UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549

_______________



Form 10-Q

(Mark One)

| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF | 
| | - | ------------------------------------------------------- | 



THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended June
30, 2012



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.)
|                                         |                    
|8200 E. Maplewood Drive, Suite 100       |                    
|Greenwood Village, Colorado              | 80111              
|(Address of principal executive offices) | (Zip code)         
|                                         |                    

(303) 399-2400

(Registrant's telephone number, including
area code)



Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No  ̈



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted 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 and post such files). Yes x No  ̈



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



|Large accelerated filer  ̈ | Accelerated filer  ̈ | Non-accelerated filer x                       | Smaller reporting company  ̈
|------------------------- | ------------------- | --------------------------------------------- | ---------------------------
|                          |                     | (Do not check if a smaller reporting company) |                            



Indicate by check mark whether the registrant
is a shell company (as defined in Exchange Act Rule 12b-2). Yes  ̈ Nox



Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 Par Value 15,303,048
shares as of July 31, 2012.











STARTEK, INC. AND SUBSIDIARIES



FORM 10-Q



INDEX









|PART I.    | FINANCIAL INFORMATION                                                                                                                               |   
|---------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | --
|           |                                                                                                                                                     |   
|Item 1.    | Financial Statements (unaudited):                                                                                                                   | 4 
|           |                                                                                                                                                     |   
|           | Condensed Consolidated Statements of Operations and Other Comprehensive
    Income (Loss) for the three and six months ended June 30, 2012 and 2011 | 4 
|           |                                                                                                                                                     |   
|           | Condensed Consolidated Balance Sheets as of June 30, 2012 and
    December 31, 2011                                                                 | 5 
|           |                                                                                                                                                     |   
|           | Condensed Consolidated Statements of Cash Flows for the three and six
    months ended June 30, 2012 and 2011                                       | 6 
|           |                                                                                                                                                     |   
|           | Notes to Condensed Consolidated Financial Statements                                                                                                | 7 
|           |                                                                                                                                                     |   
|Item 2.    | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                               | 17
|           |                                                                                                                                                     |   
|Item 3.    | Quantitative and Qualitative Disclosures About Market Risk                                                                                          | 25
|           |                                                                                                                                                     |   
|Item 4.    | Controls and Procedures                                                                                                                             | 25
|           |                                                                                                                                                     |   
|PART II.   | OTHER INFORMATION                                                                                                                                   |   
|           |                                                                                                                                                     |   
|Item 1.    | Legal Proceedings                                                                                                                                   | 26
|           |                                                                                                                                                     |   
|Item 1A.   | Risk Factors                                                                                                                                        | 26
|           |                                                                                                                                                     |   
|Item 6.    | Exhibits                                                                                                                                            | 26
|           |                                                                                                                                                    
|SIGNATURES | 27                                                                                                                                                 







2







CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS



This Quarterly Report contains 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 contained
                                                                                                              herein 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 contained
                                                                                                              herein 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 Item 1A. “Risk Factors” appearing in our Annual Report
on Form 10-K for the year ended December 31, 2011.



3







Part I. Financial Information



ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)



STARTEK, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations
and Other Comprehensive Income (Loss)

(Dollars in thousands, except per share
data)

(Unaudited)



|                                                |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|----------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | -
|                                                |  | 2012                        |        |   | 2011                      |  
|Revenue                                         |  | $                           | 44,421 |   |                           | $
|Cost of services                                |  |                             | 41,150 |   |                           |  
|Gross profit                                    |  |                             | 3,271  |   |                           |  
|Selling, general and administrative expenses    |  |                             | 7,329  |   |                           |  
|Impairment and restructuring charges            |  |                             | 467    |   |                           |  
|Operating loss                                  |  |                             | (4,525 | ) |                           |  
|Net interest and other income                   |  |                             | 84     |   |                           |  
|Loss before income taxes                        |  |                             | (4,441 | ) |                           |  
|Income tax benefit                              |  |                             | 163    |   |                           |  
|Net loss                                        |  | $                           | (4,278 | ) |                           | $
|                                                |  |                             |        |   |                           |  
|Other comprehensive (loss) income, net of tax:  |  |                             |        |   |                           |  
|Foreign currency translation adjustments        |  | $                           | 6      |   |                           | $
|Change in fair value of derivatives instruments |  | $                           | 832    |   |                           | $
|Comprehensive loss                              |  | $                           | (3,440 | ) |                           | $
|                                                |  |                             |        |   |                           |  
|Net loss per share                              |  |                             |        |   |                           |  
|Basic                                           |  | $                           | (0.28  | ) |                           | $
|Diluted                                         |  | $                           | (0.28  | ) |                           | $
|                                                |  |                             |        |   |                           |  
|Weighted average shares outstanding             |  |                             |        |   |                           |  
|Basic                                           |  |                             | 15,239 |   |                           |  
|Diluted                                         |  |                             | 15,239 |   |                           |  



See notes to condensed consolidated
financial statements.



4







STARTEK, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share and
per share data)



|                                                                                                                                                                                                 |  | As of         |       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------
|                                                                                                                                                                                                 |  | June 30, 2012 |       
|                                                                                                                                                                                                 |  | (unaudited)   |       
|ASSETS                                                                                                                                                                                           |  |               |       
|                                                                                                                                                                                                 |  |               |       
|Current assets:                                                                                                                                                                                  |  |               |       
|Cash and cash equivalents                                                                                                                                                                        |  | $             | 11,368
|Trade accounts receivable, net                                                                                                                                                                   |  |               | 31,984
|Income tax receivable                                                                                                                                                                            |  |               | 293   
|Deferred income tax assets                                                                                                                                                                       |  |               | 195   
|Derivative asset                                                                                                                                                                                 |  |               | 798   
|Prepaid expenses                                                                                                                                                                                 |  |               | 2,569 
|Assets held for sale                                                                                                                                                                             |  |               | 4,969 
|Current portion of note receivable                                                                                                                                                               |  |               | 660   
|Other current assets                                                                                                                                                                             |  |               | 1,010 
|Total current assets                                                                                                                                                                             |  |               | 53,846
|                                                                                                                                                                                                 |  |               |       
|Property, plant and equipment, net                                                                                                                                                               |  |               | 30,626
|Long-term deferred income tax assets                                                                                                                                                             |  |               | 3,095 
|Long-term note receivable, net of current portion                                                                                                                                                |  |               | 851   
|Other assets                                                                                                                                                                                     |  |               | 2,173 
|Total assets                                                                                                                                                                                     |  | $             | 90,591
|                                                                                                                                                                                                 |  |               |       
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                             |  |               |       
|                                                                                                                                                                                                 |  |               |       
|Current liabilities:                                                                                                                                                                             |  |               |       
|Accounts payable                                                                                                                                                                                 |  | $             | 6,844 
|Accrued liabilities:                                                                                                                                                                             |  |               |       
|Accrued payroll                                                                                                                                                                                  |  |               | 6,847 
|Accrued compensated absences                                                                                                                                                                     |  |               | 3,324 
|Accrued restructuring costs                                                                                                                                                                      |  |               | 1,023 
|Other accrued liabilities                                                                                                                                                                        |  |               | 910   
|Derivative liability                                                                                                                                                                             |  |               | 147   
|Deferred revenue                                                                                                                                                                                 |  |               | 565   
|Deferred income tax liabilities                                                                                                                                                                  |  |               | 1,363 
|Other current liabilities                                                                                                                                                                        |  |               | 800   
|Total current liabilities                                                                                                                                                                        |  |               | 21,823
|                                                                                                                                                                                                 |  |               |       
|Accrued restructuring charges                                                                                                                                                                    |  |               | 285   
|Deferred rent                                                                                                                                                                                    |  |               | 2,413 
|Other liabilities                                                                                                                                                                                |  |               | 118   
|Total liabilities                                                                                                                                                                                |  |               | 24,639
|                                                                                                                                                                                                 |  |               |       
|Commitments and contingencies                                                                                                                                                                    |  |               |       
|                                                                                                                                                                                                 |  |               |       
|Stockholders' equity:                                                                                                                                                                            |  |               |       
|Common stock, 32,000,000 non-convertible shares,
    $0.01 par value, authorized;15,303,048and 15,249,829 shares
    issued and outstanding at June 30, 2012 and December 31, 2011, respectively |  |               | 153   
|Additional paid-in capital                                                                                                                                                                       |  |               | 71,807
|Accumulated other comprehensive income                                                                                                                                                           |  |               | 2,751 
|Retained (deficit) earnings                                                                                                                                                                      |  |               | (8,759
|Total stockholders' equity                                                                                                                                                                       |  |               | 65,952
|Total liabilities and stockholders' equity                                                                                                                                                       |  | $             | 90,591



See notes to condensed consolidated
financial statements.



