##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
  Washington, D.C.
    20549
  Form 10-Q
   (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from                 to   Commission File Number:
    333-115328
  PeopleSupport, Inc.
 (Exact name of Registrant as
    specified in its charter)
   Delaware(State or other jurisdiction
    of
    incorporation or organization)

95-4695021(I.R.S. Employer
    Identification No.)   1100 Glendon Ave., Suite 1250, Los Angeles, California
    90024
 (Address of principal executive
    offices)
   (310) 824-6200
 (Registrants telephone
    number, including area code)
      þ o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ




---



##### 



PEOPLESUPPORT,
    INC.
  FORM 10-Q
  FOR THE
    QUARTER ENDED
 September 30, 2007
  INDEX
  
  PagePART I  FINANCIAL
    INFORMATION


1ITEM 1.


Financial Statements


1Consolidated Balance Sheets as of
    September 30, 2007 (unaudited) and December 31,
    2006


1Consolidated Statements of Operations and Other
    Comprehensive Income for the three and nine month periods ended
    September 30, 2007 (unaudited) and 2006 (unaudited)


2Consolidated Statements of Cash Flows for the
    nine months ended September 30, 2007 (unaudited) and 2006
    (unaudited)


3Notes to Consolidated Financial Statements
    (unaudited)


4ITEM 2.


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


16ITEM 3.


Quantitative and Qualitative Disclosures about
    Market Risk


25ITEM 4.


Controls and Procedures


25PART II  OTHER INFORMATION


26ITEM 1.


Legal Proceedings


26ITEM 1A.


Risk Factors


26ITEM 2.


Unregistered Sales of Equity Securities and Use
    of Proceeds


28ITEM 3.


Defaults Upon Senior Securities


28ITEM 4.


Submission of Matters to a Vote of Security
    Holders


28ITEM 5.


Other Information


28ITEM 6.


Exhibits


28SignatureEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION
  ITEM 1.
    Financial
    Statements  PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  CONSOLIDATED BALANCE SHEETS
  September 30


December 31,2007


2006(Unaudited)(In thousands,except share amounts)ASSETSCurrent assets:Cash and cash equivalents

$
77,757


$
80,880Marketable securities


24,000



39,520Accounts receivable, net of allowance for doubtful accounts of
    $1,198 (2007) and $947 (2006)


19,957



18,127Deferred tax assets


1,888



1,888Prepaid expenses and other current assets


6,730



5,745Total current assets


130,332



146,160Property and equipment, net


35,066



22,080Marketable securities


27,608



20,133Deferred tax assets


18,934



18,372Goodwill and other intangible assets


8,309



8,346Other long-term assets


2,995



2,500Total assets

$
223,244


$
217,591LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,978


$
7,389Accrued liabilities


13,266



9,963Deferred revenue


5,539



4,515Other current liabilities


75



106Total current liabilities


21,858



21,973Deferred rent


2,457



1,812Other long-term liabilities


65



1,347Total liabilities


24,380



25,132Commitments and contingenciesMinority interest






29Stockholders equity:Common stock; $0.001 par value; authorized
    87.0 million shares; 23.7 and 23.5 million shares
    issued and outstanding at September 30, 2007 and
    December 31, 2006, respectively


24



23Additional paid-in capital


212,545



208,044Accumulated deficit


(1,938
)


(16,062
)Accumulated other comprehensive income


1,849



425Treasury stock


(13,616
)


Total stockholders equity


198,864



192,430Total liabilities and stockholders equity

$
223,244


$
217,591    1




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF OPERATIONS
 AND OTHER
    COMPREHENSIVE INCOME
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2007


2006


2007


2006(Unaudited, in thousands, except per share data)Revenues

$
36,932


$
30,117


$
104,857


$
79,111Cost of revenues (exclusive of depreciation and amortization
    expense shown below)


25,724



19,479



75,219



48,975Selling, general and administrative


6,391



4,789



18,425



14,421Depreciation and amortization


2,406



1,876



7,201



4,796Income from operations


2,411



3,973



4,012



10,919Interest income


(1,596
)


(518
)


(4,599
)


(1,426
)Other income


(2,599
)


(73
)


(5,837
)


