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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 September 30, 2010

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: 001-33739





STREAM GLOBAL SERVICES, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 26-0420454                          
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



|                                                      |  |           
|----------------------------------------------------- |  | ----------
|20 William Street, Suite 310 Wellesley, Massachusetts |  | 02481     
|(Address of Principal Executive Offices)              |  | (Zip Code)

(781)
304-1800

(Registrants Telephone Number, Including Area Code)

N/A

(Former name, former address and former fiscal year, if changed since last report)





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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files).    Yes   ̈    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 definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



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

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

There were 80,493,024 shares of the Registrants common stock, $0.001 par value per share, issued and outstanding as of
November 1, 2010 (including shares of common stock that are part of the Registrants outstanding, publicly traded units and unvested restricted stock).









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##### Table of Contents



TABLE OF CONTENTS



|                              |  |                                                                                                                                                                                 |    |      |    | 
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                              |  |                                                                                                                                                                                 |    | Page |   
|PART I. FINANCIAL INFORMATION |  |                                                                                                                                                                                 | 1  |     
|                              |  |                                                                                                                                                                                
|Item 1.                       |  | Unaudited Consolidated Financial Statements                                                                                                                                     |    |      | 1  | 
|                              |  |                                                                                                                                                                                
|                              |  | Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009                                                                                                      |    |      | 1  | 
|                              |  |                                                                                                                                                                                
|                              |  | Consolidated Statements of Operations for the three months ended September 30, 2010 and September 30, 2009
 and the nine months ended September 30, 2010 and September 30, 2009 |    |      | 2  | 
|                              |  |                                                                                                                                                                                
|                              |  | Consolidated Statements of Stockholders Equity for the nine months ended September 30,
2010                                                                                     |    |      | 3  | 
|                              |  |                                                                                                                                                                                
|                              |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and September 30, 2009                                                                       |    |      | 4  | 
|                              |  |                                                                                                                                                                                
|                              |  | Notes to Unaudited Consolidated Financial Statements                                                                                                                            |    |      | 5  | 
|                              |  |                                                                                                                                                                                
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                                                                                           |    |      | 21 | 
|                              |  |                                                                                                                                                                                
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                      |    |      | 28 | 
|                              |  |                                                                                                                                                                                
|Item 4.                       |  | Controls and Procedures                                                                                                                                                         |    |      | 29 | 
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                                                                                 | 30 |     
|                              |  |                                                                                                                                                                                
|Item 1A.                      |  | Risk Factors                                                                                                                                                                    |    |      | 30 | 
|                              |  |                                                                                                                                                                                
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                     |    |      | 30 | 
|                              |  |                                                                                                                                                                                
|Item 6.                       |  | Exhibits                                                                                                                                                                        |    |      | 30 | 
|                              | 
|SIGNATURES                    |  |                                                                                                                                                                                 | 31 |     

Stream is a trademark of Stream
Global Services, Inc.



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PART IFINANCIAL INFORMATION

ITEM 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

STREAM GLOBAL SERVICES, INC.

Consolidated
Balance Sheets

(In thousands, except per share amounts)



|                                                                                                                                                                                                                                                   |  |                              |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                                                                   |  | September 30,2010(unaudited) |         |   | December 31,2009 |  
|Assets                                                                                                                                                                                                                                             |  |                              |         |   |                  |   |         |  
|Current assets:                                                                                                                                                                                                                                    |  |                              |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                          |  | $                            | 21,444  |   |                  | $ | 14,928  |  
|Accounts receivable, net of allowance for bad debts of $726 and $532 at September 30, 2010 and December 31, 2009,
respectively                                                                                                                     |  |                              | 171,437 |   |                  |   | 175,557 |  
|Income taxes receivable                                                                                                                                                                                                                            |  |                              | 937     |   |                  |   | 2,988   |  
|Deferred income taxes                                                                                                                                                                                                                              |  |                              | 14,991  |   |                  |   | 15,870  |  
|Prepaid expenses and other current assets                                                                                                                                                                                                          |  |                              | 21,201  |   |                  |   | 18,043  |  
|                                                                                                                                                                                                                                                   |  |                              |         |   |                  |   |         |  
|Total current assets                                                                                                                                                                                                                               |  |                              | 230,010 |   |                  |   | 227,386 |  
|Equipment and fixtures, net                                                                                                                                                                                                                        |  |                              | 80,503  |   |                  |   | 96,816  |  
|Deferred income taxes                                                                                                                                                                                                                              |  |                              | 4,307   |   |                  |   | 5,306   |  
|Goodwill                                                                                                                                                                                                                                           |  |                              | 226,749 |   |                  |   | 226,027 |  
|Intangible assets, net                                                                                                                                                                                                                             |  |                              | 89,235  |   |                  |   | 104,834 |  
|Other assets                                                                                                                                                                                                                                       |  |                              | 19,128  |   |                  |   | 20,454  |  
|                                                                                                                                                                                                                                                   |  |                              |         |   |                  |   |         |  
|Total assets                                                                                                                                                                                                                                       |  | $                            | 649,932 |   |                  | $ | 680,823 |  
|                                                                                                                                                                                                                                                   |  |                              |         |   |                  |   |         |  
|                                                                                                                                                                                                                                                   |  |                             
|Liabilities and Stockholders Equity                                                                                                                                                                                                               |  |                              |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                                                                                               |  |                              |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                                                                                                   |  | $                            | 8,773   |   |                  | $ | 13,532  |  
|Accrued employee compensation and benefits                                                                                                                                                                                                         |  |                              | 55,466  |   |                  |   | 57,475  |  
|Other accrued expenses                                                                                                                                                                                                                             |  |                              | 35,070  |   |                  |   | 28,499  |  
|Income taxes payable                                                                                                                                                                                                                               |  |                              | 2,130   |   |                  |   | 2,199   |  
|Current portion of long-term debt                                                                                                                                                                                                                  |  |                              | 96      |   |                  |   | 90      |  
|Current portion of capital lease obligations                                                                                                                                                                                                       |  |                              | 7,830   |   |                  |   | 5,529   |  
|Other liabilities                                                                                                                                                                                                                                  |  |                              | 7,932   |   |                  |   | 8,013   |  
|                                                                                                                                                                                                                                                   |  |                              |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                                                                          |  |                              | 117,297 |   |                  |   | 115,337 |  
|Long-term debt, net of current portion                                                                                                                                                                                                             |  |                              | 214,977 |   |                  |   | 206,880 |  
|Capital lease obligations, net of current portion                                                                                                                                                                                                  |  |                              | 10,496  |   |                  |   | 11,279  |  
|Deferred income taxes                                                                                                                                                                                                                              |  |                              | 19,768  |   |                  |   | 21,050  |  
|Other long-term liabilities                                                                                                                                                                                                                        |  |                              | 21,724  |   |                  |   | 22,866  |  
|                                                                                                                                                                                                                                                   |  |                              |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                                                                  |  |                              | 384,262 |   |                  |   | 377,412 |  
|Stockholders equity:                                                                                                                                                                                                                              |  |                              |         |   |                  |   |         |  
|Common stock, par value $0.001 per share, shares authorized200,000 shares authorized at September 30, 2010 and
December 31, 2009 issued and outstanding shares80,061 and 79,616 shares at September 30, 2010 and December 31, 2009, respectively |  |                              | 81      |   |                  |   | 80      |  
|Additional paid-in-capital                                                                                                                                                                                                                         |  |                              | 343,141 |   |                  |   | 337,035 |  
|Retained deficit                                                                                                                                                                                                                                   |  |                              | (74,532 | ) |                  |   | (29,972 | )
|Accumulated other comprehensive loss                                                                                                                                                                                                               |  |                              | (3,020  | ) |                  |   | (3,732  | )
|                                                                                                                                                                                                                                                   |  |                              |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                                                                                                         |  |                              | 265,670 |   |                  |   | 303,411 |  
|                                                                                                                                                                                                                                                   |  |                              |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                                                         |  | $                            | 649,932 |   |                  | $ | 680,823 |  
|                                                                                                                                                                                                                                                   |  |                              |         |   |                  |   |         |  

See accompanying notes to consolidated condensed financial statements.



1



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STREAM GLOBAL SERVICES, INC.

Consolidated Condensed Statements of Operations

(Unaudited)

(In thousands, except per share amounts)