5







STARTEK, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash
Flows

(Dollars in thousands)

(Unaudited)



|                                                                               |  | For the six months ended June
    30, |        
|------------------------------------------------------------------------------ |  | ------------------------------------- | -------
|                                                                               |  | 2012                                  |        
|Operating Activities                                                           |  |                                       |        
|Net loss                                                                       |  | $                                     | (10,409
|Adjustments to reconcile net loss to net cash provided by operating activities |  |                                       |        
|Depreciation                                                                   |  |                                       | 7,060  
|Impairment of property, plant and equipment                                    |  |                                       | 3,086  
|Non-cash compensation cost                                                     |  |                                       | 696    
|Deferred income taxes                                                          |  |                                       | 275    
|Other, net                                                                     |  |                                       | 180    
|Changes in operating assets and liabilities:                                   |  |                                       |        
|Trade accounts receivable, net                                                 |  |                                       | 5,748  
|Prepaid expenses and other assets                                              |  |                                       | 91     
|Accounts payable                                                               |  |                                       | (1,788 
|Income taxes, net                                                              |  |                                       | 68     
|Accrued and other liabilities                                                  |  |                                       | (1,744 
|Net cash provided by operating activities                                      |  |                                       | 3,263  
|                                                                               |  |                                       |        
|Investing Activities                                                           |  |                                       |        
|Proceeds from note receivable                                                  |  |                                       | 330    
|Purchases of property, plant and equipment                                     |  |                                       | (1,617 
|Net cash used in investing activities                                          |  |                                       | (1,287 
|                                                                               |  |                                       |        
|Financing Activities                                                           |  |                                       |        
|Proceeds from stock option exercises                                           |  |                                       | 1      
|Proceeds from line of credit                                                   |  |                                       | 10,760 
|Principal payments on line of credit                                           |  |                                       | (10,760
|Proceeds from issuance of common stock                                         |  |                                       | 53     
|Principal payments on capital lease obligations                                |  |                                       | (48    
|Net cash provided by financing activities                                      |  |                                       | 6      
|                                                                               |  |                                       |        
|Effect of exchange rate changes on cash                                        |  |                                       | (333   
|Net increase in cash and cash equivalents                                      |  |                                       | 1,649  
|Cash and cash equivalents at beginning of period                               |  |                                       | 9,719  
|Cash and cash equivalents at end of period                                     |  | $                                     | 11,368 
|                                                                               |  |                                       |        
|Supplemental Disclosure of Cash Flow Information                               |  |                                       |        
|Cash paid for interest                                                         |  | $                                     | 30     
|Income taxes paid                                                              |  | $                                     | —      



See notes to condensed consolidated
financial statements.



6







STARTEK, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

(In thousands, except share and per share
data)



1. BASIS OF PRESENTATION



The accompanying Unaudited Condensed Consolidated
Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America
for interim financial information and instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all information and footnotes required by accounting principles generally accepted in the United States of America for complete
financial statements. These financial statements reflect all adjustments (consisting only of normal recurring entries, except
as noted) which, in the opinion of management, are necessary for fair presentation. Operating results during the three and six
months ended June 30, 2012, are not necessarily indicative of operating results that may be expected during any other interim
period of 2012 or the year ending December 31, 2012.



Effective January 1, 2012, we revised
our business segments in order to better align them with our strategic approach to the markets and customers we serve. Refer to
Note 3, “Segment Information,” for further information. Prior period segment amounts throughout the Notes to the Condensed
Consolidated Financial Statements have been reclassified to the new segment structure. The reclassification of historical business
segment information had no impact on our basic financial statements.



The consolidated balance sheet as of December
31, 2011 was derived from audited financial statements at that date, but does not include all information and footnotes required
by accounting principles generally accepted in the United States of America for complete financial statements. For further information,
refer to the consolidated financial statements and footnotes thereto included in the StarTek, Inc. Annual Report on Form 10-K
for the year ended December 31, 2011.



Certain reclassifications have been made
to 2011 information to conform to the 2012 presentation. Refer to Note 2, “Reclassifications,” for further information.



Unless otherwise noted in this report,
any description of “us” refers to StarTek, Inc. and our subsidiaries. The assets and liabilities of our foreign operations
that are recorded in foreign currencies are translated into U.S. dollars at exchange rates prevailing at the balance sheet date.
Revenues and expenses are translated at the weighted-average exchange rate during the reporting period.



Recently Adopted Accounting Pronouncements



In 2011, the Financial Accounting Standards
Board (“FASB”) issued two Accounting Standard Updates (“ASUs”), which amend guidance for the presentation
of comprehensive income. The amended guidance requires an entity to present components of net income and other comprehensive income
in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements.
The current option to report other comprehensive income and its components in the statement of stockholders’ equity has
been eliminated. Although the new guidance changes the presentation of comprehensive income, there are no changes to the components
that are recognized in net income or other comprehensive income under existing guidance. We adopted these ASUs using one continuous
statement in the first half of 2012 for all periods presented.



2. RECLASSIFICATIONS



Effective January 1, 2012, we changed
our method of allocating certain site human resource, recruiting and facilities costs, whereby these costs that are directly related
to hiring, employment and maintenance at our facilities (other than corporate offices) were reclassified from selling, general
and administrative expense to cost of services.



Historically, we recorded these human
resource, recruiting and facilities personnel costs in selling, general and administrative expense as they were managed centrally
from leadership positions at our corporate headquarters. Those corporate positions have been eliminated and site human resource,
recruiting and facility personnel now report to the site directors within each facility. Given these reporting changes, we believe
it is more appropriate to record these costs within cost of services as they are directly attributable to rendering our services
at our facilities. The costs are variable and unique to each facility such that if we exit a facility, the corresponding human
resource, recruiting and facility costs would also be eliminated.



7







We have reclassified 2011 information
to conform with this presentation in order to provide greater comparability to the users of our financial statements. The reclassification
by segment for the three and six months ended June 30, 2011 was as follows:



|              |  | For the Three  Months
    Ended  June 30, |       |  | For the Six  Months
    Ended  June 30, |  
|------------- |  | ----------------------------------------- | ----- |  | --------------------------------------- | -
|              |  | 2011                                      |       |  | 2011                                    |  
|Domestic      |  | $                                         | 1,386 |  |                                         | $
|Asia Pacific  |  |                                           | 344   |  |                                         |  
|Latin America |  |                                           | 86    |  |                                         |  
|Total         |  | $                                         | 1,816 |  |                                         | $



The effect of the reclassification on
our 2011 information was as follows:



|                                             |  | For the Three Months
    Ended June 30, 2011 |       
|-------------------------------------------- |  | -------------------------------------------- | ------
|                                             |  | As Reported                                  |       
|Revenue                                      |  | $                                            | 57,139
|Cost of services                             |  |                                              | 50,836
|Gross profit                                 |  |                                              | 6,303 
|Selling, general and administrative expenses |  |                                              | 13,196
|Impairment and restructuring charges         |  |                                              | 3,272 
|Net loss                                     |  |                                              | (9,652



|                                             |  | For the Six Months Ended June 30, 2011 |        
|-------------------------------------------- |  | -------------------------------------- | -------
|                                             |  | As Reported                            |        
|Revenue                                      |  | $                                      | 116,649
|Cost of services                             |  |                                        | 102,959
|Gross profit                                 |  |                                        | 13,690 
|Selling, general and administrative expenses |  |                                        | 22,876 
|Impairment and restructuring charges         |  |                                        | 3,272  
|Net loss                                     |  |                                        | (12,206



The reclassification did not have any
effect on our operating loss, net loss or basic and diluted loss per share for the period. The reclassification also did not have
any impact on our Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows.



3. SEGMENT INFORMATION



We regularly review our segments and the
approach used by management to evaluate performance and allocate resources.  During the quarter ended March 31, 2012,
we revised our business segments in order to better align them with our strategic approach to the regions in which our services
are rendered. Over the past several years, we have closed and opened several operating centers which has changed the way in which
management and our chief operating decision maker evaluate performance and allocate resources. We consolidated our U.S. and Canadian
segments into our Domestic segment and created two new segments, Asia Pacific and Latin America, which were previously reported
in our Offshore segment. As of June 30, 2012, our Domestic segment included the operations of five facilities in the U.S. and
two facilities in Canada. Our Asia Pacific segment included the operations of two facilities in the Philippines and our Latin
America segment included one facility in Costa Rica and one facility in Honduras.



Prior period segment amounts throughout
the Condensed Consolidated Financial Statements have been reclassified to the new segment structure. The reclassification of historical
business segment information had no impact on our basic financial statements.



We use gross profit as our measure of
profit and loss for each business segment. The accounting principles applied at the operating segment level in determining gross
profit are the same as those applied at the consolidated financial statement level. Our chief operating decision maker evaluates
performance and allocates resources based on net sales, gross profit and working capital in each of the reporting segments.



8







Information about our reportable segments,
which correspond to the geographic areas in which we operate, is as follows:



|              |  | For the Three Months Ended June 30, |        |   | For the Six Months Ended June 30, |  
|------------- |  | ----------------------------------- | ------ | - | --------------------------------- | -
|              |  | 2012                                |        |   | 2011                              |  
|Revenue:      |  |                                     |        |   |                                   |  
|Domestic      |  | $                                   | 21,609 |   |                                   | $
|Asia Pacific  |  |                                     | 18,709 |   |                                   |  
|Latin America |  |                                     | 4,103  |   |                                   |  
|Total         |  | $                                   | 44,421 |   |                                   | $
|              |  |                                     |        |   |                                   |  
|Gross profit: |  |                                     |        |   |                                   |  
|Domestic      |  | $                                   | 423    |   |                                   | $
|Asia Pacific  |  |                                     | 3,179  |   |                                   |  
|Latin America |  |                                     | (331   | ) |                                   |  
|Total         |  | $                                   | 3,271  |   |                                   | $



4. NET LOSS PER SHARE



Basic and diluted net loss per common
share is computed on the basis of our weighted average number of common shares outstanding, as determined by using the calculations
outlined below:



|                                          |  | Three Months Ended |        |   | Six Months Ended |  
|----------------------------------------- |  | ------------------ | ------ | - | ---------------- | -
|                                          |  | June 30,           |        |   | June 30,         |  
|                                          |  | 2012               |        |   | 2011             |  
|                                          |  |                    |        |   |                  |  
|Net loss                                  |  | $                  | (4,278 | ) |                  | $
|                                          |  |                    |        |   |                  |  
|Weighted average shares of common stock   |  |                    | 15,239 |   |                  |  
|Dilutive effect of stock options          |  |                    | —      |   |                  |  
|Common stock and common stock equivalents |  |                    | 15,239 |   |                  |  
|                                          |  |                    |        |   |                  |  
|Net loss per basic share                  |  | $                  | (0.28  | ) |                  | $
|Net loss per diluted share                |  | $                  | (0.28  | ) |                  | $



Net loss per diluted share is computed
on the basis of our weighted average number of common shares outstanding plus the effect of dilutive outstanding stock options
and non-vested restricted stock using the treasury stock method. Anti-dilutive securities totaling 2,268 for the three and six
months ended June 30, 2012 and 2,520 for the three and six months ended June 30, 2011, respectively, were not included in our
calculation due to our net loss from continuing operations during those periods.