(74
)Income before provision for income taxes


6,606



4,564



14,448



12,419Provision for income taxes


252



1,052



324



2,224Net income


6,354



3,512



14,124



10,195Foreign currency translation (gain) loss


2



(375
)


(373
)


(357
)Unrealized (gain) loss on securities


(7
)


(100
)


518



(36
)Minimum pension liability adjustment


(1,595
)






(1,569
)


Comprehensive income

$
7,954


$
3,987


$
15,548


$
10,588Basic earnings per share

$
0.27


$
0.19


$
0.60


$
0.55Diluted earnings per share

$
0.27


$
0.18


$
0.59


$
0.54Basic weighted average shares outstanding


23,357



18,503



23,472



18,408Diluted weighted average shares outstanding


23,751



19,052



24,045



18,862    2




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Nine Months EndedSeptember 30,2007


2006(Unaudited, in thousands)OPERATING ACTIVITIESNet income

$
14,124


$
10,195Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


7,201



4,796Provision for doubtful accounts


336



9Stock-based compensation


3,911



1,875Management incentive plan


256



256Unrealized gain on derivative


(3,283
)


Deferred income taxes


(425
)


1,511Tax benefits from employee stock option exercises


(37
)


(621
)Changes in operating assets and liabilities:Accounts receivable


(2,166
)


(10,339
)Prepaid expenses and other assets


1,932



680Accounts payable and accrued liabilities


(872
)


5,951Deferred rent


648



150Deferred revenue


976



526Net cash provided by operating activities


22,601



14,989INVESTING ACTIVITIESProceeds from sale/maturities of marketable securities


77,460



5,000Purchases of property and equipment


(20,080
)


(11,767
)Purchases of marketable securities


(69,933
)


(15,000
)Acquisitions, net of cash received






(8,968
)Net cash used in investing activities


(12,553
)


(30,735
)FINANCING ACTIVITIESPayments of capital lease obligation


(43
)


(363
)Tax benefits from employee stock option exercises


37



621Proceeds from the exercise of stock options


621



1,079Repurchase of common stock


(13,616
)


Costs incurred in public offering


(168
)


Net cash (used)/provided by financing activities


(13,169
)


1,337Effect of exchange rate changes on cash


(2
)


28Net decrease in cash and cash equivalents


(3,123
)


(14,381
)Cash and cash equivalents, beginning of period


80,880



27,760Cash and cash equivalents, end of period

$
77,757


$
13,379CASH PAID FOR:Income taxes

$
109


$
516NON-CASH INVESTING AND FINANCING ACTIVITIESUnrealized loss on marketable securities

$
518


$
36    3




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except per share data)
  Note 1.  Description
    of Business
  U.S.-based
    Note 2.  Basis
    of Presentation
  Basis
    of Presentation
  Regulation S-X.
  Reclassifications
    Use of
    Estimates
      Concentrations
    of Risk
   4




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except per share data)
    As of andFor the NineMonthsFor the Three Months Ended


EndedSeptember 30,


September 30,% of Revenue


% of Revenue


$ of A/R, net2007


2006


2007


2006


2007


2006Customer A


23
%


16
%


22
%


18
%

$
4,026


$
3,827Customer B


16
%


15
%


15
%


16
%


3,131



3,276Customer C


13
%


14
%


14
%


13
%


3,118



3,017Customer D


11
%


12
%


9
%


9
%


2,123



2,811     Revenue
    Recognition
    Cost
    of Revenues
    Impairment
    of Long-lived Assets
    Goodwill
    and Other Intangible Assets
   5




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except per share data)
  Stock-based
    Compensation Expense
  Share-Based Payment
  Note 3.
    Cash,
    Cash Equivalents and Marketable Securities      Short-Term


Long-TermAmortized


Unrealized


Market


Cash & Cash


Marketable


MarketableCost


Losses


Value


Equivalents


Securities


SecuritiesCash and cash equivalents

$
77,757


$



$
77,757


$
77,757


$



$
Government bonds


24,992



9



25,001







19,000



6,001Corporate bonds


8,931



(264
)


8,667







5,000



3,667Mortgage backed securities


14,374



(78
)


14,296











14,296Preferred stock


3,967



(323
)


3,644











3,644Total

$
130,021


$
(656
)