|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------ |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                   |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                                   |  | 2010                            |         |   | 2009                           |   |         | 2010 |  |   | 2009    |  
|Revenue                                                            |  | $                               | 197,146 |   |                                | $ | 121,875 |      |  | $ | 577,625 |   |  | $ | 383,159 |  
|Direct cost of revenue                                             |  |                                 | 113,946 |   |                                |   | 72,568  |      |  |   | 337,783 |   |  |   | 224,587 |  
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Gross profit                                                       |  |                                 | 83,200  |   |                                |   | 49,307  |      |  |   | 239,842 |   |  |   | 158,572 |  
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|                                                                   |  |                                 |         |  
|Operating expenses:                                                |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Selling, general and administrative expenses                       |  |                                 | 66,001  |   |                                |   | 41,913  |      |  |   | 198,522 |   |  |   | 126,903 |  
|Transaction related, restructuring and severance expenses (Note 8) |  |                                 | 3,746   |   |                                |   | 3,189   |      |  |   | 8,716   |   |  |   | 3,917   |  
|Depreciation and amortization                                      |  |                                 | 16,356  |   |                                |   | 7,264   |      |  |   | 49,321  |   |  |   | 20,841  |  
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total operating expenses                                           |  |                                 | 86,103  |   |                                |   | 52,366  |      |  |   | 256,559 |   |  |   | 151,661 |  
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Income (loss) from operations                                      |  |                                 | (2,903  | ) |                                |   | (3,059  | )    |  |   | (16,717 | ) |  |   | 6,911   |  
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|                                                                   |  |                                 |         |  
|Other (income) expense, net:                                       |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Foreign currency transaction loss (gain)                           |  |                                 | (1,165  | ) |                                |   | 93      |      |  |   | (1,703  | ) |  |   | 555     |  
|Other (income) expense, net                                        |  |                                 | 0       |   |                                |   | 25      |      |  |   | (2      | ) |  |   | 33      |  
|Interest expense, net                                              |  |                                 | 7,751   |   |                                |   | 2,613   |      |  |   | 22,883  |   |  |   | 7,652   |  
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total other (income) expense, net                                  |  |                                 | 6,586   |   |                                |   | 2,731   |      |  |   | 21,178  |   |  |   | 8,240   |  
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Loss before income taxes                                           |  |                                 | (9,489  | ) |                                |   | (5,790  | )    |  |   | (37,895 | ) |  |   | (1,329  | )
|                                                                   |  |                                 |         |  
|Provision for income taxes                                         |  |                                 | 3,091   |   |                                |   | 986     |      |  |   | 6,665   |   |  |   | 6,314   |  
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net loss                                                           |  |                                 | (12,580 | ) |                                |   | (6,776  | )    |  |   | (44,560 | ) |  |   | (7,643  | )
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Cumulative convertible preferred stock dividends                   |  |                                 |        |   |                                |   | 1,884   |      |  |   |        |   |  |   | 5,060   |  
|Preferred Stock accretion                                          |  |                                 |        |   |                                |   | 698     |      |  |   |        |   |  |   | 1,201   |  
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net loss attributable to common shareholders                       |  | $                               | (12,580 | ) |                                | $ | (9,358  | )    |  | $ | (44,560 | ) |  | $ | (13,904 | )
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net loss attributable to common shareholders per share:            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted                                                  |  | $                               | (0.16   | ) |                                | $ | (0.99   | )    |  | $ | (0.56   | ) |  | $ | (1.47   | )
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Shares used in computing per share amounts:                        |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted                                                  |  |                                 | 80,070  |   |                                |   | 9,446   |      |  |   | 79,861  |   |  |   | 9,450   |  
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  

See accompanying notes to consolidated condensed financial statements



2



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STREAM GLOBAL SERVICES, INC.

Consolidated Condensed Statements of Stockholders Equity

For the
nine months ended September 30, 2010

(Unaudited)

(In thousands)



|                                                       |  |              |        |  |                          |   |    |                           |  |   |                                            |   |  |       |         |   |  |   |        |   |  |   |         |  
|------------------------------------------------------ |  | ------------ | ------ |  | ------------------------ | - | -- | ------------------------- |  | - | ------------------------------------------ | - |  | ----- | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                       |  | Common Stock |        |  | AdditionalPaid inCapital |   |    | RetainedEarnings(Deficit) |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Total |        
|                                                       |  | Shares       |        |  | ParValue                 |   |    |                           |  |  
|Balances at December 31, 2009                          |  |              | 79,616 |  |                          | $ | 80 |                           |  | $ | 337,035                                    |   |  | $     | (29,972 | ) |  | $ | (3,732 | ) |  | $ | 303,411 |  
|Net loss                                               |  |              |       |  |                          |   |   |                           |  |   |                                           |   |  |       | (44,560 | ) |  |   |       |   |  |   | (44,560 | )
|Currency translation adjustment                        |  |              |       |  |                          |   |   |                           |  |   |                                           |   |  |       |        |   |  |   | (1,912 | ) |  |   | (1,912  | )
|Unrealized loss on derivatives, net of tax of $0       |  |              |       |  |                          |   |   |                           |  |   |                                           |   |  |       |        |   |  |   | 2,624  |   |  |   | 2,624   |  
|                                                       |  |              |        |  |                          |   |    |                           |  |   |                                            |   |  |       |         |   |  |   |        |   |  |   |         |  
|Comprehensive loss                                     |  |              |       |  |                          |   |   |                           |  |   |                                           |   |  |       |        |   |  |   |       |   |  |   | (43,848 | )
|Common stock issued for pre-emptive rights             |  |              | 25     |  |                          |   |   |                           |  |   | 80                                         |   |  |       |        |   |  |   |       |   |  |   | 80      |  
|Warrant exercises                                      |  |              | 383    |  |                          |   | 1  |                           |  |   | 2,306                                      |   |  |       |        |   |  |   |       |   |  |   | 2,307   |  
|Stock option exercises and vesting of restricted stock |  |              | 37     |  |                          |   |   |                           |  |   | 192                                        |   |  |       |        |   |  |   |       |   |  |   | 192     |  
|Stock-based compensation expense                       |  |              |       |  |                          |   |   |                           |  |   | 5,281                                      |   |  |       |        |   |  |   |       |   |  |   | 5,281   |  
|Taxes withheld on restricted stock                     |  |              |       |  |                          |   |    |                           |  |   | (145                                       | ) |  |       |        |   |  |   |       |   |  |   | (145    | )
|Repurchase of warrants                                 |  |              |       |  |                          |   |    |                           |  |   | (1,608                                     | ) |  |       |        |   |  |   |       |   |  |   | (1,608  | )
|                                                       |  |              |        |  |                          |   |    |                           |  |   |                                            |   |  |       |         |   |  |   |        |   |  |   |         |  
|Balances at September 30, 2010                         |  |              | 80,061 |  |                          | $ | 81 |                           |  | $ | 343,141                                    |   |  | $     | (74,532 | ) |  | $ | (3,020 | ) |  | $ | 265,670 |  
|                                                       |  |              |        |  |                          |   |    |                           |  |   |                                            |   |  |       |         |   |  |   |        |   |  |   |         |  

See accompanying notes to consolidated condensed financial statements



3



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STREAM GLOBAL SERVICES, INC.

Consolidated Condensed Statements of Cash Flows

(Unaudited)

(In thousands)



|                                                                                       |  |                                      |         |   |                                      |   |         |  
|-------------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ------------------------------------ | - | ------- | -
|                                                                                       |  | Nine MonthsEnded 
September 30, 2010 |         |   | Nine MonthsEnded 
September 30, 2009 |  
|Operating activities:                                                                  |  |                                      |         |   |                                      |   |         |  
|Net loss                                                                               |  | $                                    | (44,560 | ) |                                      | $ | (7,643  | )
|Adjustments to reconcile net loss to net cash provided by operating activities:        |  |                                      |         |   |                                      |   |         |  
|Depreciation and amortization                                                          |  |                                      | 49,321  |   |                                      |   | 20,481  |  
|Amortization and write-off of debt issuance costs                                      |  |                                      | 2,642   |   |                                      |   | 1,718   |  
|Deferred taxes                                                                         |  |                                      | 1,447   |   |                                      |   | 26      |  
|Loss on disposal of assets                                                             |  |                                      | 244     |   |                                      |   | 45      |  
|Noncash stock compensation                                                             |  |                                      | 5,281   |   |                                      |   | 532     |  
|Changes in operating assets and liabilities, net of the effect of acquisitions:        |  |                                      |         |   |                                      |   |         |  
|Accounts receivable                                                                    |  |                                      | 1,215   |   |                                      |   | 2,277   |  
|Income taxes receivable                                                                |  |                                      | 893     |   |                                      |   | (471    | )
|Prepaid expenses and other current assets                                              |  |                                      | (688    | ) |                                      |   | 717     |  
|Other assets                                                                           |  |                                      | 790     |   |                                      |   | (4,683  | )
|Accounts payable                                                                       |  |                                      | (4,578  | ) |                                      |   | (1,498  | )
|Accrued expenses and other liabilities                                                 |  |                                      | 2,766   |   |                                      |   | (9,426  | )
|                                                                                       |  |                                      |         |   |                                      |   |         |  
|Net cash provided by operating activities                                              |  |                                      | 14,773  |   |                                      |   | 2,075   |  
|                                                                                       |  |                                      |         |   |                                      |   |         |  
|Investing activities:                                                                  |  |                                      |         |   |                                      |   |         |  
|Additions to equipment and fixtures, net                                               |  |                                      | (13,070 | ) |                                      |   | (13,360 | )
|                                                                                       |  |                                      |         |   |                                      |   |         |  
|Net cash used in investing activities                                                  |  |                                      | (13,070 | ) |                                      |   | (13,360 | )
|                                                                                       |  |                                      |         |   |                                      |   |         |  
|Financing activities:                                                                  |  |                                      |         |   |                                      |   |         |  
|Net borrowings (repayments) on line of credit                                          |  |                                      | 7,133   |   |                                      |   | (5,302  | )
|Proceeds from issuance of long-term debt                                               |  |                                      |        |   |                                      |   | 23,238  |  
|Payments on long-term debt                                                             |  |                                      | (67     | ) |                                      |   | (1,354  | )
|Proceeds on capital leases                                                             |  |                                      | 1,669   |   |                                      |   | 1,518   |  
|Payment of capital lease obligations                                                   |  |                                      | (5,227  | ) |                                      |   | (2,146  | )
|Proceeds from exercise of warrants                                                     |  |                                      | 2,307   |   |                                      |   |        |  
|Proceeds from issuance of common stock related to pre-emptive rights and stock options |  |                                      | 268     |   |                                      |   |        |  
|Tax payments on withholding of restricted stock                                        |  |                                      | (145    | ) |                                      |   |        |  
|Repurchase of warrants                                                                 |  |                                      | (1,608  | ) |                                      |   | (2,146  | )
|                                                                                       |  |                                      |         |   |                                      |   |         |  
|Net cash provided by financing activities                                              |  |                                      | 4,330   |   |                                      |   | 13,808  |  
|                                                                                       |  |                                      |         |   |                                      |   |         |  
|Effect of exchange rates on cash and cash equivalents                                  |  |                                      | 483     |   |                                      |   | 3,199   |  
|                                                                                       |  |                                      |         |   |                                      |   |         |  
|Net increase in cash and cash equivalents                                              |  |                                      | 6,516   |   |                                      |   | 6,082   |  
|Cash and cash equivalents, beginning of period                                         |  |                                      | 14,928  |   |                                      |   | 10,660  |  
|                                                                                       |  |                                      |         |   |                                      |   |         |  
|Cash and cash equivalents, end of period                                               |  | $                                    | 21,444  |   |                                      | $ | 16,742  |  
|                                                                                       |  |                                      |         |   |                                      |   |         |  
|Supplemental cash flow information:                                                    |  |                                      |         |   |                                      |   |         |  
|Cash paid for interest                                                                 |  | $                                    | 13,515  |   |                                      | $ | 4,457   |  
|Cash paid for income taxes                                                             |  | $                                    | 7,382   |   |                                      | $ | 6,048   |  
|Noncash financing activities:                                                          |  |                                      |         |   |                                      |   |         |  
|Gain on foreign exchange forward contracts                                             |  | $                                    | (2,624  | ) |                                      | $ | 1,241   |  
|Capital lease financing                                                                |  | $                                    | 4,616   |   |                                      | $ | 6,571   |  

See accompanying notes
to consolidated condensed financial statements.