5. IMPAIRMENT LOSSES AND RESTRUCTURING
CHARGES



Impairment Losses



During the three and six months ended
June 30, 2012, we incurred $0 and $3,086, respectively, of impairment losses (all in our Domestic segment), due to the impairment
of certain long-lived assets for which the carrying value of those assets is not recoverable. The impairment losses related to
long-lived assets in two facilities where we received customer notification of a ramp-down in business. Future cash flows did
not support the carrying value of the long-lived assets in these facilities, such as computer equipment, software, equipment and
furniture and fixtures. Refer to Note 8, “Fair Value Measurements,” for additional information on the fair value measurements
for all assets and liabilities that are measured at fair value in the Condensed Consolidated Financial Statements. During the
three and six months ended June 30, 2011 we incurred approximately $1,026 of impairment losses (all in our Domestic segment).



9







Assets Held for Sale



In 2010, wecommitted to a plan to sell the buildings at our closed facilities in Laramie, Wyoming and Greeley, Colorado. We received estimates
of the selling prices of these buildings, and have reduced the value of the buildings and land to fair value less the costs to
sell. In 2012, we committed to sell the facility in Enid, Oklahoma. As of June 30, 2012, the fair value of the buildings and land
less the costs to sell was $4,969.These long-lived assets are presented as current assets held for sale on our Condensed
Consolidated Balance Sheets.  In order for an asset to be held for sale, management must determine that the asset is to be
held for sale in its current condition, an active plan to complete the sale of the asset has been initiated and the sale of the
asset is probable within one year. We evaluated the facilities during the second quarter of 2012 and determined these assets meet
all the criteria for an asset held for sale.



Restructuring Charges



A summary of
the activity under the restructuring plans as of June 30, 2012, and changes during the three and six months ended June 30, 2012,
are presented below:



|                                        |  | Facility-Related Costs |    
|--------------------------------------- |  | ---------------------- | ---
|                                        |  | Victoria               |    
|Balance as of January 1, 2012           |  | $                      | 483
|Expense                                 |  |                        | —  
|Payments, net of receipts for sublease  |  |                        | 42 
|Foreign currency translation adjustment |  |                        | —  
|Balance as of June 30, 2012             |  | $                      | 525



During the year
ended December 31, 2010, we entered into sublease agreements for our Thunder Bay, Ontario, Canada and Victoria, Texas facilities
through the remainder of their respective lease terms. We had assumed a sublease in our original estimated restructuring liabilities
for Thunder Bay and Victoria and do not expect to incur material changes to the restructuring liabilities in future periods as
a result of the subleases. We have recorded an accrual for certain property taxes still owed in Victoria, which we expect to pay
through the remainder of our lease term, or December 2014. We expect completion of the Laramie, Wyoming, Grand Junction, Colorado
and Regina, Saskatchewan restructuring plans no later than 2012 for all facilities; however, completion may be earlier or later
depending on our ability to sublease the facilities, buy-out the lease or sell the facilities. We have made certain assumptions
related to our ability to sublease, sell or buy-out the lease on these facilities. Refer to Note 8, “Fair Value Measurements,”
for additional information on the fair value measurements for all assets and liabilities, including restructuring charges that
are measured at fair value in the Condensed Consolidated Financial Statements. We expect to pay $7,675 in our Domestic segment
in facility related costs over the term of the restructuring plans. The cumulative amount paid as of June 30, 2012 for facility
related costs related to the closures was $6,366 in our Domestic segment.



6. PRINCIPAL CLIENTS



The following table represents revenue
concentration of our principal clients.



|                                                                                   |  | Three Months Ended |      |   | Six Months Ended | 
|---------------------------------------------------------------------------------- |  | ------------------ | ---- | - | ---------------- | 
|                                                                                   |  | June 30,           |      |   | June 30,         | 
|                                                                                   |  | 2012               |      |   | 2011             | 
|AT&T Services, Inc. and AT&T Mobility, LLC, subsidiaries of AT&T Inc.
    ("AT&T") |  |                    | 33.2 | % |                  | 
|T-Mobile USA, Inc., a subsidiary of Deutsche Telekom                               |  |                    | 31.7 | % |                  | 



10







The loss of a principal client, a material
reduction in the amount of business we receive from a principal client, renegotiation of price by a principal client, or the loss,
delay or termination of a principal client’s product launch or service offering would adversely affect our business, revenue
and operating results. We may not be able to retain our principal clients or, if we were to lose any of our principal clients,
we may not be able to timely replace the revenue generated by the lost clients. Loss of a principal client could result from many
factors, including consolidation or economic downturns in our clients’ industries. We experienced a material decline in
revenue with AT&T during the three months ended June 30, 2012, compared to the three months ended June 30, 2011, however growth
among our other clients has partially offset the decline with AT&T.



Our work for AT&T is covered by several
contracts for a variety of different lines of AT&T business.  These contracts expire over the course of 2013 through
2015.  The initial term of our master services agreement covering all AT&T work expired in January 2010, and has been
extended annually with the latest extension through October 31, 2012.   On July 28, 2011, we entered into a new master
services agreement (the “MSA”) with T-Mobile effective July 1, 2011 which covers all services that we provide to T-Mobile.
The MSA replaces the previous master services agreement dated October 1, 2007 and has an initial term of five years and will automatically
renew for additional one-year periods thereafter, but may be terminated by T-Mobile upon 90 days written notice.



7. DERIVATIVE INSTRUMENTS



We use derivatives to partially offset
our business exposure to foreign currency exchange risk. We enter into foreign currency exchange contracts to hedge our anticipated
operating commitments that are denominated in foreign currencies. The contracts cover periods commensurate with expected exposure,
generally three to nine months, and are principally unsecured foreign exchange contracts. The market risk exposure is essentially
limited to risk related to currency rate movements. We operate in Canada, the Philippines, Costa Rica and Honduras. The functional
currencies of our Canadian and Philippine operations are the Canadian dollar and the Philippine peso, respectively, which are
used to pay labor and other operating costs in those countries. However, our client contracts primarily generate revenues paid to us in U.S. dollars. In Costa Rica and Honduras, our functional currency is the U.S. dollar and the majority of our
costs are denominated in U.S. dollars. We have elected to follow cash flow hedge accounting in order to associate the results
of the hedges with forecasted future expenses. The current mark-to-market gain or loss is recorded in accumulated other comprehensive
income (“AOCI”) as a component of stockholders’ equity and will be re-classified to operations as the forecasted
expenses are incurred, typically within one year. During the three months ended June 30, 2012 and 2011, our cash flow hedges were
highly effective and there were no amounts charged to the Condensed Consolidated Statements of Operations for hedge ineffectiveness.



During the three and six months ended
June 30, 2012, we entered into deliverable forward contracts with respect to the Canadian dollar for a notional amount of 0 and
11,800, respectively. The Company entered into foreign currency option contracts for the Canadian dollar during the three months
ended June 30, 2012. The notional principal of foreign currency option contracts to purchase U.S. dollars with foreign currencies
was $8,764 at June 30, 2012. The notional principal of foreign exchange contracts to sell U.S. dollars for foreign currencies
were $9,180 at June 30, 2012. The Company uses both types of contracts withCanadian dollars to hedge our foreign currency risk with respect to labor costs in Canada. We entered into non-deliverable
forward contracts with respect to the Philippine peso for a notional amount of 975,500 and 2,052,160, respectively, Philippine
pesos to hedge our foreign currency risk with respect to labor costs in the Philippines. As of June 30, 2012, we have not entered
into any arrangements to hedge our exposure to fluctuations in the Costa Rican colon or Honduran lempira relative to the U.S.
dollar.



11







The following table shows the notional
principal of our derivative instruments as of June 30, 2012:



|                                             |  | Currency        |  |  |  | Notional Principal | 
|-------------------------------------------- |  | --------------- |  |  |  | ------------------ | 
|Instruments qualifying as accounting hedges: |  |                 |  |  |  |                    | 
|Foreign exchange contracts                   |  | Canadian dollar |  |  |  | 13,860             | 
|Foreign exchange contracts                   |  | Philippine peso |  |  |  | 1,380,120          | 
|                                             |  |                 |  |  |  |                    | 



We expect unrealized gains and losses reported
in AOCI will be reclassified to earnings during the next twelve months. The estimates of fair value are based on applicable and
commonly used pricing models and prevailing financial market information as of June 30, 2012. Refer to Note 8, “Fair Value
Measurements,” of this Form 10-Q, for additional information on the fair value measurements for all assets and liabilities,
including derivative assets and derivative liabilities, that are measured at fair value in the Condensed Consolidated Financial
Statements.



The following table shows our derivative
instruments measured at gross fair value as reflected in the Condensed Consolidated Balance Sheets as of June 30, 2012 and December
31, 2011:



|                           |  | As of         |    
|-------------------------- |  | ------------- | ---
|                           |  | June 30, 2012 |    
|Derivative assets:         |  |               |    
|Foreign exchange contracts |  | $             | 798
|                           |  |               |    
|Derivative liabilities:    |  |               |    
|Foreign exchange contracts |  | $             | 147



The following table shows the effect of
our derivative instruments designated as cash flow hedges in the Condensed Consolidated Statements of Operations for the three
months ended June 30, 2012 and 2011:







|                           |  | Three Months Ended                      |      |  
|-------------------------- |  | --------------------------------------- | ---- | -
|                           |  | June 30, 2012                           |      |  
|                           |  | Loss Recognized in
    AOCI, net of tax |      |  
|Cash flow hedges:          |  |                                         |      |  
|Foreign exchange contracts |  | $                                       | (870 | )







|                           |  | Six Months Ended                          |      |   |                                               |  
|-------------------------- |  | ----------------------------------------- | ---- | - | --------------------------------------------- | -
|                           |  | June 30, 2012                             |      |   | June 30, 2011                                 |  
|                           |  | Loss  Recognized in
    AOCI, net of  tax |      |   | Gain Reclassified
     from AOCI  into Income |  
|Cash flow hedges:          |  |                                           |      |   |                                               |  
|Foreign exchange contracts |  | $                                         | (819 | ) |                                               | $



12







8. FAIR VALUE MEASUREMENTS



Derivative Instruments and Hedging
Activities



Our derivative instruments are valued
using third-party broker or counterparty statements, 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 are generally classified as Level 2 in the fair value hierarchy.