$
129,365


$
77,757


$
24,000


$
27,608     MortgageCorporate


Government


Backed


PreferredMaturities

Bonds


Bonds


Securities


Stock


Total1 year

$
5,000


$
19,000


$



$



$
24,0001 to 5 years


1,418



5,754







3,040



10,2125 to 10 years


2,249



247



609



604



3,70910+ years










13,687







13,687Total

$
8,667


$
25,001


$
14,296


$
3,644


$
51,608  6




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except per share data)
    Short-TermLong-TermAmortized


Unrealized


Market


Cash & Cash


Marketable


MarketableCost


Losses


Value


Equivalents


Securities


SecuritiesCash and cash equivalents

$
80,880


$



$
80,880


$
80,880


$



$
Government bonds


33,992



(77
)


33,915







24,942



8,973Corporate bonds


16,184



(9
)


16,175







14,578



1,597Mortgage backed securities


9,615



(52
)


9,563











9,563Total

$
140,671


$
(138
)

$
140,533


$
80,880


$
39,520


$
20,133     MortgageCorporate


Government


BackedMaturities

Bonds


Bonds


Securities


Total1 year

$
14,578


$
24,942


$



$
39,5201 to 5 years


1,597



8,729







10,3265 to 10 years






244



715



95910+ years










8,848



8,848Total

$
16,175


$
33,915


$
9,563


$
59,653   Note 4.
    Statement
    of Stockholders Equity and Accumulated Comprehensive
    Income    UnrealizedForeign


Loss on


MinimumCurrency


Marketable


PensionTranslation


Securities


Liability


TotalBalance, December 31, 2006

$
1,119


$
(138
)

$
(556
)

$
425Quarterly change


368



110



9



487Balance, March 31, 2007


1,487



(28
)


(547
)


912Quarterly change


5



(636
)


(35
)


(666
)Balance, June 30, 2007


1,492



(664
)


(582
)


246Quarterly change






8



1,595



1,603Balance, September 30, 2007

$
1,492


$
(656
)

$
1,013


$
1,849   Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans Form 10-K
 7




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except per share data)
  Note 5.
    Computation
    of Earnings Per Share      Three Months Ended


Nine Months EndedSeptember 30,


September 30,2007


2006


2007


2006Options


937



8



714



58Restricted Stock Units


113







108



Warrants














2     Three Months Ended September 30,2007


2006Income


Shares


Per Share


Income


Shares


Per Share(Numerator)


(Denominator)


Amount


(Numerator)


(Denominator)


AmountBasic earnings per share:


6,354



23,357


$
0.27


$
3,512



18,503


$
0.19Effect of potential common shares:Options






353











507



Restricted stock units






41











42



Diluted earnings per share

$
6,354



23,751


$
0.27


$
3,512



19,052


$
0.18     Nine Months Ended September 30,2007


2006Income


Shares


Per Share


Income


Shares


Per Share(Numerator)


(Denominator)


Amount


(Numerator)


(Denominator)


AmountBasic earnings per share:

$
14,124



23,472


$
0.60


$
10,195



18,408


$
0.55Effect of potential common shares:Options






524











421



Restricted stock units






49











33



Diluted earnings per share

$
14,124



24,045


$
0.59


$
10,195



18,862


$
0.54  8




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except per share data)
  Note 6.
    Equity-Based
    Compensation      Three Months Ended September 30,Stock Options


Restricted Stock Units2007


2006


2007


2006Expected volatility


65
%


53
%Dividends yield


0.0
%


0.0
%Expected term


4.5



4.5



2.0



2.0Risk free interest rate


4.8
%


4.9
%   Nine Months Ended September 30,Stock Options


Restricted Stock Units2007


2006


2007


2006Expected volatility


59
%


54
%Dividends yield


0.0
%


0.0
%Expected term


4.4



4.5



1.9



2.0Risk free interest rate


4.6
%


4.9
%   Nine MonthsEndedSeptember 30,2007


2006Net proceeds from stock options exercised

$
621


$
1,079Tax benefits related to stock options exercised


37



621Intrinsic value of stock options exercised


2,292



2,432  9




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except per share data)
   Weighted


WeightedNumber of


Average


Remaining


AggregateOptions


Exercise


Contractual


IntrinsicOutstanding


Price


Term (Years)


ValueBalance at December 31, 2006


1,948


$
9.56



8.2


$
22,383Granted


253



15.21Forfeited


(298
)


12.79Expired


(13
)


6.80Exercised


(239
)


3.14Balance at September 30, 2007


1,651


$
10.79



8.1


$
4,840   Wt. Avg.