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##### Table of Contents



STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010

(Unaudited)

(In thousands, except per share and per warrant amounts)

Note 1Our History and Summary of Various Transactions

Stream Global
Services, Inc. (we, us, Stream or SGS) is a corporation organized under the laws of the State of Delaware. We were incorporated on June 26, 2007 as a blank check company for the purpose of
acquiring, through a merger, capital stock exchange, asset or stock acquisition, exchangeable share transaction or other similar business combination, one or more domestic or international operating businesses. We consummated our initial public
offering in October 2007, receiving total gross proceeds of $250 million, and in July 2008, we acquired Stream Holdings Corporation for $128 million (which reflected the $200 million purchase price less assumed indebtedness, transaction fees,
employee transaction related bonuses, professional fees, stock option payments and payments for working capital).

In August
2009, Stream, EGS Corp. (EGS), the parent company of eTelecare Global Solutions, Inc. (eTelecare), and other parties thereto, entered into a definitive agreement to combine in a stock-for-stock exchange (the
Combination). On October 1, 2009, the Combination closed, with the pre-Combination Stream and EGS stockholders owning approximately 57.5% and 42.5%, respectively, of the combined entity.

Immediately prior to the closing of the Combination, pursuant to a letter agreement, dated as of August 14, 2009, between us and
Ares Corporate Opportunities Fund II, L.P. (Ares), all of the issued and outstanding shares of our Series A Convertible Preferred Stock, $.001 par value per share (Series A Preferred Stock), and Series B Convertible Preferred
Stock, $0.001 par value per share (Series B Preferred Stock and together with the Series A Preferred Stock, the Preferred Stock), all of which were held by Ares, were converted into approximately 35,000 shares of our common
stock. In addition, we purchased from Ares a ten-year term private warrant to purchase 7,500 shares of our common stock at an exercise price of $6.00 per share in partial consideration for the issuance of 1,000 shares of our common stock.

In conjunction with the closing of the Combination, we issued $200 million of senior secured notes and entered into a $100
million credit facility (See Note 12).

We have evaluated subsequent events through the date of filing the financial
statements. During this period, we did not have any material recognizable or unrecognizable subsequent events that would require disclosure in the financial statements.

Note 2Our Business

We are a leading global business process
outsourcing (BPO) service provider specializing in customer relationship management (CRM), including sales, customer care and technical support for Fortune 1000 companies. Our clients include leading technology,
computing, telecommunications, retail, entertainment/media, and financial services companies. Our service programs are delivered through a set of standardized best practices and sophisticated technologies by a highly skilled multilingual
workforce capable of supporting over 35 languages across 50 locations in 22 countries. We continue to expand our global presence and service offerings to increase our clients revenue, improve their operational efficiency and drive brand
loyalty from our clients customers.

Note 3Basis of Presentation

Our consolidated financial statements as of September 30, 2010 and December 31, 2009, and for the three and nine months ended
September 30, 2010 and 2009, include our accounts and those of our wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all normal recurring
adjustments considered necessary for a fair presentation have been included.

Certain prior year amounts have been
reclassified to conform to the current year presentation. We have reclassified $197 and $925 for the three and nine months ended September 30, 2009 from selling, general and administrative expenses in our statement of operations to
transaction related, restructuring and severance expenses. These amounts relate to previously reported severance amounts. We believe the reclassifications are not material to the consolidated financial statements.

From time to time, we have been involved in claims and lawsuits, both as plaintiff and defendant, which arise in the ordinary course of
business. Accruals for claims or lawsuits have been provided for to the extent that losses are deemed both probable and estimable.



On October 1, 2009, we acquired EGS in a stock-for-stock exchange. The accompanying consolidated statements of operations and cash
flows of SGS for the periods succeeding the Combination on October 1, 2009 include the results of EGS.

Note 4Summary of
Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying consolidated condensed financial statements as of September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly our financial position and results of operations and cash flows. The results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results to be expected
for the year ended December 31, 2010, or for any other interim period or future year.



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STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





Use of
Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting
principles in the United States requires the appropriate application of accounting policies, many of which require management to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial
statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results could differ from estimates. Such differences may be material to the consolidated financial statements.

Foreign Currency Translation and Derivative Instruments

We generally utilize forward contracts with terms of one to 18 months to reduce our foreign currency exposure due to exchange rate
fluctuations on forecasted cash flows denominated in non-functional foreign currencies. Upon proper designation, certain of these contracts are accounted for as cash-flow hedges, as defined by the authoritative guidance. These contracts are entered
into to protect against the risk that the eventual cash flows resulting from such transactions will be adversely affected by changes in exchange rates. In using derivative financial instruments to hedge exposures to changes in exchange rates, we
expose ourselves to counterparty credit risk. We believe that our derivative financial instruments do not expose us to a concentration of credit risk because the counterparties are well established institutions and we monitor counterparty credit
risk information on an ongoing basis.

All derivatives, including foreign currency forward contracts, are recognized in other
current assets or liabilities on the balance sheet at fair value. Fair values for our derivative financial instruments are based on quoted market prices of comparable instruments or, if none are available, on pricing models or formulas using current
market and model assumptions. On the date the foreign exchange contract is entered into, we determine whether that derivative contract should be designated as a cash flow hedge. Changes in the fair value of derivatives that are highly effective and
designated as cash flow hedges are recorded in Accumulated other comprehensive income (loss) until the forecasted underlying transactions occur. To date we have not experienced any hedge ineffectiveness of our cash flow hedges (except
certain cash flow hedges previously determined to be effective, as of October 1, 2009, the date of the Combination, which have since been designated to be ineffective at that date). For effective cash flow hedges, the realized gain or loss is
recognized in the same period the hedged forecasted cash flows affect the statement of operations. Any realized gains or losses resulting from the cash flow hedges are recorded within Other Income (expense). Cash flows from the
derivative contracts are classified within Cash flows from operating activities in the accompanying Consolidated Statement of Cash Flows.

We may also enter into derivative contracts that are intended to economically hedge certain risks, even though we elect not to apply hedge accounting as defined by the authoritative guidance. For
instance, we also enter into foreign exchange forward contracts to hedge against translation gains and losses on certain receivables and payables that are not selected for hedge accounting and, accordingly, the changes in these contracts, as well as
the offsetting gain or loss on the hedged asset or liability are recognized in the statement of operations.

Changes in fair
value of derivatives not designated as hedges are reported in income. Upon settlement of the derivatives qualifying as hedges, a gain or loss is reported in income.

The assets and liabilities of our foreign subsidiaries, most of whose functional currency is their local currency, are translated at the exchange rate in effect on the reporting date, and income and
expenses are translated at the average exchange rate during the period. The net effect of translation gains and losses is not included in determining net income (loss), but is reflected in accumulated other comprehensive income (loss) as
a separate component of stockholders equity until the sale or until the liquidation of the net investment in the foreign subsidiary. Foreign currency transaction gains and losses are included in determining net income (loss), and are
categorized as Other income (expense).

We formally document all relationships between hedging instruments and
hedged items, as well as our risk management objective and strategy for undertaking various hedging activities. This process includes linking all derivatives that are designated as cash flow hedges to forecasted transactions. We also formally
assess, both at the hedges inception and on an ongoing basis (as required), whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the value of cash flows of hedged items on a prospective
and retrospective basis. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge or if a forecasted hedge is no longer probable of occurring, we discontinue hedge accounting
prospectively. Hedge accounting is also discontinued prospectively when (1) the derivative is no longer effective in offsetting changes in cash flow of a hedged item; (2) the derivative expires or is sold, terminated, or exercised;
(3) it is no longer probable that the forecasted transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; (5) the derivative as a hedging instrument is no longer effective; or
(6) it is discontinued with purchase accounting.

As of September 30, 2010 and December 31, 2009, we had
approximately $192,234 and $111,994, respectively, of foreign exchange risk hedged using forward exchange contracts. As of September 30, 2010, these forward exchange contracts were comprised of $18,165 of contracts previously designated as
effective cash flow hedges, but as of October 1, 2009, determined to be ineffective, $116,145 of contracts determined to be effective cash flow hedges and $57,924 of contracts for



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)



which we elected not to apply hedge accounting. As of December 31, 2009, the $111,994 of forward exchange contracts we held were comprised of $80,470 of contracts previously determined to be
effective cash flow hedges but, as of October 1, 2009, determined to be ineffective, $7,733 of contracts determined to be effective cash flow hedges and $23,791 of contracts for which we elected not to apply hedge accounting.

As of September 30, 2010 and September 30, 2009, the change in the fair market value of the derivative instruments designated
as cash flow hedges was $2,624 and $(87), respectively, which is reflected in accumulated other comprehensive income (loss). As of September 30, 2010, the fair market value of derivatives previously determined to be effective cash flow hedges
but, as of October 1, 2009, determined to be ineffective was an asset position of $1,674 of which $1,120 was recognized in Other Income/Expense in the Statement of Operations. As of September 30, 2010, the fair market value of derivatives
for which we elected not to apply hedge accounting was an asset position of $282, which is recognized in Other Income/Expense in the Statement of Operations.

