $ 1,578 As of March 31, 2019Weighted average remaining lease termOperating leases5 yearsFinance leases1 yearWeighted average discount rateOperating leases7.48%Finance leases4.38% $ 79,370 $ 73,692 20,761 19,677 59,404 54,341 $ 80,165 $ 74,018 5,166 4,391 (3,088 ) (1,984 ) $ 2,078 $ 2,407 750 632 839 1,353 $ 1,589 $ 1,985 4.58 yrs 4.66 yrs 1.67 yrs 1.92 yrs Operating leases 6.84% 7.27% Finance leases 6.01% 6.01% $ 25,312 $ 706 15,978 575 14,590 442 11,740 - 10,190 - 6,886 - $ 84,696 $ 1,723 (4,531 ) (134 ) $ 80,165 $ 1,589 Operating leases Finance leases Year ending December, 31 Remaining of 2019 $ 28,054 $ 1,295 2020 20,525 312 2021 13,316 14 2022 10,132 — 2023 6,636 — Thereafter 13,202 — Total lease payments $ 91,865 $ 1,621 Less imputed interest (13,645 ) (43 ) Total $ 78,220 $ 1,578 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.these financial statements.principle approval from the lender consortium with respect to such waivers subject to certain conditions.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.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.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.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 DEVELOPMENTSNoneTHREE MONTHS ENDED MARCHthree months ended March 31, 2019 AND 2018Pursuant 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 presented2019periods 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.Revenuerevenuesnet revenue for the quarter ended March 31, 2019 increased by 40.0% to $161,142 as compared to $115,0952020 and 2019: $ 161,177 $ 161,142 Warrant Contra Revenue (278 ) - 160,899 161,142 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, 2019 Pro Forma For Three Months Ended
March 31, 2018Revenues $ 161,142 $ 184,209 Warrant Contra Revenue — (2,500 ) Net Revenue 161,142 181,709 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: 35 % 41 % 16 % 15 % 8 % 8 % 15 % 13 % 10 % 10 % 8 % 7 % 3 % 2 % Others 5 % 4 % 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, 2019Pro Forma For Three Months Ended March 31, 2018 Verticals: Telecom $ 65,824 $ 96,862 E-commerce & Consumer 24,344 16,370 Financial & Business Services 13,320 17,078 Media & Cable 21,757 17,630 Travel & Hospitality 16,514 14,015 Healthcare & Education 10,529 8,489 Energy, Power & utility 2,485 3,225 All other segments 6,369 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. 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.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.Contents2019 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 2019 2018 2019 2018 Wages and benefits $ 100,865 $ 71,230 62.6 % 61.9 % Rent expense 7,798 4,399 4.8 % 3.8 % Depreciation and amortization 5,430 5,521 3.4 % 4.8 % Other 19,835 12,788 12.3 % 11.1 % Total $ 133,928 $ 93,938 83.1 % 81.6 % Wages and benefits $ 106,389 $ 100,865 66.1 % 62.6 % 8,083 7,798 5.0 % 4.8 % 5,621 5,430 3.5 % 3.4 % 20,748 19,835 12.9 % 12.3 % $ 140,841 $ 133,928 For the three-month period ended March 31, 2019, wages and benefits62.6%,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.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.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, 2018.11.1%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.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.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. 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. of $6,257three-monthprevious period ended March 31, 2018 relates primarily to the acquisitionconsist of Aegis by Capital Square Partners.
Interest expense, netand 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.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.Cash andwas $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.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.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.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.10,9, "Debt," and Note 14 "Subsequent events" to our unaudited condensed consolidated financial statements included in Item 1, "Financial Statements."There were no material changes in our contractual obligations duringthree months ended March 31, 2019.Weobligations.performance.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.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.Evaluation of disclosure controls and procedures.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. 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. 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.None.DISCLOURESubmissionOn May 8, 2019, we held our 2019 Annual Meeting of Stockholders. At the Annual Meeting, the stockholders elected eight nominees to serve on the Board of Directors, ratified the appointment of BDO India LLP as our independent registered public accounting firm for 2019, approved by non-binding vote the compensation of our named executive officers, approved the amendment of our 2008 Equity Incentive Plan, and approved the amendment of our Employee Stock Purchase Plan. The final voting results for each of these matters are set forth below:1.Election of DirectorsName Number of Shares Voted For Number of Shares Voted Against Abstain Aparup Sengupta 27,285,082 2,156,425 1,547 Sanjay Chakrabarty 27,306,748 2,134,766 1,540 Mukesh Sharda 27,285,082 2,156,425 1,547 Bharat Rao 27,909,237 1,532,270 1,547 Lance Rosenzweig 27,917,405 1,524,448 1,201 Albert Aboody 29,316,010 125,497 1,547 Julie Schoenfeld 29,313,302 128,544 1,208 Jerry Schafer 29,317,656 124,197 1,201 There were 5,359,087 broker non-votes on the proposal for election of directors.2.Ratification of Appointment Independent Registered Public Accounting FirmNumber of Shares Voted For Number of Shares Voted Against Abstain 34,773,350 25,868 2,923 There were no broker non-votes on this matter.3.Approval by Non-binding Vote, the Compensation of our Named Executive OfficersNumber of Shares Voted For Number of Shares Voted Against Abstain 29,356,204 45,285 41,565 There were 5,359,087 broker non-votes on this matter.4.Approval of the Amendment of our 2008 Equity Incentive PlanNumber of Shares Voted For Number of Shares Voted Against Abstain 29,290,434 104,527 48,093 There were 5,359,087 broker non-votes on this matter.5.Approval of the Amendment of our Employee Stock Purchase PlanNumber of Shares Voted For Number of Shares Voted Against Abstain 29,371,691 23,157 48,206 There were 5,359,087 broker non-votes on this matter. 10.1 Letter Agreement with Rajiv Ahuja dated March 25,2020 8-K 10.1 March 31,2020 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Filed with this Form 10-Q. ExhibitIncorporated Herein by ReferenceNo.Exhibit DescriptionFormExhibitFiling Date31.1*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.STARTEK, INC. By:/s/ Lance RosenzweigDate: May 9, 2019Lance RosenzweigPresident and Global CEOMay 9, 2019June 10, 202027