Restructuring Charges



As described in Note 5, “Impairment
Losses and Restructuring Charges,” during the years ended December 31, 2011 and 2010, we closed several facilities. These
costs were valued using a discounted cash flow model. The cash flows consist of the future lease payment obligations required
under the lease agreement. We have assumed that we can sublease our facility in Grand Junction for a portion of the remaining
lease term and sell our facility in Laramie, Wyoming based on our knowledge of the respective marketplaces, as well as our historical
ability to sublease our facilities in other locations in which we operate. In the future, if we
sublease for periods that differ from our assumption or if an actual buy-out of a lease differs from our estimate, we may be required
to record a gain or loss in the Consolidated Statements of Operations and Other Comprehensive Income (Loss). Future cash flows
also include estimated property taxes through the remainder of the lease term, which are valued based upon historical tax payments.
Given that the restructuring charges were valued using our internal estimates using a discounted cash flow model, we have classified
the accrued restructuring costs as Level 3 in the fair value hierarchy.



Long-Lived Assets



As described in Note 5, “Impairment
Losses and Restructuring Charges,” during the quarter ended June 30, 2012, we recorded impairment losses in our Domestic
segment, due to the impairment of certain long-lived assets for which the carrying value of those assets is not recoverable based
upon our estimated future cash flows. We periodically, on at least an annual basis, evaluate potential impairments of our long-lived
assets. In our annual evaluation or when we determine that the carrying value of a long-lived asset may not be recoverable, based
upon the existence of one or more indicators of impairment, we evaluate the projected undiscounted cash flows related to the assets.
If these cash flows are less than the carrying values of the assets, we measure the impairment based on the excess of the carrying
value of the long-lived asset over the long-lived asset’s fair value. Where appropriate we use a probability-weighted approach
to determine our future cash flows, based upon our estimate of the likelihood of certain scenarios, primarily whether we expect
to sell new business within a current location. These estimates are consistent with our internal projections and external communications
and public disclosures. The measurement of the fair value of the buildings was based upon our third-party real estate broker’s
non-binding estimate of fair value using the observable market information regarding sale prices of comparable assets. The fair
value of these long-lived assets after the impairment charges were $66. Given
that the impairment losses were valued using internal estimates of future cash flows or upon non-identical assets using significant
unobservable inputs, we have classified the remaining fair value of long-lived assets as Level 3 in the fair value hierarchy.



In 2010, wecommitted to a plan to sell the buildings and land at our closed facilities in Laramie, Wyoming and Greeley, Colorado, as well
as in 2012, we committed to sell the facilities in Enid, Oklahoma. We received estimates of the selling prices of this real estate,
and have reduced the value of the buildings and land to fair value, less costs to sell, or approximately $4,969 at June 30, 2012.The measurement of the fair value of the buildings was based upon our third-party real estate broker’s non-binding
estimate of fair value using the observable market information regarding sale prices of comparable assets. As these inputs to
the determination of fair value are based upon non-identical assets and use significant unobservable inputs, we have classified
the assets as Level 3 in the fair value hierarchy.



Fair Value Hierarchy



The following tables set forth our assets
and liabilities measured at fair value on a recurring basis and a non-recurring basis by level within the fair value hierarchy.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement.



13







|                                                                  |  | Assets Measured at Fair Value            |  
|----------------------------------------------------------------- |  | ---------------------------------------- | -
|                                                                  |  | on a Recurring Basis as of June 30, 2012 |  
|                                                                  |  | Level 1                                  |  
|Assets:                                                           |  |                                          |  
|Foreign exchange contracts                                        |  | $                                        | -
|Total fair value of assets measured
    on a recurring basis      |  | $                                        | -
|                                                                  |  |                                          |  
|Liabilities:                                                      |  |                                          |  
|Foreign exchange contracts                                        |  | $                                        | -
|Total fair value of liabilities
    measured on a recurring basis |  | $                                        | -



|                                                                  |  | Assets Measured at Fair Value                    |  
|----------------------------------------------------------------- |  | ------------------------------------------------ | -
|                                                                  |  | on a Recurring Basis
    as of December 31, 2011 |  
|                                                                  |  | Level 1                                          |  
|Assets:                                                           |  |                                                  |  
|Foreign exchange contracts                                        |  | $                                                | -
|Total fair value of assets measured
    on a recurring basis      |  | $                                                | -
|                                                                  |  |                                                  |  
|Liabilities:                                                      |  |                                                  |  
|Foreign exchange contracts                                        |  | $                                                | -
|Total fair value of liabilities
    measured on a recurring basis |  | $                                                | -



|                                                                      |  | Assets and Liabilities Measured at Fair Value on a |  
|--------------------------------------------------------------------- |  | -------------------------------------------------- | -
|                                                                      |  | Non-Recurring Basis as of June
    30, 2012        |  
|                                                                      |  | Level 1                                            |  
|Assets:                                                               |  |                                                    |  
|Assets held for sale                                                  |  | $                                                  | -
|Property, plant and equipment, net                                    |  |                                                    | -
|Total fair value of assets measured
    on a non-recurring basis      |  | $                                                  | -
|                                                                      |  |                                                    |  
|Liabilities:                                                          |  |                                                    |  
|Accrued restructuring costs                                           |  | $                                                  | -
|Total fair value of liabilities
    measured on a non-recurring basis |  | $                                                  | -



14







|                                                                      |  | Assets and Liabilities Measured at Fair Value on a |  
|--------------------------------------------------------------------- |  | -------------------------------------------------- | -
|                                                                      |  | Non-Recurring Basis as of December
    31, 2011    |  
|                                                                      |  | Level 1                                            |  
|Assets:                                                               |  |                                                    |  
|Assets held for sale                                                  |  | $                                                  | -
|Property, plant and equipment, net                                    |  |                                                    | -
|Total fair value of assets measured
    on a non-recurring basis      |  | $                                                  | -
|                                                                      |  |                                                    |  
|Liabilities:                                                          |  |                                                    |  
|Accrued restructuring costs                                           |  | $                                                  | -
|Total fair value of liabilities
    measured on a non-recurring basis |  | $                                                  | -



9. DEBT



On February 28, 2012, we terminated our
secured line of credit with UMB Bank, which was effective through August 1, 2012, and replaced it with a secured revolving credit
facility with Wells Fargo Bank. The Credit Agreement is effective February 28, 2012 through February 28, 2015. 
The amount we may borrow under the Credit Agreement is the lesser of the borrowing base calculation and $10,000, and, so long
as no default has occurred, we may increase the maximum availability to $20,000 in $2,500 increments.  We may request letters
of credit under the Credit Agreement in an aggregate amount equal to the lesser of the borrowing base calculation (minus outstanding
advances) and $5,000. The borrowing base is generally defined as 85% of our eligible accounts receivable less reserves for foreign
exchange forward contracts and other reserves as defined in the Credit Agreement. As of June 30, 2012, we had $9,349 available
for borrowings under the credit facility.



Borrowings under the Credit Agreement
bear interest at the daily three-month LIBOR index plus 2.50% to 3.00% depending on the calculation of the fixed charge coverage
ratio, as defined in the Credit Agreement.  Until the first monthly report of the fixed charge coverage ratio, the interest
rate will be the daily three-month LIBOR index plus 3.00%.  We will pay letter of credit fees on the average daily aggregate
available amount of all letters of credit outstanding monthly at a rate per annum of 3.0% and a monthly unused fee at a rate per
annum of 0.30% on the aggregate unused commitment under the Credit Agreement. We granted Wells Fargo a security interest in all
of our assets, including all cash and cash equivalents, accounts receivable, general intangibles, owned real property, equipment
and fixtures.  In addition, under the Credit Agreement, we are subject to certain standard affirmative and negative covenants,
including the following financial covenants: 1) maintaining a minimum adjusted EBITDA, as defined in the credit Agreement, of
no less than the monthly minimum amounts set forth in the Credit Agreement and 2) limiting non-financed capital expenditures during
2012 to $6,500, provided that such expenditures would not cause the ratio of excess availability, as defined in the Credit Agreement,
to aggregate non-financed capital expenditures to be less than 1:50 to 1:00.  The requirement for non-financed capital expenditures
may be increased quarterly by an amount equal to 50% of any positive variance between budgeted and actual adjusted EBITDA results
measured at the end of each quarter.  The Company and Wells Fargo are required to agree on financial covenants for the remaining
term of the Credit Agreement beyond 2012, and any failure to do so will constitute an event of default.