Fair Value of Financial Instruments

Effective January 1, 2008,
we implemented authoritative guidance, for our financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at
least annually.

The following table presents information about our assets and liabilities and indicates the fair value
hierarchy of the valuation techniques we utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by
Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is
little, if any, market activity for the asset or liability:



|                           |  |                   |         |  |                                         |   |         |                                             |  |   |                                  |  |  |   |   | 
|-------------------------- |  | ----------------- | ------- |  | --------------------------------------- | - | ------- | ------------------------------------------- |  | - | -------------------------------- |  |  | - | - | 
|                           |  | September 30,2010 |         |  | Quoted Prices inActive Markets(Level 1) |   |         | Significant OtherObservable Inputs(Level 2) |  |   | SignificantUnobservable(Level 3) | 
|Description                |  |                   |         |  |                                         |   |         |                                             |  |   |                                  |  |  |   |   | 
|Long-term debt             |  | $                 | 196,000 |  |                                         | $ | 196,000 |                                             |  | $ |                                 |  |  | $ |  | 
|Forward exchange contracts |  |                   | 5,771   |  |                                         |   |        |                                             |  |   | 5,771                            |  |  |   |  | 
|                           |  |                   |         |  |                                         |   |         |                                             |  |   |                                  |  |  |   |   | 
|Total                      |  | $                 | 201,771 |  |                                         | $ | 196,000 |                                             |  | $ | 5,771                            |  |  | $ |  | 

The fair value of our
long term debt is determined from market quotations. The fair value of our forward exchange contracts are determined through market quotations, and other observable and corroborated sources.

The carrying amounts reflected in the consolidated balance sheets for other current assets, accounts payable, and accrued expenses
approximate fair value due to their short-term maturities. To the extent we have any outstanding borrowings under our revolving credit facility, the fair value would approximate its reported value because the interest rate is variable and reflects
current market rates.

Net Income (Loss) Per Share

In 2009, we calculated net income (loss) per share in accordance with authoritative guidance which clarified the use of the two-class method of calculating earnings per share. We determined
that our Preferred Stock represented a participating security for purposes of computing earnings per share and allocated earnings per share to a participating security using the two-class method for computing basic earnings per share.

Under the two-class method, basic net income (loss) per share is computed by dividing the net income (loss) applicable to common
stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share is computed using the more dilutive of (a) the two-class method or (b) the if-converted method. We allocated net
income first to the preferred stockholders based on dividend rights under our certificate of incorporation and then to common and preferred stockholders collectively based on ownership interests. Net losses are not allocated to preferred
stockholders. Diluted net income (loss) per share gives effect to all potentially dilutive securities.

The two-class method
is not applicable to the three and nine month periods ended September 30, 2010 due to the conversion of our preferred stock to common stock on October 1, 2009.



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STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





The following
common stock equivalents were excluded from computing diluted net loss per share attributable to common stockholders because they had an anti-dilutive impact:



|                                                                                                                |  |                        |        |  |                        |  |        | 
|--------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ |  | ---------------------- |  | ------ | 
|                                                                                                                |  | As
ofSeptember 30,2010 |        |  | As
ofSeptember 30,2009 | 
|Options to purchase common stock and restricted stock awards                                                    |  |                        | 6,777  |  |                        |  | 3,049  | 
|Pre-emptive rights at $6.00 per share                                                                           |  |                        | 17,852 |  |                        |  |       | 
|Preferred stock convertible to common stock at $6.00 per share                                                  |  |                        |       |  |                        |  | 26,155 | 
|Ares warrants to purchase common stock at $6.00 per share                                                       |  |                        |       |  |                        |  | 7,500  | 
|Publicly held warrants at $6.00 per share                                                                       |  |                        | 7,327  |  |                        |  | 20,522 | 
|Shares of restricted stock                                                                                      |  |                        | 526    |  |                        |  |       | 
|                                                                                                                |  |                        |        |  |                        |  |        | 
|                                                                                                                |  |                       
|Total options, pre-emptive rights, preferred stock, warrants exercisable into common stock and restricted stock |  |                        | 32,482 |  |                        |  | 57,226 | 

Recent
Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued guidance
to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical
assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on
purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for us with the reporting period beginning January 1,
2010, except for the requirement to separately disclose purchases, sales, issuances and settlements of recurring Level 3 fair value measurements which is effective January 1, 2011. Other than requiring additional disclosures, adoption of this
new guidance did not have a material impact on our financial statements.

In October 2009, the FASB issued guidance on revenue
recognition that will become effective for us beginning January 1, 2011, with earlier adoption permitted. Under the new guidance, when vendor specific objective evidence or third party evidence for multi-element deliverables in an arrangement
cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the
application of the relative selling price method affects the timing and amount of revenue recognition. We believe adoption of this new guidance will not have a material impact on our financial statements.

Note 5Acquisitions

EGS Acquisition:

We acquired EGS to expand our CRM and BPO service capabilities on a global basis. With 50 locations in 22 countries and over 30,000 employees worldwide, we offer our clients customized global capabilities
that can deliver integrated services in almost any geographic region across the world. EGS provided us with the ability to broaden our service offerings to include a full portfolio of sales and revenue generation, warranty management, customer
loyalty and brand management, customer care, technical support, and customer life cycle management services.



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





Stream and EGS
entered into a share exchange agreement pursuant to which Stream issued 33,652 shares of its common stock for all the outstanding shares of EGS. The purchase price calculation was as follows:



|                                |  |   |         | 
|------------------------------- |  | - | ------- | 
|Purchase price in common shares |  | $ | 181,718 | 
|Value of pre-emptive rights     |  |   | 1,384   | 
|                                |  |   |         | 
|Total allocable purchase price  |  | $ | 183,102 | 

The acquisition was
accounted for in accordance with the authoritative guidance. The transaction was valued for accounting purposes at $183,102.

The exercise of our publicly traded warrants trigger certain pre-emptive rights held by: Ares, EGS Dutchco B.V. and NewBridge
International Investment Ltd. (collectively, the Participating Shareholders). Pursuant to their pre-emptive rights, the Participating Shareholders have the right to purchase, for $6.00 per share, an aggregate number of shares of our
common stock equal to 2.4364 multiplied by the number of shares issued upon the exercise of the publicly traded warrants. The Participating Shareholders received these pre-emptive rights in association with the acquisition of EGS and, accordingly,
we have treated the value of these rights as additional purchase consideration. These pre-emptive rights expire when the publicly traded warrants expire on October 17, 2011, and the number of shares that the Participating Shareholders may acquire
upon exercise of their pre-emptive rights is reduced pro rata as the number or publicly traded warrants outstanding is reduced.

Under the purchase method of accounting, the assets and liabilities of EGS were recorded as of the acquisition date at their respective
fair values. The excess purchase price over those values was recorded as goodwill. The following table summarizes the preliminary estimated fair value of assets acquired and the liabilities assumed and related deferred income taxes at
October 1, 2009, the date of the acquisition.



|                          |  |                                                 |          |   |                     |  |        |                                |  |   |          |  
|------------------------- |  | ----------------------------------------------- | -------- | - | ------------------- |  | ------ | ------------------------------ |  | - | -------- | -
|                          |  | Preliminary AmountsAs
ReportedDecember 31, 2009 |          |   | AdjustmentsRecorded |  |        | Final Purchase PriceAllocation | 
|Current assets            |  | $                                               | 99,631   |   |                     |  |        |                                |  | $ | 99,631   |  
|Property and equipment    |  |                                                 | 46,952   |   |                     |  |        |                                |  |   | 46,952   |  
|Goodwill                  |  |                                                 | 177,478  |   |                     |  | 722    |                                |  |   | 178,200  |  
|Trade names               |  |                                                 | 100      |   |                     |  |        |                                |  |   | 100      |  
|Customer relationships    |  |                                                 | 30,300   |   |                     |  |        |                                |  |   | 30,300   |  
|Customer contracts        |  |                                                 | 1,701    |   |                     |  |        |                                |  |   | 1,701    |  
|Other non-current assets  |  |                                                 | 4,898    |   |                     |  |        |                                |  |   | 4,898    |  
|                          |  |                                                 |          |   |                     |  |        |                                |  |   |          |  
|Total assets acquired     |  |                                                 | 361,060  |   |                     |  |        |                                |  |   | 361,782  |  
|Current liabilities       |  |                                                 | (81,866  | ) |                     |  | (1,600 | )                              |  |   | (83,466  | )
|Related party debt        |  |                                                 | (85,254  | ) |                     |  |        |                                |  |   | (85,254  | )
|Other liabilities         |  |                                                 | (10,838  | ) |                     |  | 878    |                                |  |   | (9,960   | )
|                          |  |                                                 |          |   |                     |  |        |                                |  |   |          |  
|Total liabilities assumed |  |                                                 | (177,958 | ) |                     |  |        |                                |  |   | (178,680 | )
|                          |  |                                                 |          |   |                     |  |        |                                |  |   |          |  
|Allocated purchase price  |  | $                                               | 183,102  |   |                     |  |        |                                |  | $ | 183,102  |  

As described, a
preliminary estimate of the allocation of the total allocable purchase price of $183,102 to the net assets of EGS was made as of the date of the acquisition. Pursuant to authoritative guidance, we had up to one year from the acquisition date to
finalize the allocation of the purchase price. During the three and nine months ended September 30, 2010, we adjusted the preliminary values assigned to certain assets and liabilities in order to reflect additional information obtained
subsequent to the acquisition date. The opening balance sheet has been adjusted to reflect these changes, the most significant of which were an increase to current liabilities of $1.6 million following a court ruling made in September 2010 relating
to a contingent liability that existed prior to our acquisition of EGS and a decrease to net deferred tax liabilities of $0.6 million. As of September 30, 2010, we have finalized our allocation of the total allocable purchase price.