WeightedRestricted


Value of


Remaining


AggregateStock Units


Awards


Contractual


IntrinsicOutstanding


at Grant


Term (Years)


ValueBalance at December 31, 2006


178


$
13.90



1.5


$
3,747Granted


100



13.23Canceled


(34
)


11.80Released


(22
)


13.09Balance at September 30, 2007


222


$
14.00



1.2


$
2,662       Nine MonthsThree Months Ended


EndedSeptember 30,


September 30,2007


2006


2007


2006Cost of revenues

$
253


$
155


$
1,115


$
412Selling, general & administrative


1,143



567



2,795



1,463$
1,396


$
722


$
3,910


$
1,875   Note 7.
    Pension
    Plan    Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2007


2007Service cost

$
8


$
418Interest cost


2



49Expected return on plan assets


(8
)


(8
)Amortization of unrecognized initial net obligation






1Amortization of unrecognized net actuarial loss


(94
)


(81
)Net periodic benefit cost (income)

$
(92
)

$
379  10




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except per share data)
      Note 8.
    Forward
    Foreign Currency Contracts  Accounting for
    Derivative Instruments and Hedging Activities
    Note 9.
    Income
    Taxes      Accounting
    for Uncertainty in Income Taxes
  Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109 Accounting for Income
    Taxes
 11




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except per share data)
      and/or
  Note 10.  Segment
    and Geographic Information
  The Company operates as two business
    segments: U.S.-based
  Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2007


2006


2007


2006Revenues:U.S.

$
36,434


$
29,947


$
103,763


$
78,729Foreign


498



170



1,094



382Total

$
36,932


$
30,117


$
104,857


$
79,111   As of


As ofSeptember 30,


December 31,Total Assets

2007


2006U.S

$
156,466


$
179,767Philippines


65,028



35,545Costa Rica


1,750



2,279Total

$
223,244


$
217,591  12




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except per share data)
  Note 11.
    Commitments    OperatingYears Ending December 31,

Leases2007

$
1,7962008


6,8142009


5,3632010


5,6632011


5,095Thereafter


17,261Total

$
41,992     Note 12.
    Contingencies      Note 13.
    Property
    Company    Note 14.
    Line of
    Credit   13




---



##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except per share data)
    Note 15.
    Description
    of Leasing Arrangement    Note 16.
    New
    Accounting Pronouncements  Fair Value Measurements
  The Fair Value Option for
    Financial Assets and Financial Liabilities  Including
    an Amendment of FASB Statement No. 115
  Note 17.
    Stock
    Repurchase Program      Note 18.
    Related
    Party Transactions   14




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (In thousands, except per share data)
  Note 19.
    Stockholder
    Rights Plan   15




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##### Table of Contents



PEOPLESUPPORT,
    INC. AND SUBSIDIARIES
 FORM 10-Q
    FOR THE QUARTER
 ENDED SEPTEMBER 30, 2007
  CAUTIONARY
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  This report on
    Form 10-Q
    contains forward-looking statements within the meaning of the
    federal securities laws that involve material risks and
    uncertainties, including, without limitation, statements about
    the Companys expectations regarding its revenues, clients,
    expenses, anticipated cash needs, estimates regarding its
    capital requirements and its needs for additional financing. The
    Company generally identifies forward-looking statements by using
    such terms as may, will,
    could, should, potential,
    continue, expect, intend,
    plan, estimate, anticipate,
    believe or similar phrases or the negatives of such
    terms. The Company bases these statements on its beliefs as well
    as assumptions the Company made using information currently
    available. These forward-looking statements are subject to
    risks, uncertainties and assumptions, including those identified
    below in Managements Discussion and Analysis of
    Financial Condition and Results of Operations  Risk
    Factors, as well as other matters not yet known or not
    currently considered material. Should one or more of these risks
    or uncertainties materialize, or should underlying assumptions
    prove incorrect, actual results may vary materially from those
    anticipated, estimated or projected. These risks, uncertainties
    and assumptions include, but are not limited to, the
    Companys dependence on a limited number of clients,
    negative public reaction to offshore outsourcing and the effect
    of recently proposed legislation, competitive conditions in the
    markets the Company serves, its ability to manage its growth,
    the risks associated with operations in the Philippines and
    Costa Rica, and other risks discussed in Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Risk Factors in this report and in
    the latest report on
    Form 10-K
    filed with the Securities and Exchange Commission
    (SEC). These forward-looking statements represent
    the Companys estimates and assumptions only as of the date
    of this report and, unless required by law, the Company does not
    undertake any obligation to update or revise these
    forward-looking statements. You should, however, review the
    factors and risks the Company describes in other reports and
    registration statements that it files from time to time with the
    SEC.
  ITEM 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
  U.S.-based
  e-mail,
 16