15







10. ACCUMULATED OTHER COMPREHENSIVE LOSS



Accumulated other comprehensive income
(loss) consisted of the following items:



|                                                      |  | Three Months Ended June
    30, |       |   | Six Months Ended June
    30, |  
|----------------------------------------------------- |  | ------------------------------- | ----- | - | ----------------------------- | -
|                                                      |  | 2012                            |       |   | 2011                          |  
|Accumulated foreign currency translation adjustments: |  |                                 |       |   |                               |  
|Beginning balance                                     |  | $                               | 2,727 |   |                               | $
|Translation adjustments                               |  |                                 | 88    |   |                               |  
|Taxes associated with translation adjustments         |  |                                 | (82   | ) |                               |  
|Ending balance                                        |  | $                               | 2,733 |   |                               | $
|Accumulated unrealized derivative gains (losses):     |  |                                 |       |   |                               |  
|Beginning balance                                     |  | $                               | (814  | ) |                               | $
|Gain reclassified to earnings                         |  |                                 | (38   | ) |                               |  
|Taxes associated with gain on derivatives             |  |                                 | (220  | ) |                               |  
|Change in fair value of cash flow hedges              |  |                                 | 1,090 |   |                               |  
|Ending balance                                        |  | $                               | 18    |   |                               | $



11. SHARE-BASED COMPENSATION



Our share-based compensation arrangements
include grants of stock options, restricted stock awards and deferred stock units under the StarTek, Inc. 2008 Equity Incentive
Plan, which replaced the StarTek, Inc. Stock Option Plan and StarTek, Inc. Directors’ Stock Option Plan, certain awards
granted outside of these plans and our Employee Stock Purchase Plan. Refer to Note 10, “Share-Based Compensation,”
in Item 8. “Financial Statements and Supplementary Financial Data” appearing in our Annual Report on Form 10-K for
the year ended December 31, 2011 for further information on our share-based compensation arrangements. The compensation cost that
has been charged against income related to share-based compensation for the three and six months ended June 30, 2012 was $362
and $696, respectively, and is included in selling, general and administrative expense in our Condensed Consolidated Statements
of Operations. The compensation cost that has been charged against income related to share-based compensation for the three and
six months ended June 30, 2011 was $421 and $870, respectively. As of June 30, 2012, there was $820 of total unrecognized compensation
cost related to non-vested stock options and $40 related to non-vested restricted stock awards. That cost is expected to be recognized
over a weighted-average period of 2.4 years and 1.5 years for the stock options and restricted stock awards, respectively.



12. INCOME TAXES



Income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period during which such rates
are enacted.



We consider all available evidence to
determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those
temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the
impact of available carryback and carryforward periods), and projected taxable income in assessing the realizability of deferred
tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on all available
evidence, in particular our three-year historical cumulative losses, recent operating losses and an expected U.S. pre-tax loss
for the fiscal year ending December 31, 2011, we recorded a valuation allowance against our U.S. net deferred tax assets in the
second quarter of 2010. In order to fully realize the U.S. deferred tax assets, we will need to generate sufficient taxable income
in future periods before the expiration of the deferred tax assets governed by the tax code.



13. SUBSEQUENT EVENTS



On August 1, 2012, Wells Fargo
amended the EBITDA debt covenants for the second half of 2012 with no impact on financial results.



16







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



The following discussion and analysis
should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related Notes included elsewhere
in this Quarterly Report on Form 10-Q, the Consolidated Financial Statements and related Notes included in our Annual Report on
Form 10-K for the year ended December 31, 2011, 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, 2011.



Unless otherwise noted in this report,
any description of “us” or “we” refers to StarTek, Inc. and our subsidiaries. Financial information in
this report is presented in U.S. dollars.



BUSINESS DESCRIPTION AND OVERVIEW



StarTek, Inc. is a global provider
of business process outsourcing services with over 9,000 employees, whom we refer to as Brand Warriors, who have been
committed to making a positive impact on our clients’ business results for 25 years. Our company mission is to enable
and empower our Brand Warriors to advance our clients' brands every day to bring value to our stakeholders. We accomplish
this by aligning with our clients’ business objectives, resulting in a trusted partnership. The StarTek Advantage
System is the sum total of our culture, customized solutions, and processes that enhance our clients’ customers’
experience. The StarTek Advantage System is focused on improving customer experience and reducing total cost of ownership for
our clients. 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 interaction capabilities including voice, chat, email, IVR and back-office support. StarTek
has delivery centers in the U.S., Philippines, Canada, Costa Rica, Honduras and through our StarTek@Home workforce.



We seek to become a valuable partner by helping our clients effectively handle their customers throughout
the customer lifecycle. Through this effort we will return value to our stakeholders. Our approach is to develop relationships
with our clients that are partnering and collaborative in nature where we are focused, flexible and responsive to their business
needs. In addition, we offer creative industry-based solutions to meet our clients’ ever changing business needs. The end
result is the delivery of a customer experience which requires little effort by our client’s customers. To become a leader
in the market, our strategy is to:



| | - | grow our existing client base by
                                                              deepening and broadening our relationships,
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| | - | add new clients and continue to
                                                              diversify our client base,
| | - | ------------------------------------------------------------------------------------------------------------------------

| | - | improve the profitability of our
                                                              business through operational improvements, increased utilization
                                                              and right-sizing our Domestic operation,
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | expand our global delivery platform
                                                              to meet our client needs, and
| | - | -------------------------------------------------------------------------------------------------------------------------------

| | - | broaden our service offerings by
                                                              providing more innovative and technology-enabled solutions.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



During the quarter ended March 31, 2012,
we revised our business segments in order to better align them with our strategic approach to the regions in which our services
are rendered. Over the past several years, we have closed and opened several operating centers which have changed the way in which
management and our chief operating decision maker evaluate performance and allocate resources. We consolidated our U.S. and Canadian
segments into our Domestic segment and created two new segments, Asia Pacific and Latin America, which were previously reported
in our Offshore segment. As of June 30, 2012, our Domestic segment included the operations of five facilities in the U.S. and
two facilities in Canada. Our Asia Pacific segment included the operations of two facilities in the Philippines and our Latin
America segment included one facility in Costa Rica and one in Honduras.





In 2010, 2011 and thus far in 2012, we received lower call volumes
in our Domestic facilities, which adversely affected our results. Partially offsetting lower call volumes in North America has
been strong demand for our offshore call center services, primarily in our Asia Pacific segment. We have observed that our clients
are decreasing the number of agents handling calls by leveraging call disposition technology and there continues to be a shift
toward outsourced and offshore providers. While the increased use of call disposition technology has somewhat adversely impacted
our 2012 financial results, the shift toward outsourced and offshore providers has positively impacted our business due to our
expanded presence in the Philippines, Costa Rica and Honduras. Part of our strategy, as noted above, is to further expand our geographic
footprint offshore and near-shore to capitalize on this trend and to diversify geographic risk. We also believe our clients and
potential clients are seeking front and back-office business processes to increase operating efficiencies in order to enhance their
customer experience. We believe we are positioned to benefit from this trend as we have developed a comprehensive suite of services
which includes front and back-office offerings for our clients.







17







SIGNIFICANT DEVELOPMENTS DURING THE THREE
MONTHS ENDED JUNE 30, 2012



Jonesboro, Arkansas and Decatur,
Illinois

In February 2012, we received
written customer notification that they would be reducing business in our Jonesboro, Arkansas and Decatur, Illinois
facilities. The reductions resulted in approximately $5.9 million less revenue during the second quarter of 2012, compared to
the second quarter of 2011, and decreased gross profit by $1.1 million, compared to the second quarter of 2011. In the first
quarter of 2012, we incurred approximately $3.6 million in impairment losses related to these two facilities as the carrying
values of the long-lived assets were not recoverable by future cash flows. We continue to negotiate new business for the
Jonesboro facility. However, we do not anticipate securing new business for the Decatur facility and consequently recorded a
$0.5 million restructuring reserve in the second quarter of 2012.





Enid, Oklahoma

As of June 30, 2012 we have reclassified
the Enid Oklahoma facility as assets held for sale as we have committed to sell the facility. It was determined that the fair
market value was greater than the net book value therefore we have reclassed $0.9 million to assets held for sale.



RESULTS OF OPERATIONS – THREE MONTHS
ENDED JUNE 30, 2012 AND JUNE 30, 2011



Effective January 1, 2012, we changed our method of allocating certain site human resource, recruiting
and facilities costs, whereby these costs that are directly related to hiring, employment and maintenance at our facilities (not
our corporate offices) are now recorded in cost of services rather than selling, general and administrative expenses. We have reclassified
2011 information to conform to this presentation and the effect of the reclassification for the three months ended June 30, 2011
was a $1.8 million increase to cost of services and a corresponding decrease to selling, general and administrative expenses ($1.4
million Domestic segment, $0.3 million Asia Pacific segment and $0.1 million Latin America segment).



The following table presents selected
items from our Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) in thousands of dollars and
as a percentage of revenue for the periods indicated.



|                                             |  | Three Months   |        |   |         |  |       | Three Months   |  |   |         |   |  | % Change Q2 |      
|-------------------------------------------- |  | -------------- | ------ | - | ------- |  | ----- | -------------- |  | - | ------- | - |  | ----------- | -----
|                                             |  | Ended June 30, |        |   | % of    |  |       | Ended June 30, |  |   | % of    |   |  | 2011 to Q2  |      
|                                             |  | 2012           |        |   | Revenue |  |       | 2011           |  |   | Revenue |   |  | 2012        |      
|Revenue                                      |  | $              | 44,421 |   |         |  | 100.0 | %              |  | $ | 57,139  |   |  |             | 100.0
|Cost of services                             |  |                | 41,150 |   |         |  | 92.6  | %              |  |   | 52,652  |   |  |             | 92.1 
|Gross profit                                 |  |                | 3,271  |   |         |  | 7.4   | %              |  |   | 4,487   |   |  |             | 7.9  
|Selling, general and administrative expenses |  |                | 7,329  |   |         |  | 16.5  | %              |  |   | 11,380  |   |  |             | 19.9 
|Impairment losses and restructuring charges  |  |                | 467    |   |         |  | 1.1   | %              |  |   | 3,272   |   |  |             | 5.7  
|Operating loss                               |  |                | (4,525 | ) |         |  | -10.2 | %              |  |   | (10,165 | ) |  |             | -17.8
|Net interest and other income                |  |                | 84     |   |         |  | 0.2   | %              |  |   | (12     | ) |  |             | 0.0  
|Loss before income taxes                     |  |                | (4,441 | ) |         |  | -10.0 | %              |  |   | (10,177 | ) |  |             | -17.8
|Income tax expense                           |  |                | 163    |   |         |  | 0.4   | %              |  |   | 525     |   |  |             | 0.9  
|Net loss                                     |  | $              | (4,278 | ) |         |  | -9.6  | %              |  | $ | (9,652  | ) |  |             | -16.9