The following is a roll-forward of goodwill from December 31, 2009:



|                                        |  |   |         |  
|--------------------------------------- |  | - | ------- | -
|Balance at December 31, 2009            |  | $ | 226,027 |  
|Record liability for litigation         |  |   | 1,600   |  
|Adjustments to deferred tax liabilities |  |   | (878    | )
|                                        |  |   |         |  
|Balance at September 31, 2010           |  |   | 226,749 |  



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





We recognized
$12,245 of transaction related costs that were expensed in the year ended December 31, 2009. These costs are included in the consolidated income statement in the line titled transaction related, restructuring and severance expenses.
We recorded adjustments of $0 and $405 to our transaction related accruals for the three and nine months ended September 30, 2010, respectively. These costs are included in the consolidated income statement in the line titled transaction
related, restructuring and severance expenses .The following unaudited pro forma financial information presents the consolidated results of operations of SGS and EGS as if the acquisition of EGS had occurred as of the beginning of the periods
presented below. The historical financial information has been adjusted to give effect to events that are directly attributable to the Combination (including amortization of purchased intangible assets and debt costs associated with the acquisition,
debt costs associated with our high yield debt offering and conversion of preferred stock to common stock), and upon the pro forma statements of operations, have a recurring impact. The unaudited pro forma financial information is not intended, and
should not be taken as representative of our future consolidated results of operations or financial condition or the results that would have occurred had the acquisition occurred as of the beginning of the earliest period.



|                                             |  |             |         |   |      |   |         |  
|-------------------------------------------- |  | ----------- | ------- | - | ---- | - | ------- | -
|                                             |  | Years ended |        
|                                             |  | 2009        |         |   | 2008 |  
|Revenue                                      |  | $           | 797,005 |   |      | $ | 823,239 |  
|Net loss attributable to common shareholders |  |             | (40,698 | ) |      |   | (44,026 | )
|Basic and diluted net loss per share         |  | $           | (0.51   | ) |      | $ | (0.56   | )

Amortization expense of
intangible assets acquired with our business combinations is as follows:



|                     |  |                                     |       |  |                                    |   |        | 
|-------------------- |  | ----------------------------------- | ----- |  | ---------------------------------- | - | ------ | 
|                     |  | Three months endedSeptember
30,2010 |       |  | nine months endedSeptember 30,2010 |  
|Amortization expense |  | $                                   | 5,131 |  |                                    | $ | 15,631 | 

Note 6Preferred Stock

On October 1, 2009, upon the closing of the Combination, all outstanding shares of our Series A Preferred Stock and
Series B Preferred Stock, all of which were held by Ares, were converted into approximately 35,000 shares of our common stock and all authorized shares of Series A Preferred Stock and Series B Preferred Stock were cancelled. In addition, a warrant
to purchase 7,500 shares of our common stock owned by Ares, with an exercise price of $6.00 per share and exercisable until 2018, was surrendered to us for cancellation upon the closing of the Combination in partial consideration for 1,000 shares of
our common stock.

Note 7Publicly Traded Warrants

In our initial public offering, we sold 31,250 units, each consisting of one share of our common stock and one warrant entitling the holder to purchase one share of our common stock at an exercise price
of $6.00 per share.

The warrants became exercisable on October 17, 2008 and will expire on October 17, 2011, unless
redeemed earlier. As of October 17, 2008, we may redeem the warrants at a price of $0.01 per warrant upon a minimum of 30 days prior written notice of redemption if, and only if, the closing price of our common stock equals or exceeds $11.50
per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption.

During the three months and nine months ended September 30, 2010, holders of our publicly traded warrants exercised 2 warrants and 383 warrants, respectively for proceeds to us of $12 and $2,307,
respectively. As of September 30, 2010 there were 7,327 warrants outstanding, including 30 warrants embedded in our outstanding units. During the nine months ended September 30, 2010, we repurchased 2,271 warrants at $0.70 per warrant
resulting in cash outflows of $1,608.



The exercise
of our publicly traded warrants triggers certain pre-emptive rights held by the Participating Shareholders. Pursuant to their pre-emptive rights, upon the exercise of a publicly traded warrant, the Participating Shareholders have the right to
purchase, for $6.00 per share, an aggregate number of shares of our common stock equal to 2.4364 multiplied by the number of shares issued upon exercise of the publicly traded warrants. These pre-emptive rights expire when the publicly traded
warrants expire on October 17, 2011 and the number of shares that the Participating Shareholders may acquire upon exercise of their pre-emptive rights is reduced pro rata as the number of publicly traded warrants outstanding is reduced. During
the nine months ended September 30, 2010, the Participating Shareholders purchased 25 shares of our common stock pursuant to their pre-emptive rights for proceeds to us of $80. As of September 30, 2010, Stream had 7,327 publicly traded
warrants outstanding, each to acquire a share of common stock at a cash exercise price of $6.00 per share that expire on October 17, 2011. In addition, as of September 30, 2010, pursuant to their pre-emptive rights, the Participating
Shareholders may acquire up to an aggregate 17,852 shares.

Note 8 Transaction Related, Restructuring and Severance Expenses

During the three and nine months ended September 30, 2010, we recognized certain expenses for non-agent severance and
for vacated facilities in our foreign locations of $3,746 and $8,716, respectively. During the three months ended September 30, 2010, transaction related, restructuring and severance expenses of $3,746 primarily related to severance recorded for
executives and included $1,586 of stock compensation expense related to the accelerated vesting of our former Chief Executive Officers stock option grants (see Note 14). During the nine months ended September 30, 2010, transaction related,
restructuring and severance expenses of $8,716 included approximately $3,489 related to severance recorded, $1,586 of stock compensation expense related to the accelerated vesting of our former Chief Executive Officers stock option grants, and
$3,641 related to lease exit costs.

During the three months ended September 30, 2009, transaction related, restructuring and
severance expenses of $3,189 included transaction related expenses of $2,992 and severance recorded for $197. During the nine months ended September 30, 2009, transaction related, restructuring and severance expenses of $3,917 included transaction
related expenses of $2,992 and severance recorded of $925. These amounts are reported within the caption transaction related, restructuring and severance expenses in our statement of operations.



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





Note 9Equipment and
Fixtures, Net

Equipment and fixtures, net, consists of the following:



|                                                 |  |                   |         |   |                  |   |         |  
|------------------------------------------------ |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                 |  | September 30,2010 |         |   | December 31,2009 |  
|Furniture and fixtures                           |  | $                 | 11,261  |   |                  | $ | 10,948  |  
|Building improvements                            |  |                   | 36,074  |   |                  |   | 32,044  |  
|Computer equipment                               |  |                   | 36,571  |   |                  |   | 31,142  |  
|Software                                         |  |                   | 19,113  |   |                  |   | 14,586  |  
|Telecom and other equipment                      |  |                   | 41,885  |   |                  |   | 38,157  |  
|Fixed assets held for sale                       |  |                   | 75      |   |                  |   | 228     |  
|Equipment and fixtures not yet placed in service |  |                   | 232     |   |                  |   | 1,415   |  
|                                                 |  |                   |         |   |                  |   |         |  
|                                                 |  |                   | 145,211 |   |                  |   | 128,520 |  
|Less: accumulated depreciation                   |  |                   | (64,708 | ) |                  |   | (31,704 | )
|                                                 |  |                   |         |   |                  |   |         |  
|                                                 |  | $                 | 80,503  |   |                  | $ | 96,816  |  

Depreciation expense
for the three and nine months ended September 30, 2010 and 2009 was as follows:



|                     |  |                                      |        |  |                                       |   |       |                                      |  |   |                                     |  |  |   |        | 
|-------------------- |  | ------------------------------------ | ------ |  | ------------------------------------- | - | ----- | ------------------------------------ |  | - | ----------------------------------- |  |  | - | ------ | 
|                     |  | Three months endedSeptember
20, 2010 |        |  | Three months 
endedSeptember 30, 2009 |   |       | Nine months 
endedSeptember 30, 2010 |  |   | Nine
months endedSeptember 30, 2009 | 
|Depreciation expense |  | $                                    | 11,225 |  |                                       | $ | 5,214 |                                      |  | $ | 33,690                              |  |  | $ | 13,979 | 

Note 10Accrued Employee
Compensation and Benefits

Accrued employee compensation and benefits consists of the following:



|                                  |  |                   |        |  |                  |   |        | 
|--------------------------------- |  | ----------------- | ------ |  | ---------------- | - | ------ | 
|                                  |  | September 30,2010 |        |  | December 31,2009 |  
|Compensation related amounts      |  | $                 | 26,836 |  |                  | $ | 29,213 | 
|Vacation liabilities              |  |                   | 13,275 |  |                  |   | 13,492 | 
|Medical and dental liabilities    |  |                   | 2,410  |  |                  |   | 2,972  | 
|Employer taxes                    |  |                   | 2,952  |  |                  |   | 1,531  | 
|Employee withholdings             |  |                   | 7,004  |  |                  |   | 7,806  | 
|Other benefit related liabilities |  |                   | 2,989  |  |                  |   | 2,461  | 
|                                  |  |                   |        |  |                  |   |        | 
|                                  |  | $                 | 55,466 |  |                  | $ | 57,475 | 

Note 11Other Accrued
Expenses and Other Liabilities

Other accrued expenses consist of the following:



|                       |  |                   |        |  |                  |   |        | 
|---------------------- |  | ----------------- | ------ |  | ---------------- | - | ------ | 
|                       |  | September 30,2010 |        |  | December 31,2009 |  
|Professional fees      |  | $                 | 7,581  |  |                  | $ | 5,447  | 
|Accrued interest       |  |                   | 11,534 |  |                  |   | 6,041  | 
|Occupancy expense      |  |                   | 2,708  |  |                  |   | 3,678  | 
|Technology expense     |  |                   | 3,202  |  |                  |   | 4,050  | 
|Other accrued expenses |  |                   | 10,045 |  |                  |   | 9,283  | 
|                       |  |                   |        |  |                  |   |        | 
|                       |  | $                 | 35,070 |  |                  | $ | 28,499 | 