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##### Table of Contents



Sources
    of Revenues
    
    time-delineated or production-based fees, including hourly or
    per minute charges and charges per interaction or transaction,
    and training fees, all of which are separately negotiated on an
    individual client basis; and
    implementation fees, including revenue associated with the
    installation and integration of new clients into the
    Companys telecommunications, information technology and
    client reporting structures.  (In thousands)Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2007


2006


2007


2006Time-delineated or production-based fees

$
34,839


$
27,556


$
99,328


$
72,112Set-up and
    training fees


1,628



1,954



3,849



4,463Other


465



607



1,680



2,536Total

$
36,932


$
30,117


$
104,857


$
79,111   U.S.-based
    Key
    Expense Categories
  Cost of revenues.
    Selling, general and administrative. U.S.-based
  Depreciation and amortization.
 17




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##### Table of Contents



Critical
    Accounting Policies and Estimates
    Revenues
    and Deferred Revenue Recognition
  Revenue Recognition in Financial
    Statements Revenue Recognition
      Accounting
    for Stock-based Awards
      Accounting
    for Income Taxes
   18




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##### Table of Contents



Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109 Accounting for Income Taxes
  Long-lived
    Asset Impairment
    Recent
    Accounting Pronouncements
  Fair Value Measurements
  The Fair Value Option for
    Financial Assets and Financial Liabilities  Including
    an Amendment of FASB Statement No. 115
  Summary
    Financial Results
     19




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##### Table of Contents



Results
    of Operations
   Three Months Ended


Nine Months EndedSeptember 30,


September 30,2007


2006


2007


2006Revenue


100
%


100
%


100
%


100
%Cost of revenue (exclusive of depreciation and amortization
    expense shown below)


70
%


65
%


72
%


62
%Selling, general, and administrative


17
%


16
%


17
%


18
%Depreciation and amortization


6
%


6
%


7
%


6
%Income from operations


7
%


13
%


4
%


14
%Interest income


4
%


2
%


4
%


2
%Other income


7
%






5
%


Income before provision for income taxes


18
%


15
%


13
%


16
%Provision for income taxes


(1
)%


(3
)%






(3
)%Net income


17
%


12
%


13
%


13
%   Three
    Months Ended September 30, 2007 compared with Three Months
    Ended September 30, 2006
  Revenues
    Cost
    of Revenues
   20




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##### Table of Contents



Selling,
    General and Administrative
      Depreciation
    and Amortization
    Interest
    Income
    Other
    Income
    Provision
    for Income Taxes
   21




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##### Table of Contents



Nine
    Months Ended September 30, 2007 compared with Nine Months
    Ended September 30, 2006
  Revenues
    Cost
    of Revenues
      Selling,
    General and Administrative
      Depreciation
    and Amortization
   22




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##### Table of Contents



Interest
    Income
    Other
    Income
    Provision
    for Income Taxes
    Liquidity
    and Capital Resources
    Operating
    Activities
    Investing
    Activities
     23




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##### Table of Contents



Financing
    Activities
      Off-Balance
    Sheet Arrangements
  Line
    of Credit
    Forward
    Contracts
      Contractual
    Obligations
   24




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##### Table of Contents



ITEM 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Foreign
    Currency Exchange Risk
      Interest
    Rate Sensitivity
    ITEM 4.
    Controls
    and Procedures  Evaluation of disclosure controls and
    procedures. Rule 13a-15(e) Rules 13a-15(e) 15d-15(e)
  Changes in internal control over financial
    reporting. Rule 13a-15(f) Form 10-Q
  25