18







The following table summarizes our revenues
and gross profit for the periods indicated, by reporting segment:



|                 |  | For the Three Months Ended
    June 30, |       
|---------------- |  | --------------------------------------- | ------
|                 |  | 2012                                    |       
|                 |  | (in 000s)                               |       
|Domestic:        |  |                                         |       
|Revenue          |  | $                                       | 21,609
|Cost of services |  |                                         | 21,186
|Gross profit     |  | $                                       | 423   
|Gross profit %   |  |                                         | 2.0   
|                 |  |                                         |       
|Asia Pacific:    |  |                                         |       
|Revenue          |  | $                                       | 18,709
|Cost of services |  |                                         | 15,530
|Gross profit     |  | $                                       | 3,179 
|Gross profit %   |  |                                         | 17.0  
|                 |  |                                         |       
|Latin America:   |  |                                         |       
|Revenue          |  | $                                       | 4,103 
|Cost of services |  |                                         | 4,434 
|Gross loss       |  | $                                       | (331  
|Gross loss %     |  |                                         | -8.1  
|                 |  |                                         |       
|Total:           |  |                                         |       
|Revenue          |  | $                                       | 44,421
|Cost of services |  |                                         | 41,150
|Gross profit     |  | $                                       | 3,271 
|Gross profit %   |  |                                         | 7.4   



Revenue

Revenue decreased by $12.7 million, or
22.3%, from $57.1 million in the second quarter of 2011 to $44.4 million in the second quarter of 2012. The decrease was driven
by a $21.5 million decline in revenue in our Domestic segment. Of that decrease, approximately $14.6 million is attributable to
four site closures that occurred over the past year in Enid, Oklahoma, Decatur, Illinois, Collinsville, Virginia and Kingston,
Ontario. In addition, the downsizing of our facility in Cornwall, Ontario during 2011 resulted in approximately $2.5 million less
revenue in the second quarter of 2012, compared to the second quarter of 2011. The ramp-down of business in our Jonesboro, Arkansas
facility resulted in $2.9 million less revenue in the second quarter of 2012, compared to the second quarter of 2011. Revenue
in our Asia Pacific segment increased by $6.6 million in the second quarter of 2012, compared to the second quarter of 2011. The
increase was due primarily to the ramp of new business in both Philippines locations. The total number of Asia Pacific full-time
equivalent agents increased by approximately 83% in the second quarter of 2012, compared to the second quarter of 2011. Revenue
in our Latin America segment increased by $2.2 million in the second quarter of 2012, compared to the second quarter of 2011.
The revenue increase was due to new business in our Honduras location which opened in the fall of 2011, and the ramp-up of additional
business in our Costa Rica facility. Full-time equivalent agents (“FTE”) in our Latin America segment increased by
226% in the second quarter of 2012, compared to the second quarter of 2011. Our client base was more diversified during the quarter
ended June 30, 2012, compared to the quarter ended June 30, 2011, as the growth in Asia Pacific and Latin America was fueled by
higher call volumes from two clients, offset by lower call volumes domestically from our largest client.



19







Cost of Services and Gross Profit

Cost of services declined $11.5 million,
or 21.8%, from $52.6 million in the second quarter of 2011 to $41.1 million in the second quarter of 2012. Gross profit as a percentage
of revenue decreased from 7.9% in the second quarter of 2011 to 7.4% in the second quarter of 2012. Domestic cost of services
decreased by approximately $18.0 million due primarily to a $12.0 million decline related to the site closures and ramp-downs
mentioned above. Domestic gross profit as a percentage of revenue decreased from 9.0% in the second quarter of 2011 to 2.0% in
the second quarter of 2012 due to the site closures and ramp-downs. Cost of services in the Asia Pacific segment increased by
approximately $4.4 million, or 40%. The increase was due to higher cost of services in our Makati and Ortigas facilities, compared
to the second quarter of 2011, due to new business launches in those facilities. Asia Pacific gross profit as a percentage of
revenue increased from 8.0% in the second quarter of 2011 to 17.0% in the second quarter of 2012. The improvement was due to the
higher utilization from the greater number of FTEs serving new business launched over the past year. Cost of services in Latin
America increased by approximately $2.1 million, or 88%. The increase was primarily due to the opening of a new facility in Honduras
in 2011, as well as an increase in FTE in Costa Rica mentioned above resulting from new business launches. Latin America gross
profit as a percentage of revenue increased from (19.7%) to (8.1%) due to the higher FTE and utilization.



Selling, General and Administrative
Expenses

Selling, general and administrative expenses
decreased by $4.0 million, or 35.6%, from $11.4 million in the second quarter of 2011 to $7.3 million in the second quarter of
2012. The decrease in selling, general and administrative expenses was due primarily to decreases in severance expense of $2.6
million, legal expenses of $1.0 million and other miscellaneous costs of $0.4 million.



Impairment Losses and Restructuring
Charges

Impairment losses and restructuring charges
totaled $0.5 million and $3.3 million for the three months ended June 30, 2012 and 2011, respectively. The $0.5 million of restructuring
charges in the second quarter of 2012 in our Domestic segment was related to lease, utilities, maintenance, and security expense
that will continue to be incurred for the Decatur, Illinois location.



Operating Loss

We reported an operating loss of $4.5
million in the second quarter of 2012 and $10.2 million in the second quarter of 2011. Operating loss as a percentage of revenue
was (12.0%) for the second quarter of 2012 compared to (17.8%) for the second quarter of 2011. The change in operating loss was
due to lower gross profit, lower selling, general and administrative expenses and lower impairment and restructuring
charges in 2012, as previously discussed.



Income Tax

Income tax benefit for the three months
ended June 30, 2012 and 2011 was $0.2 million and $0.5 million, respectively. The income tax benefit is primarily related to taxable
losses from our Canadian operations due to a full valuation allowance recorded on our U.S. deferred tax assets and tax holidays
in the Philippines, Costa Rica and Honduras.



Net Loss

Net loss was $4.3 million for the second
quarter of 2012 and $9.7 million for the second quarter of 2011. The decreased net loss was due to lower gross profit, lower selling, general and administrative expenses and lower impairment and restructuring charges in 2012, partially offset
by lower income tax benefit, as previously discussed.



RESULTS OF OPERATIONS – SIX MONTHS
ENDED JUNE 30, 2012 AND JUNE 30, 2011



Effective January 1, 2012, we changed our method of allocating certain site human resource, recruiting
and facilities costs, whereby these costs that are directly related to hiring, employment and maintenance at our facilities (not
our corporate offices) are now recorded in cost of services rather than selling, general and administrative expenses. We have reclassified
2011 information to conform to this presentation and the effect of the reclassification for the six months ended June 30, 2011
was a $3.5 million increase to cost of services and a corresponding decrease to selling, general and administrative expenses ($2.7
million Domestic segment, $0.6 million Asia Pacific segment and $0.2 million Latin America segment).



The following table presents selected
items from our Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) in thousands of dollars and
as a percentage of revenue for the periods indicated.



20









|                                             |  | Six Months     |         |   |         |  |       | Six Months     |  |   |         |   |  | % Change     |      
|-------------------------------------------- |  | -------------- | ------- | - | ------- |  | ----- | -------------- |  | - | ------- | - |  | ------------ | -----
|                                             |  | Ended June 30, |         |   | % of    |  |       | Ended June 30, |  |   | % of    |   |  | YTD June 30, |      
|                                             |  | 2012           |         |   | Revenue |  |       | 2011           |  |   | Revenue |   |  | 2011 to 2012 |      
|Revenue                                      |  | $              | 95,280  |   |         |  | 214.5 | %              |  | $ | 116,649 |   |  |              | 204.1
|Cost of services                             |  |                | 86,672  |   |         |  | 195.1 | %              |  |   | 106,455 |   |  |              | 186.3
|Gross profit                                 |  |                | 8,608   |   |         |  | 19.4  | %              |  |   | 10,194  |   |  |              | 17.8 
|Selling, general and administrative expenses |  |                | 15,653  |   |         |  | 35.2  | %              |  |   | 19,380  |   |  |              | 33.9 
|Impairment losses and restructuring charges  |  |                | 3,553   |   |         |  | 8.0   | %              |  |   | 3,272   |   |  |              | 5.7  
|Operating loss                               |  |                | (10,598 | ) |         |  | -23.9 | %              |  |   | (12,458 | ) |  |              | -21.8
|Net interest and other income                |  |                | 187     |   |         |  | 0.4   | %              |  |   | 6       |   |  |              | 0.0  
|Loss before income taxes                     |  |                | (10,411 | ) |         |  | -23.4 | %              |  |   | (12,452 | ) |  |              | -21.8
|Income tax expense                           |  |                | 2       |   |         |  | 0.0   | %              |  |   | 246     |   |  |              | 0.4  
|Net loss                                     |  | $              | (10,409 | ) |         |  | -23.4 | %              |  | $ | (12,206 | ) |  |              | -21.4





The following table summarizes our revenues
and gross profit for the periods indicated, by reporting segment:



|                 |  | For the Six Months Ended
    June 30, |       
|---------------- |  | ------------------------------------- | ------
|                 |  | 2012                                  |       
|                 |  | (in
    000s)                         |       
|Domestic:        |  |                                       |       
|Revenue          |  | $                                     | 48,960
|Cost of services |  |                                       | 47,693
|Gross profit     |  | $                                     | 1,267 
|Gross profit %   |  |                                       | 2.6   
|                 |  |                                       |       
|Asia Pacific:    |  |                                       |       
|Revenue          |  | $                                     | 38,265
|Cost of services |  |                                       | 30,242
|Gross profit     |  | $                                     | 8,023 
|Gross profit %   |  |                                       | 21.0  
|                 |  |                                       |       
|Latin America:   |  |                                       |       
|Revenue          |  | $                                     | 8,055 
|Cost of services |  |                                       | 8,737 
|Gross loss       |  | $                                     | (682  
|Gross loss %     |  |                                       | -8.5  
|                 |  |                                       |       
|Total:           |  |                                       |       
|Revenue          |  | $                                     | 95,280
|Cost of services |  |                                       | 86,672
|Gross profit     |  | $                                     | 8,608 
|Gross profit %   |  |                                       | 9.0   