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





Other liabilities
consist of the following:



|                             |  |                  |        |  |                  |   |        | 
|---------------------------- |  | ---------------- | ------ |  | ---------------- | - | ------ | 
|                             |  | September 302010 |        |  | December 31,2009 |  
|Lease exit liability         |  | $                | 2,313  |  |                  | $ | 924    | 
|Deferred revenue             |  |                  | 0      |  |                  |   | 635    | 
|Market lease reserves        |  |                  | 4,484  |  |                  |   | 5,548  | 
|Other                        |  |                  | 1,135  |  |                  |   | 906    | 
|                             |  |                  |        |  |                  |   |        | 
|Total current liabilities    |  | $                | 7,932  |  |                  | $ | 8,013  | 
|                             |  |                 
|Deferred rent                |  | $                | 1,443  |  |                  | $ | 955    | 
|Accrued income taxes         |  |                  | 12,507 |  |                  |   | 11,976 | 
|Market lease reserves        |  |                  | 3,426  |  |                  |   | 7,418  | 
|Asset retirement obligations |  |                  | 2,022  |  |                  |   | 2,162  | 
|Other                        |  |                  | 2,326  |  |                  |   | 355    | 
|                             |  |                  |        |  |                  |   |        | 
|Total long-term              |  | $                | 21,724 |  |                  | $ | 22,866 | 

Note 12Long-Term Debt and
Revolving Credit Facility

In October 2009, pursuant to an indenture dated as of October 1, 2009 (the
Indenture), among Stream, certain of our subsidiaries and Wells Fargo Bank, National Association, as trustee, we issued $200 million aggregate principal amount of 11.25% Senior Secured Notes due 2014 (the Notes) at an initial
offering price of 95.454% of the principal amount, the proceeds of which were used to pay off the debt from our Fifth Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of January 8, 2009, as amended (the
PNC Agreement), with PNC Bank, National Association (PNC) and other signatories thereto along with debt acquired from EGS. In addition, we and certain of our subsidiaries (collectively, the Borrowers) entered into
a credit agreement, dated as of October 1, 2009 (the Credit Agreement), with Wells Fargo Foothill, LLC, as agent and co-arranger, and Goldman Sachs Lending Partners LLC, as co-arranger, and each of the lenders party thereto, as
lenders, providing for revolving credit financing (the ABL Facility) of up to $100 million, including a $20 million sub-limit for letters of credit. The ABL Facility has a term of four years at an interest rate of Wells Fargos base
rate plus 300 basis points or LIBOR plus 400 basis points, at our discretion. We capitalized fees of $7,552 and $3,631 associated with the Notes and the Credit Agreement, respectively, at the inception of these agreements that are being amortized
over their respective lives. We amortized into expense for the three and nine months ended September 30, 2010, $556 and $1,602, respectively, of such capitalized fees.

The ABL facility has a fixed charge coverage ratio financial covenant that is operative when our availability under the facility is less than $20 million. As of September 30, 2010, we had $66,141
available under the ABL Facility. We are in compliance with the financial covenants in the Credit Agreement as of September 30, 2010. Substantially all of the assets of Stream excluding intangible assets secure the Notes and the ABL Facility.
See Note 16 for Guarantor Financial Information.

Long-term borrowings consist of the following:



|                                |  |                   |         |   |                  |   |         |  
|------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                |  | September 30,2010 |         |   | December 31,2009 |  
|Revolving line of credit        |  | $                 | 22,632  |   |                  | $ | 15,501  |  
|11.25% Senior Secured Notes     |  |                   | 200,000 |   |                  |   | 200,000 |  
|Other                           |  |                   | 170     |   |                  |   | 237     |  
|                                |  |                   |         |   |                  |   |         |  
|                                |  |                   | 222,802 |   |                  |   | 215,738 |  
|Less: current portion           |  |                   | (96     | ) |                  |   | (90     | )
|Less: discount on notes payable |  |                   | (7,729  | ) |                  |   | (8,768  | )
|                                |  |                   |         |   |                  |   |         |  
|Long-term debt                  |  | $                 | 214,977 |   |                  | $ | 206,880 |  
|                                |  |                   |         |   |                  |   |         |  



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





Minimum principal
payments on long-term debt subsequent to September 30, 2010 are as follows:



|      |  |       |         | 
|----- |  | ----- | ------- | 
|      |  | Total |        
|2010  |  | $     | 23      | 
|2011  |  |       | 96      | 
|2012  |  |       | 51      | 
|2013  |  |       | 22,632  | 
|2014  |  |       | 200,000 | 
|      |  |       |         | 
|Total |  | $     | 222,802 | 
|      |  |       |         | 

We had $0 and $6,600 letter of credit guarantees outstanding at September 30, 2010 and
December 31, 2009, respectively.

We had $7,295 and $1,988 letters of credit under the ABL Facility outstanding at
September 30, 2010 and December 31, 2009, respectively.

We had $210 and $359 of restricted cash as of
September 30, 2010 and December 31, 2009, respectively.

Note 13Income Taxes

We file income tax returns in the U.S. federal jurisdiction and various state and foreign tax jurisdictions. Currently, we are under audit
for the 2007 tax year for EGS in the US federal jurisdiction as well as various state sales and property tax audits. We operate in a number of international tax jurisdictions and are subject to audits of income tax returns by tax authorities in
those jurisdictions. We have open audit periods after 2002 in India, the Philippines, Canada and Europe, including France, Italy, Ireland, the Netherlands and the United Kingdom.

As of September 30, 2010 and December 31, 2009, the liability for unrecognized tax benefits (including interest and penalties)
was $14,168 and $13,319, respectively, of which $12,507 and $11,976, respectively, was recorded within other long term liabilities in our consolidated financial statements. Included in these amounts is approximately $1,599 of un-benefitted tax
losses which would be realized if the related uncertain tax positions were settled. As of December 31, 2009, we had reserved $2,472 for accrued interest and penalties, which increased to $2,830 as of September 30, 2010. We recognize
accrued interest and penalties associated with uncertain tax positions as part of the tax provision. The total amount of net unrealized tax benefits that would affect the income tax expense, if ever recognized in our consolidated financial
statements, is $13,304. This amount includes interest and penalties of $2,830. We estimate that within the next 12 months, our unrecognized tax benefits, and interest and penalties, could decrease as a result of settlements with taxing authorities
or the expiration of the statute of limitations by $1,407 and $1,081, respectively.

Note 14Stock Options

Our 2008 Stock Incentive Plan (the Plan) provides for the grant of incentive and nonqualified stock options, among other types
of equity awards. The Plan allows us to grant equity awards for up to 10,000 shares of common stock at an exercise price not less than 100% of the fair value of the common stock at the date of grant. The Plan provides that equity awards shall be
exercisable for a period not to exceed ten years from the grant date. During the nine months ended September 30, 2010 and 2009, we granted options to purchase 2,688 shares and 718 shares, respectively, of our common stock to our employees with
an exercise price at the greater of $6.00 per share or the fair value of the underlying common stock at the date of grant. Generally, options vest over a five-year period. During the three months ended September 30, 2010, under the terms of his
employment and option agreements, 400 options to purchase our common stock previously granted to our former Chief Executive Officer, R. Scott Murray, were subject to accelerated vesting in connection with his resignation. Collectively with 200
options that were previously vested, as of September 30, 2010, options to purchase 600 shares of our common stock out of the total 2,000 options held by Mr. Murray were vested but not exercisable. Mr. Murrays options become
exercisable when our common stock closing price is at or above $10.60 for 60 consecutive trading days and our public float, excluding affiliates, equals or exceeds $300,000 or certain affiliated stockholders have in the aggregate sold 25% or more of
their aggregate ownership as measured against their ownership as of November 10, 2009. The 600 vested options expire on August 21, 2012 and the remaining 1,400 unvested options held by Mr. Murray were cancelled on
August 19, 2010.



Except for options to
purchase 2,000 shares of our common stock held by our former Chief Executive Officer, the per share fair value of options granted was determined using the Black-Scholes-Merton model.

The following assumptions were used for the option grants in the three months ended September 30, 2010 and 2009:



|                        |  |                                      |              |   |                                      |  |             |  
|----------------------- |  | ------------------------------------ | ------------ | - | ------------------------------------ |  | ----------- | -
|                        |  | Nine months 
endedSeptember 30, 2010 |              |   | Nine months 
endedSeptember 30, 2009 | 
|Option term (years)     |  |                                      | 6.375        |   |                                      |  | 6.375       |  
|Volatility              |  |                                      | 64% - 68     | % |                                      |  | 43          | %
|Risk-free interest rate |  |                                      | 1.73% - 3.06 | % |                                      |  | 1.91 - 2.83 | %



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STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





|                                                          |  |                                      |      |   |                                     |   |      |  
|--------------------------------------------------------- |  | ------------------------------------ | ---- | - | ----------------------------------- | - | ---- | -
|                                                          |  | Nine months 
endedSeptember 30, 2010 |      |   | Nine months endedSeptember 30, 2009 |  
|Dividend yield                                            |  |                                      | 0    | % |                                     |   | 0    | %
|Weighted-average grant date fair value per option granted |  | $                                    | 3.48 |   |                                     | $ | 1.23 |  

The option term
assumption was calculated under the simplified method for all option grants as we do not have a long history of granting options. We base the expected volatility assumption upon the weighted average of the historical volatilities for Stream and its
peer group. The risk-free interest rate assumption was based upon the implied yields from the U.S. Treasury zero-coupon yield curve with a remaining term equal to the expected term of the options. The expected term of employee stock options granted
was based on our estimated life of the options at the grant date.