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##### Table of Contents



PART II 
    OTHER INFORMATION
  ITEM 1.
    Legal
    Proceedings      ITEM 1A.  Risk
    Factors
  Form 10-Q Form 10-Q. Form 10-K Form 10-Q 10-K 10-K.
  The
    Companys revenues are highly dependent on four major
    clients that collectively accounted for 63% of its revenues for
    the quarter ended September 30, 2007, and any loss of business
    from its major clients would reduce its revenues and seriously
    harm the Company.
    Substantial
    future sales of the Companys common stock in the public
    market could cause the Companys stock price to
    fall.
   26




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##### Table of Contents



Delaware
    law and the Companys amended and restated certificate of
    incorporation, bylaws and the recently adopted stockholder
    rights plan contain anti-takeover provisions that could delay or
    discourage business combinations and takeover attempts that
    stockholders may consider favorable.
    
    classify our board of directors into three groups, each of which
    will serve for staggered three-year terms;
    permit the board of directors to elect a director to fill a
    vacancy created by the expansion of the board of directors;
    permit stockholders to remove our directors only for cause;
    permit a special stockholders meeting to be called only by
    our chairman of the board of directors, president, or chief
    executive officer, a majority of our board of directors or
    two-thirds of the independent directors;
    require stockholders to give us advance notice to nominate
    candidates for election to our board of directors or to make
    stockholder proposals at a stockholders meeting;
    prohibit cumulative voting in the election of directors that
    would otherwise allow less than a majority of stockholders to
    elect directors;
    permit the board of directors to alter certain provisions of our
    amended and restated bylaws without obtaining stockholder
    approval;
    require approval of at least 75% of the shares entitled to vote
    at an election of directors to adopt, amend or repeal our
    amended and restated bylaws or amend or repeal the provisions of
    our amended and restated certificate of incorporation regarding
    the election and removal of directors and the ability of
    stockholders to take action; and
    eliminate the right of stockholders to call a special meeting of
    stockholders and to take action by written consent.     27




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##### Table of Contents



ITEM 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds        Dollar Value ofAverage Price





Remaining SharesNumber of


per Share





That May Yet beShares


(Excluding


Purchase


Purchased UnderPurchased


Commissions)


Price


The Plans or Programs(In thousands, except share amounts)Repurchased shares August 1  August 31, 2007


188


$
11.32


$
2,128


$
22,866Repurchased shares September 1  September 30,
    2007


1,005



11.43



11,488


$
11,348Total


1,193


$
11.41


$
13,616


$
11,348   ITEM 3.
    Defaults
    Upon Senior Securities    ITEM 4.
    Submission
    of Matters to a Vote of Security Holders    ITEM 5.
    Other
    Information      ITEM 6.
    Exhibits  ExhibitNumber4
.1*

Stock Rights Agreement dated August 27, 2007 between
    Registrant and Computershare Trust Company, N.A. as Rights Agent31
.1

Rule 13a-14(a) Certification of Chief Executive Officer of the
    Company in accordance with Section 302 of the
    Sarbanes-Oxley Act of 200231
.2

Rule 13a-14(a) Certification of Chief Financial Officer of the
    Company in accordance with Section 302 of the
    Sarbanes-Oxley Act of 200232
.1**

Section 1350 Certification of Chief Executive Officer of the
    Company in accordance with Section 906 of the
    Sarbanes-Oxley Act of 200232
.2**

Section 1350 Certification of Chief Financial Officer of the
    Company in accordance with Section 906 of the Sarbanes-Oxley Act
    of 2002     *
    
    Incorporated by reference to the Companys current Report
    on Form 8-K, dated August 27, 2007.**
    
    The material contained in this exhibit is not deemed
    filed with the SEC and is not to be incorporated by
    reference into any filing of the Registrant under the Securities
    Act of 1933 or the Securities Exchange Act of 1934, whether made
    before or after the date hereof and irrespective of any general
    incorporation language contained in such filing, except to the
    extent that the Registrant specifically incorporates it by
    reference. 28




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##### Table of Contents



SIGNATURE
    PeopleSupport, Inc.
  By:
    /s/  Caroline
    Rook   Chief Financial Officer
 (Principal Financial and Accounting Officer)
 29