21







Revenue

Revenue decreased by $21.4 million, or
18.3%, from $116.6 million in the six months ended June 30, 2011 to $95.3 million in the six months ended June 30, 2012. The decrease
was driven by a $41.7 million decline in revenue in our Domestic segment. Of that decrease, $27.0 million is attributable to five
site closures that occurred over the past year in Alexandria, Virginia, Collinsville, Virginia, Decatur Illinois, Enid, Oklahoma
and Kingston, Ontario. In addition, the downsizing of our facility in Cornwall, Ontario during 2011 resulted in approximately
$6.2 million less revenue in the six months ended June 30, 2012, compared to the six months ended June 30, 2011. The ramp-down
of business in our Jonesboro, Arkansas facility resulted in $4.4 million less revenue in the six months ended June 30, 2012, compared
to the six months ended June 30, 2011. The remaining change in revenue is attributable to decreased business with our largest
client. Revenue in our Asia Pacific segment increased by $15.3 million in the six months ended June 30, 2012, compared to the
six months ended June 30, 2011. The increase was due to the ramp of new business in both Philippines facilities. Revenue
in our Latin America segment increased by $5.1 million in the six months ended June 30, 2012, compared to the six months ended
June 30, 2011. The revenue increase was due to new business in our Honduras location, which opened in the fall of 2011, and the
ramp-up of additional business in our Costa Rica facility. Our client base was more diversified during the six months ended June
30, 2012, compared to the six months ended June 30, 2011, as the growth in Asia Pacific and Latin America was fueled by higher
call volumes from two clients, offset by lower call volumes domestically from our largest client.



Cost of Services and Gross Profit

Cost of services declined $19.8 million,
or 18.6%, from $106.5 million in the first half of 2011 to $86.7 million in the first half of 2012. Gross profit as a percentage
of revenue increased from 8.7% in the first half of 2011 to 9% in the first half of 2012. Domestic cost of services decreased
by approximately $34.0 million due primarily to a $24.1 million decline related to the site closures and ramp-downs mentioned
above. Domestic gross profit as a percentage of revenue decreased from 9.8% in the first half of 2011 to 2.6% in the first half
of 2012 due to the site closures and ramp-downs. Cost of services in the Asia Pacific segment increased by approximately $9.6
million, or 46%. The increase was due to higher cost of services in our Makati and Ortigas facilities, compared to the first half
of 2011, due to new business launches in those facilities. Asia Pacific gross profit as a percentage of revenue increased from
10.1% in the first half of 2011 to 21.0% in the first half of 2012. The improvement was due to the higher utilization as a result
of new business launched over the past year. Cost of services in Latin America increased by approximately $4.7 million, or 115%.
The increase was primarily due to the opening of a new facility in Honduras in 2011, as well as an increase in FTEs in Costa Rica
mentioned above resulting from new business launches. Latin America gross profit as a percentage of revenue increased from (35.2%)
to (8.5%) due to the higher FTE and utilization.



Selling, General and Administrative
Expenses

Selling, general and administrative expenses
decreased by $3.7 million, or 19.2%, from $19.3 million in the first half of 2011 to $15.7 million in the first half of 2012.
The decrease in selling, general and administrative expenses was primarily due to a decrease in severance expense $2.4 million,
legal fees of $1.0 million and other miscellaneous costs of $0.3 million.



Impairment Losses and Restructuring
Charges

Impairment losses and restructuring charges
totaled $3.6 million and $3.3 for the six months ended June 30, 2012 and 2011, respectively. We incurred $3.1 million of impairment
losses in the first half of 2012 in our Domestic segment related to long-lived assets such as computer equipment, software, equipment
and furniture and fixtures for which the future cash flows did not support the carrying value of the assets in our Decatur, Illinois
and Jonesboro, Arkansas facilities. Additionally, we incurred $0.5 million of restructuring charges in the first half of 2012
in our Domestic segment related to lease, utilities, maintenance, and security expense that will continue to be incurred for the
Decatur, Illinois location.



Operating Loss

We reported an operating loss of $10.6
million in the first half of 2012 and $12.5 million in the first half of 2011. Operating loss as a percentage of revenue was (11.1%)
for the first half of 2012 compared to (10.7%) for the first half of 2011. The change in operating loss was due to lower gross
profit, lower selling, general and administrative expenses in 2012, as previously discussed.



Income Tax

Income tax benefit for the first half
2012 and 2011 was $0.0 million and $0.2 million, respectively. The income tax benefit is primarily related to taxable losses from
our Canadian operations due to a full valuation allowance recorded on our U.S. deferred tax assets and tax holidays in the Philippines,
Costa Rica and Honduras.



Net Loss

Net loss was $10.4 million for the first
half of 2012 and $12.2 million for the first half of 2011. The decreased net loss was due to lower gross profit, lower
selling, general and administrative expenses, and income tax benefit in 2012, as previously discussed.



LIQUIDITY AND CAPITAL RESOURCES



As of June 30, 2012, working capital totaled
$32.0 million and our current ratio was 2.47:1, compared to working capital at December 31, 2011, of $32.8 million and a current
ratio of 2.40:1.



22







We have historically financed our operations,
liquidity requirements, capital expenditures, and capacity expansion primarily through cash flows from operations, and to a lesser
degree, through various forms of debt and leasing arrangements. In addition to funding basic operations, our primary uses of cash
typically relate to capital expenditures to upgrade our existing information technologies and service offerings and investment
in our facilities. During the six months ended June 30, 2012 and 2011, we drew and re-paid approximately $10.7 million and $0,
respectively. Due to the timing of our collections of large billings with our major customers, we have historically needed to
draw on our line of credit for ongoing operating activities.



On February 28, 2012, we terminated our
secured line of credit with UMB Bank, which was effective through August 1, 2012, and replaced it with a secured revolving credit
facility with Wells Fargo Bank. The Credit Agreement is effective February 28, 2012 through February 28, 2015. The amount that
we may borrow under the Credit Agreement is subject to a borrowing base calculation, and has an initial availability of $10 million,
with the flexibility to borrow up to $20 million at our option. Borrowings under the Credit Agreement bear interest at the daily
three-month LIBOR index plus 2.50% to 3.00% depending on the calculation of the fixed charge coverage ratio, as defined in the
Credit Agreement. We granted Wells Fargo a security interest in all of our cash and cash equivalents, accounts receivable, general
intangibles, owned real property, equipment and fixtures. As of June 30, 2012, there was no balance outstanding on our credit
facility and we were in compliance with our covenants.



We believe that the borrowing capacity
under the secured line of credit with Wells Fargo Bank, together with cash on hand and anticipated cash flow from operations,
will be adequate to meet our working capital and capital expenditure requirements for the next year. Any of the factors described
in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011 could adversely
affect our business and our liquidity position.



|                                          |  | Six Months Ended June
    30, |       
|----------------------------------------- |  | ----------------------------- | ------
|                                          |  | 2012                          |       
|                                          |  | (in thousands)                |       
|Net cash provided by (used in):           |  |                               |       
|Operating activities                      |  | $                             | 3,263 
|Investing activities                      |  |                               | (1,287
|Financing activities                      |  |                               | 6     
|Effect of foreign exchange rates on cash  |  |                               | (333  
|Net increase in cash and cash equivalents |  | $                             | 1,649 



Our balance of cash and cash equivalents
was $11.4 million at June 30, 2012, compared to a balance of $9.7 million at December 31, 2011.



Operating Activities.Net
cash provided by operating activities decreased $1.5 million from $4.8 million for the six months ended June 30, 2011 to $3.3
million for the six months ended June 30, 2012. The decline in cash provided by operating activities was driven by changes in
working capital and other current assets that caused a decrease in operating cash flows of 5.0 million in the first half of 2012,
compared to the first half of 2011, partially offset by increases in cash provided by operating activities due to $1.8 million
decrease in net loss combined with a $1.6 million net increase in non-cash transactions, including depreciation, non-cash compensation,
and deferred income taxes, in the first half of 2012 compared to the first half of 2011.



Investing Activities.Net
cash used in investing activities was $1.3 million in the first half of 2012, compared to $3.8 million in the first half of 2011.
The decrease was due to a decrease of $2.6 million in purchases of property, plant and equipment as management reduced our amount
of new capital spend during 2012.



Financing Activities.Net
cash provided by financing activities decreased by approximately $0.1 million in the first half of 2012, compared to the first
half of 2011. The decrease was due to a lower amount of stock issuances in 2012 from stock option exercises.



Contractual Obligations.Other
than operating leases for certain equipment and real estate and commitments to purchase goods and services in the future, we have
no off-balance sheet transactions, unconditional purchase obligations or similar instruments, and we are not a guarantor of any
other entities’ debt or other financial obligations. We maintain a $20 million secured revolving credit facility with Wells
Fargo Bank, N.A. which we use to finance regular, short-term operating expenses. The credit facility expires on February 28, 2015.
During the six months ended June 30, 2012, we drew and re-paid approximately $10.7 million on our credit facility. There was no
balance outstanding on the line of credit as of June 30, 2012 and we were in compliance with our covenants.



During the six months ended June 30, 2012,
there were no other material changes in our contractual obligations. For a complete discussion of our contractual obligations
as of December 31, 2011, see Item 7. “Contractual Obligations” in our Annual Report on Form 10-K for the year ended
December 31, 2011.



23







Other Factors Impacting Liquidity.Effective November 4, 2004, our board of directors authorized purchases of up to $25.0 million of our common stock. The
repurchase program will remain in effect until terminated by the board of directors and allows us to repurchase shares of our
common stock from time to time on the open market, in block trades and in privately-negotiated transactions. Repurchases will
be implemented by the Chief Financial Officer consistent with the guidelines adopted by the board of directors and will depend
on market conditions and other factors. Any repurchases of shares will be made in accordance with Securities and Exchange Commission
rules. We have not yet repurchased any shares pursuant to this board authorization.