A summary of the activity of our stock options under the
Plan during the nine months ended September 30, 2010 was as follows:



|                                  |  |                  |        |   |                              |   |      |                          |  |   |                                                |  |  |  |      | 
|--------------------------------- |  | ---------------- | ------ | - | ---------------------------- | - | ---- | ------------------------ |  | - | ---------------------------------------------- |  |  |  | ---- | 
|                                  |  | Numberof options |        |   | WeightedAverageExercisePrice |   |      | WeightedAverageFairValue |  |   | WeightedAverageRemainingContractualTerm(Years) | 
|Outstanding at December 31, 2009  |  |                  | 6,978  |   |                              | $ | 6.15 |                          |  |   |                                                |  |  |  | 9.39 | 
|Granted                           |  |                  | 2,688  |   |                              |   | 6.14 |                          |  | $ | 3.48                                           |  |  |  |      | 
|Exercised                         |  |                  | (35    | ) |                              |   | 6.00 |                          |  |   |                                                |  |  |  |      | 
|Forfeited or canceled             |  |                  | (2,854 | ) |                              |   | 6.18 |                          |  |   |                                                |  |  |  |      | 
|                                  |  |                  |        |   |                              |   |      |                          |  |   |                                                |  |  |  |      | 
|Outstanding at September 30, 2010 |  |                  | 6,777  |   |                              | $ | 6.13 |                          |  |   |                                                |  |  |  | 8.07 | 

As of
September 30, 2010, stock options to purchase 1,279 shares were exercisable and such options had a weighted-average exercise price of $6.11. The weighted average remaining contractual term of options currently exercisable is 5.67 years at
September 30, 2010. The total fair value of options vested during the nine months ended September 30, 2010 was $4,886. As of September 30, 2010 there were 5,131 options outstanding, vested, and expected to vest (including forfeiture
adjusted unvested shares) with a weighted average exercise price of $6.13 and a weighted average remaining contractual term of 7.76 years.

For the three months ended September 30, 2010 and 2009, we recognized net stock compensation expense of $2,402 and $168, respectively, for the stock options in the table above. For the nine months
ended September 30, 2010 and 2009, we recognized net stock compensation expense of $4,670 and $416, respectively, for the stock options in the table above.

During the three and nine months ended September 30, 2010 we recorded $1,586 of stock compensation expense to transaction related, restructuring and severance expenses in our condensed
consolidated statement of operations related to the accelerated vesting of our former Chief Executive Officers stock option grants.

As of September 30, 2010 and December 31, 2009, the aggregate intrinsic value (i.e., the difference in the estimated fair value of our common stock and the exercise price to be paid by the
option holder) of stock options outstanding, excluding the effects of expected forfeitures, was zero. The aggregate intrinsic value of exercisable shares at September 30, 2010 and December 31, 2009 was zero. The intrinsic value of options
exercised for the three months ended September 30, 2010 and September 30, 2009, was $19 and zero, respectively.

As
of September 30, 2010 and December 31, 2009, there was $8,361 and $10,325, respectively, of unrecognized compensation cost related to the unvested portion of time-based arrangements granted under the Plan. That cost is expected to be
recorded over a weighted-average period of 4.0 years from issue date.



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





Restricted stock
award activity during the nine months ended September 30, 2010 was as follows:



|                                  |  |                 |      |   |                                      |   |      | 
|--------------------------------- |  | --------------- | ---- | - | ------------------------------------ | - | ---- | 
|                                  |  | Number ofShares |      |   | WeightedaverageGrant-Date Fair Value |  
|Outstanding at December 31, 2009  |  |                 | 632  |   |                                      | $ | 6.28 | 
|Granted                           |  |                 | 200  |   |                                      |   | 6.23 | 
|Vested                            |  |                 | (83  | ) |                                      |   | 6.46 | 
|Forfeited                         |  |                 | (223 | ) |                                      |   | 6.35 | 
|                                  |  |                 |      |   |                                      |   |      | 
|Outstanding at September 30, 2010 |  |                 | 526  |   |                                      | $ | 6.20 | 

For the three months
ended September 30, 2010 and 2009, we recognized net compensation expense of $180 and $41, respectively, for the restricted stock awards. Restricted stock awards vest either quarterly over four years for grants awarded in 2008 or semi-annually
over five years for grants awarded thereafter.

For the nine months ended September 30, 2010 and 2009, we recognized net
compensation expense of $683 and $130, respectively, for the restricted stock awards. Restricted stock awards vest either quarterly over four years for grants awarded in 2008 or semi-annually over five years for grants awarded thereafter.

Note 15Geographic Operations and Concentrations

We operate in one operating segment, providing business process outsourcing services to our customers under our delivery model on a global basis. As additional information about our global business, we
show results for two regions in the table below: Americas, which includes United States, Canada, the Philippines, India, Costa Rica, Nicaragua, Dominican Republic, and El Salvador; and EMEA, which includes Europe, Middle
East, and Africa.

The following table presents geographic information regarding our operations:



|         |  |                                 |         |  |                                |   |         |      |  |   |         |  |  |   |         | 
|-------- |  | ------------------------------- | ------- |  | ------------------------------ | - | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|         |  | Three Months EndedSeptember
30, |         |  | Nine Months EndedSeptember
30, |  
|         |  | 2010                            |         |  | 2009                           |   |         | 2010 |  |   | 2009    | 
|Revenues |  |                                 |         |  |                                |   |         |      |  |   |         |  |  |   |         | 
|Americas |  | $                               | 146,262 |  |                                | $ | 72,146  |      |  | $ | 425,430 |  |  | $ | 227,668 | 
|EMEA     |  |                                 | 50,884  |  |                                |   | 49,729  |      |  |   | 152,195 |  |  |   | 155,491 | 
|         |  |                                 |         |  |                                |   |         |      |  |   |         |  |  |   |         | 
|         |  | $                               | 197,146 |  |                                | $ | 121,875 |      |  | $ | 577,625 |  |  | $ | 383,159 | 
|         |  |                                 |         |  |                                |   |         |      |  |   |         |  |  |   |         | 



|             |  |                   |         |  |                  |   |         | 
|------------ |  | ----------------- | ------- |  | ---------------- | - | ------- | 
|             |  | September 30,2010 |         |  | December 31,2009 |  
|Total Assets |  |                   |         |  |                  |   |         | 
|Americas     |  | $                 | 567,980 |  |                  | $ | 594,116 | 
|             |  |                  
|EMEA         |  |                   | 81,952  |  |                  |   | 86,707  | 
|             |  |                   |         |  |                  |   |         | 
|             |  | $                 | 649,932 |  |                  | $ | 680,823 | 
|             |  |                   |         |  |                  |   |         | 

We derive significant revenues from three clients. At September 30, 2010, our three largest clients
were as follows:



|                |  |                                 |    |   |                                |  |    |      |  |  |      |   |  |  |    |  
|--------------- |  | ------------------------------- | -- | - | ------------------------------ |  | -- | ---- |  |  | ---- | - |  |  | -- | -
|                |  | Three Months EndedSeptember
30, |    |   | Nine Months EndedSeptember
30, | 
|                |  | 2010                            |    |   | 2009                           |  |    | 2010 |  |  | 2009 |  
|Dell            |  |                                 | 16 | % |                                |  | 20 | %    |  |  | 18   | % |  |  | 19 | %
|Hewlett Packard |  |                                 | 11 | % |                                |  | 21 | %    |  |  | 13   | % |  |  | 18 | %
|Sirius/XM       |  |                                 | 7  | % |                                |  | 11 | %    |  |  | 8    | % |  |  | 11 | %

Related accounts
receivable from these three clients were 23%, 10% and 6%, respectively, of our total accounts receivable at September 30, 2010.



15



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





Note 16Guarantor
Financial Information

Our Notes are guaranteed by Stream, which is the parent company, along with certain of our wholly
owned subsidiaries. Such guarantees are full, unconditional and joint and several. Condensed consolidating financial information related to us, our guarantor subsidiaries and our non-guarantor subsidiaries as of September 30, 2010 are reflected
below:

Condensed Consolidating Balance Sheet

As of September 30, 2010

(unaudited)



|                                             |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|-------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ----------- |  |  | ----- | -------- | - |  | - | ------- | 
|                                             |  | Parent |         |   | Guarantorsubsidiaries |   |         | Non-Guarantorsubsidiaries |  |   | Elimination |  |  | Total |         
|Assets                                       |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Cash and cash equivalents                    |  | $      | 6       |   |                       | $ | 4,145   |                           |  | $ | 17,293      |  |  | $     |         |   |  | $ | 21,444  | 
|Accounts receivable, net                     |  |        |        |   |                       |   | 134,115 |                           |  |   | 37,322      |  |  |       |         |   |  |   | 171,437 | 
|Other current assets                         |  |        | 2,330   |   |                       |   | 22,331  |                           |  |   | 12,468      |  |  |       |         |   |  |   | 37,129  | 
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Total current assets                         |  |        | 2,336   |   |                       |   | 160,591 |                           |  |   | 67,083      |  |  |       |         |   |  |   | 230,010 | 
|Equipment and fixtures, net and other assets |  |        | 7,273   |   |                       |   | 43,108  |                           |  |   | 53,557      |  |  |       |         |   |  |   | 103,938 | 
|Investment in Subsidiary                     |  |        | 497,476 |   |                       |   | 70,504  |                           |  |   | 17          |  |  |       | (567,997 | ) |  |   |        | 
|Goodwill and Intangible assets, net          |  |        |        |   |                       |   | 194,057 |                           |  |   | 121,927     |  |  |       |         |   |  |   | 315,984 | 
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Total assets                                 |  | $      | 507,085 |   |                       | $ | 468,260 |                           |  | $ | 242,584     |  |  | $     | (567,997 | ) |  | $ | 649,932 | 
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Liabilities and Stockholders Equity         |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Current liabilities                          |  |        | (23,781 | ) |                       |   | (2,543  | )                         |  |   | 143,621     |  |  |       |         |   |  |   | 117,297 | 
|Long-term liabilities                        |  |        | 214,904 |   |                       |   | 37,904  |                           |  |   | 14,157      |  |  |       |         |   |  |   | 266,965 | 
|Total shareholders equity (deficit)         |  |        | 315,962 |   |                       |   | 432,899 |                           |  |   | 84,806      |  |  |       | (567,997 | ) |  |   | 265,670 | 
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Total liabilities and stockholders equity   |  | $      | 507,085 |   |                       | $ | 468,260 |                           |  | $ | 242,584     |  |  | $     | (567,997 | ) |  | $ | 649,932 | 
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 