Our business currently has a high concentration
of a few principal clients. The loss of a principal client and/or changes in timing or termination of a principal client's product
launch or service offering would have a material adverse effect on our business, liquidity, operating results, and financial condition.
These client relationships are further discussed in Note 5, “Principal Clients,” to our Condensed Consolidated Financial
Statements, which are included at Item 1, “Financial Statements,” of this Quarterly Report on Form 10-Q. To limit
our credit risk, management from time to time will perform credit evaluations of our clients. Although we are directly impacted
by the economic conditions in which our clients operate, management does not believe substantial credit risk existed as of June
30, 2012. Refer to Item 1A. “Risk Factors” appearing in our Annual Report on Form 10-K for the year ended December
31, 2011 for further information regarding these risks.



There is a risk that the counterparties
to our hedging instruments could suffer financial difficulties due to economic conditions or other reasons, and we could realize
losses on these arrangements which could impact our liquidity. However, we do not believe we are exposed to more than a nominal
amount of credit risk in our derivative hedging activities, as the counterparties are established, well-capitalized financial
institutions.



Because we service relatively few large
clients, the availability of cash is highly dependent on the timing of cash receipts from accounts receivable. As a result, from
time to time, we borrow cash from our line of credit to cover short-term cash needs. These borrowings are typically outstanding
for a short period of time before they are repaid. However, our debt balance can fluctuate significantly during any given quarter
as part of our ordinary course of business. Accordingly, our debt balance at the end of any given period is not necessarily indicative
of the debt balance at any other time during that period.



Although management cannot accurately
anticipate effects of domestic and foreign inflation on our operations, management does not believe inflation has had a material
adverse effect on our results of operations or financial condition. However, there is a risk that inflation could occur in certain
countries in which we operate which could have an adverse affect on our financial results. We engage in hedging activities which
may reduce this risk; however, currency hedges do not, and will not, eliminate our exposure to foreign inflation.



VARIABILITY OF OPERATING RESULTS



Our business has been seasonal only to
the extent that our clients’ marketing programs and product launches are geared toward the winter holiday buying season.
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 principal clients;
(iii) expiration or termination of client projects or contracts; (iv) timing of existing and future client product launches or
service offerings; (v) seasonal nature of certain clients’ businesses; and (vi) variability in demand for our services by
our clients depending on demand for their products or services and/or depending on our performance.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



In preparing our Condensed Consolidated
Financial Statements in conformity with accounting principles generally accepted in the United States of America, 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.



Our critical accounting policies and estimates
are consistent with those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011. Please refer to Item
7, “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, 2011, for a complete description of our Critical Accounting Policies and Estimates.



24







Recently Adopted Accounting Pronouncements



In 2011, the FASB issued two ASUs, which
amend guidance for the presentation of comprehensive income. The amended guidance requires an entity to present components of
net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or
in two separate, but consecutive statements. The current option to report other comprehensive income and its components in the
statement of stockholders’ equity has been eliminated. Although the new guidance changes the presentation of comprehensive
income, there are no changes to the components that are recognized in net income or other comprehensive income under existing
guidance. We adopted these ASUs using one continuous statement in the first half of 2012 for all periods presented.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK



In the normal course of business, we are
exposed to certain market risks related to changes in interest rates and other general market risks, and foreign currency exchange
rates. This information should be read in conjunction with the information set forth in Part II, Item 7A in our Annual
Report on Form 10-K for the year ended December 31, 2011, in addition to the interim Unaudited Condensed Consolidated
Financial Statements, accompanying notes and “Management's Discussion and Analysis of Financial Condition and Results of
Operations” presented in Items 1 and 2 of this Quarterly Report on Form 10-Q.



Interest Rate Risk

We are exposed to interest rate risk with
respect to our cash and cash equivalents and debt obligations. Cash and cash equivalents are not restricted. We consider cash
equivalents to be short-term, highly liquid investments readily convertible to known amounts of cash, and so near their maturity
they present insignificant risk of changes in value because of changes in interest rates. Management would not expect our cash
and cash equivalents to be affected, to any significant degree, by any sudden changes in market interest rates. Declines in interest
rates over time will, however, reduce our interest income derived from cash and cash equivalents. We currently have a $10 million
secured credit facility, which can grow to $20 million. The interest rate on our credit facility is variable based upon the LIBOR
index, and therefore, is affected by changes in market interest rates. We drew $10.7 million on our line of credit during the
six months ended June 30, 2012, and as of June 30, 2012, there was no amount outstanding on the line of credit. If the LIBOR increased
100 basis points, there would not be a material impact to our Condensed Consolidated Financial Statements.



Foreign Currency Exchange Risks

We enter into foreign currency exchange
contracts to hedge our anticipated operating commitments that are denominated in foreign currencies. The contracts cover periods
commensurate with expected exposure, generally three to nine months, and are principally unsecured foreign exchange contracts.
The market risk exposure is essentially limited to risk related to currency rate movements. We operate in Canada, the Philippines,
Costa Rica and Honduras. The functional currencies of our Canadian and Philippine operations are the Canadian dollar and the Philippine
peso, respectively, which are used to pay labor and other operating costs in those countries. However, our client contracts primarily
generate revenues which are paid to us in U.S. dollars. In Costa Rica and Honduras, our functional currency is the U.S. dollar
and the majority of our costs are denominated in U.S. dollars. In connection with the termination of our secured line of credit
with UMB Bank, we liquidated all of our outstanding hedge positions with UMB Bank in the first quarter of 2012, and replaced them
with new hedges with Wells Fargo Bank, which resulted in a gain of approximately $0.2 million during the first half of 2012. During
the six months ended June 30, 2012, we entered into forward contracts with respect to the Philippine peso for a notional amount
of 2,052.2 million Philippine pesos to hedge our foreign currency risk with respect to labor costs in the Philippines. As of June
30, 2012, we have not entered into any arrangements to hedge the Costa Rican colon or Honduran lempira relative to the U.S. dollar.
As of June 30, 2012, we had contracted to purchase 13.9 million Canadian dollars to be delivered periodically through June, 2013
and we had contracted to purchase 1,380 million Philippine pesos to be delivered periodically through June 2013.



During the six months ended June 30, 2012,
there were no other material changes in our market risk exposure. For a complete discussion of our market risks associated with
foreign currency and interest rate risks as of December 31, 2011, see Item 7A. “Quantitative and Qualitative Disclosures
about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2011. Also, refer to Part II, Item
IA. “Risk Factors” in this Quarterly Report on Form 10-Q and Part I. Item 1A. “Risk Factors” appearing
in our Annual Report on Form 10-K for the year ended December 31, 2011 for further information regarding these risks.



ITEM 4. CONTROLS AND PROCEDURES



Evaluation of disclosure controls
and procedures.As of June 30, 2012, we carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e) under the Exchange Act). Based on
such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2012, 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.



25







Changes in internal controls over
financial reporting.There was no change in our internal control over financial reporting that occurred during
the quarter ended June 30, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.



Part II. Other Information



ITEM 1. LEGAL PROCEEDINGS



We have been involved from time to time
in litigation arising in the normal course of business, none of which is expected by management to have a material adverse effect
on our business, financial condition or results of operations.



ITEM 1A. RISK FACTORS



There have been no material changes in
our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.



ITEM 6. EXHIBITS



An Index of Exhibits follows the signature
page of this Form 10-Q.



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SIGNATURES



Pursuant to the requirements of the 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.

(REGISTRANT)



|By: | /s/CHAD A. CARLSON                    | Date:  August 7, 2012
|--- | ------------------------------------- | ---------------------
|    | Chad A. Carlson                       |                      
|    | President and Chief Executive Officer |                      
|    | (Principal Executive Officer)         |                      



|By: | /s/ LISA A. WEAVER                                           | Date:  August 7, 2012
|--- | ------------------------------------------------------------ | ---------------------
|    | Lisa A. Weaver                                               |                      
|    | Senior Vice President, Chief Financial Officer and Treasurer |                      
|    | (Principal Financial and Accounting Officer)                 |                      



27







EXHIBIT INDEX



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | Incorporated Herein by Reference
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Form                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                 
|3.1     |  | Restated Certificate of Incorporation of StarTek, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | S-1                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                 
|3.2     |  | Amended and Restated Bylaws of StarTek, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 8-K                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                 
|3.3     |  | Certificate of Amendment to the Certificate of Incorporation of StarTek, Inc. filed with the
    Delaware Secretary of State on May 21, 1999.                                                                                                                                                                                                                                                                                                                                                                                                           |  | 10-K                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                 
|3.4     |  | Certificate of Amendment to the Certificate of Incorporation of StarTek, Inc. filed with the
    Delaware Secretary of State on May 23, 2000.                                                                                                                                                                                                                                                                                                                                                                                                           |  | 10-Q                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                 
|4.1     |  | Specimen Common Stock certificate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | 10-Q                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                 
|10.1*†  |  | 2012 Incentive Bonus Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                 
|31.1*   |  | Certification of Chad A. Carlson pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                 
|31.2*   |  | Certification of Lisa A. Weaver pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                 
|32.1*   |  | Written Statement of the Chief Executive Officer and Chief Financial Officer furnished pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                 
|101#    |  | The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Condensed
    Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the three and six months ended June 30, 2012
    and 2011, (ii) Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, (iii) Condensed Consolidated
    Statements of Cash Flows for the three and six months ended June 30, 2012 and 2011, and (iv) Notes to Condensed Consolidated
    Financial Statements tagged in block text. |  |                                 



| | * | Filed with this Form 10-Q.
| | - | --------------------------



| | # | Furnished, not filed.
| | - | ---------------------



| | † | Management contract or compensatory
                                                                plan or arrangement.
| | - | ------------------------------------------------------------------------------------------------------------------------



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