Condensed Consolidating Balance Sheet

As of December 31, 2009

(unaudited)



|                                             |  |        |          |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|-------------------------------------------- |  | ------ | -------- | - | --------------------- | - | ------- | ------------------------- |  | - | ----------- |  |  | ----- | -------- | - |  | - | ------- | 
|                                             |  | Parent |          |   | Guarantorsubsidiaries |   |         | Non-Guarantorsubsidiaries |  |   | Elimination |  |  | Total |         
|Assets                                       |  |        |          |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Cash and cash equivalents                    |  | $      | 126      |   |                       | $ | 3,195   |                           |  | $ | 11,607      |  |  | $     |         |   |  | $ | 14,928  | 
|Accounts receivable, net                     |  |        |         |   |                       |   | 139,025 |                           |  |   | 36,532      |  |  |       |         |   |  |   | 175,557 | 
|Other current assets                         |  |        | 2,083    |   |                       |   | 23,440  |                           |  |   | 11,378      |  |  |       |         |   |  |   | 36,901  | 
|                                             |  |        |          |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Total current assets                         |  |        | 2,209    |   |                       |   | 165,660 |                           |  |   | 59,517      |  |  |       |         |   |  |   | 227,386 | 
|Equipment and fixtures, net and other assets |  |        | 8,662    |   |                       |   | 49,466  |                           |  |   | 64,448      |  |  |       |         |   |  |   | 122,576 | 
|Investment in Subsidiary                     |  |        | 390,971  |   |                       |   | 160,798 |                           |  |   | 27          |  |  |       | (551,796 | ) |  |   |        | 
|Goodwill and Intangible assets, net          |  |        |         |   |                       |   | 204,941 |                           |  |   | 125,920     |  |  |       |         |   |  |   | 330,861 | 
|                                             |  |        |          |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Total assets                                 |  | $      | 401,842  |   |                       | $ | 580,865 |                           |  | $ | 249,912     |  |  | $     | (551,796 | ) |  | $ | 680,823 | 
|                                             |  |        |          |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Liabilities and Stockholders Equity         |  |        |          |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Current liabilities                          |  |        | (132,032 | ) |                       |   | 96,484  |                           |  |   | 150,885     |  |  |       |         |   |  |   | 115,337 | 
|Long-term liabilities                        |  |        | 206,733  |   |                       |   | 40,662  |                           |  |   | 14,680      |  |  |       |         |   |  |   | 262,075 | 
|Total shareholders equity (deficit)         |  |        | 327,141  |   |                       |   | 443,719 |                           |  |   | 84,347      |  |  |       | (551,796 | ) |  |   | 303,411 | 
|                                             |  |        |          |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 
|Total liabilities and stockholders equity   |  | $      | 401,842  |   |                       | $ | 580,865 |                           |  | $ | 249,912     |  |  | $     | (551,796 | ) |  | $ | 680,823 | 
|                                             |  |        |          |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         | 



16



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





Condensed
Consolidating Statement of Operations

For the three months ended September 30, 2010

(unaudited)



|                                     |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|------------------------------------ |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ----------- |  |  | ----- | ------- | - |  | - | ------- | -
|                                     |  | Parent |         |   | Guarantorsubsidiaries |   |         | Non-Guarantorsubsidiaries |  |   | Elimination |  |  | Total |        
|Net revenue:                         |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Customers                            |  | $      |        |   |                       | $ | 155,309 |                           |  | $ | 41,837      |  |  | $     |        |   |  | $ | 197,146 |  
|Intercompany                         |  |        |        |   |                       |   | 22,591  |                           |  |   | 67,994      |  |  |       | (90,585 | ) |  |   |        |  
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|                                     |  |        |        |   |                       |   | 177,900 |                           |  |   | 109,831     |  |  |       | (90,585 | ) |  |   | 197,146 |  
|                                     |  |        |         |   |                      
|Direct cost of revenue               |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Customers                            |  |        |        |   |                       |   | 56,261  |                           |  |   | 57,685      |  |  |       |        |   |  |   | 113,946 |  
|Intercompany                         |  |        |        |   |                       |   | 80,808  |                           |  |   | 9,777       |  |  |       | (90,585 | ) |  |   |        |  
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|                                     |  |        |        |   |                       |   | 137,069 |                           |  |   | 67,462      |  |  |       | (90,585 | ) |  |   | 113,946 |  
|Gross Profit                         |  |        |        |   |                       |   | 40,831  |                           |  |   | 42,369      |  |  |       |        |   |  |   | 83,200  |  
|Operating expenses                   |  |        | 2,640   |   |                       |   | 45,546  |                           |  |   | 37,917      |  |  |       |        |   |  |   | 86,103  |  
|Other (income) expenses, net         |  |        | 6,460   |   |                       |   | (2,189  | )                         |  |   | 2,315       |  |  |       |        |   |  |   | 6,586   |  
|Equity in Earnings of Subsidiaries   |  |        | 5,712   |   |                       |   |        |                           |  |   |            |  |  |       | (5,712  | ) |  |   |        |  
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Income (loss) before income taxes    |  |        | (14,812 | ) |                       |   | (2,526  | )                         |  |   | 2,137       |  |  |       | 5,712   |   |  |   | (9,489  | )
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Provision (benefit) for income taxes |  |        | (2,232  | ) |                       |   | 3,863   |                           |  |   | 1,460       |  |  |       |        |   |  |   | 3,091   |  
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Net income (loss)                    |  | $      | (12,580 | ) |                       | $ | (6,389  | )                         |  | $ | 677         |  |  | $     | 5,712   |   |  | $ | (12,580 | )
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  

Condensed Consolidating Statement of Operations

For the three months ended September 30, 2009

(unaudited)



|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|----------------------------------------------------- |  | ------ | ------ | - | --------------------- | - | ------- | ------------------------- |  | - | ----------- |  |  | ----- | ------- | - |  | - | ------- | -
|                                                      |  | Parent |        |   | Guarantorsubsidiaries |   |         | Non-Guarantorsubsidiaries |  |   | Elimination |  |  | Total |        
|Net revenue:                                          |  |        |        |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Customers                                             |  | $      |       |   |                       | $ | 116,743 |                           |  | $ | 5,132       |  |  | $     |        |   |  | $ | 121,875 |  
|Intercompany                                          |  |        |       |   |                       |   | 22,181  |                           |  |   | 62,432      |  |  |       | (84,613 | ) |  |   |        |  
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|                                                      |  |        |       |   |                       |   | 138,924 |                           |  |   | 67,564      |  |  |       | (84,613 | ) |  |   | 121,875 |  
|                                                      |  |        |        |   |                      
|Direct cost of revenue                                |  |        |        |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Customers                                             |  |        |       |   |                       |   | 35,310  |                           |  |   | 37,258      |  |  |       |        |   |  |   | 72,568  |  
|Intercompany                                          |  |        |       |   |                       |   | 78,089  |                           |  |   | 6,524       |  |  |       | (84,613 | ) |  |   |        |  
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|                                                      |  |        |       |   |                       |   | 113,399 |                           |  |   | 43,782      |  |  |       | (84,613 | ) |  |   | 72,568  |  
|Gross Profit                                          |  |        |       |   |                       |   | 25,525  |                           |  |   | 23,782      |  |  |       |        |   |  |   | 49,307  |  
|                                                      |  |        |        |   |                      
|Operating expenses                                    |  |        | 691    |   |                       |   | 32,404  |                           |  |   | 19,271      |  |  |       |        |   |  |   | 52,366  |  
|Other (income) expenses, net                          |  |        | (280   | ) |                       |   | 2,759   |                           |  |   | 252         |  |  |       |        |   |  |   | 2,731   |  
|Equity in Earnings of Subsidiaries                    |  |        | 6,365  |   |                       |   |        |                           |  |   |            |  |  |       | (6,365  | ) |  |   |        |  
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Income (loss) before income taxes                     |  |        | (6,776 | ) |                       |   | (9,638  | )                         |  |   | 4,259       |  |  |       | 6,365   |   |  |   | (5,790  | )
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Provision (benefit) for income taxes                  |  |        |       |   |                       |   | 935     |                           |  |   | 51          |  |  |       |        |   |  |   | 986     |  
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Net income (loss)                                     |  |        | (6,776 | ) |                       |   | (10,573 | )                         |  |   | 4,208       |  |  |       | 6,365   |   |  |   | (6,776  | )
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Cumulative convertible Preferred Stock dividends      |  |        | 1,884  |   |                       |   |        |                           |  |   |            |  |  |       |        |   |  |   | 1,884   |  
|Preferred Stock accretion                             |  |        | 698    |   |                       |   |        |                           |  |   |            |  |  |       |        |   |  |   | 698     |  
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  
|Net income (loss) attributable to common stockholders |  | $      | (9,358 | ) |                       | $ | (10,573 | )                         |  | $ | 4,208       |  |  | $     | 65      |   |  | $ | (9,358  | )
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |  |  |       |         |   |  |   |         |  



17



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





Condensed
Consolidating Statement of Operations

For the nine months ended September 30, 2010

(unaudited)



|                                     |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |          |   |  |   |         |  
|------------------------------------ |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ----------- | - |  | ----- | -------- | - |  | - | ------- | -
|                                     |  | Parent |         |   | Guarantorsubsidiaries |   |         | Non-Guarantorsubsidiaries |  |   | Elimination |   |  | Total |         
|Net revenue:                         |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |          |   |  |   |         |  
|Customers                            |  | $      |        |   |                       | $ | 449,675 |                           |  | $ | 127,950     |   |  | $     |         |   |  | $ | 577,625 |  
|Intercompany                         |  |        |        |   |                       |   | 71,055  |                           |  |   | 205,589     |   |  |       | (276,644 | ) |  |   |        |  
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |          |   |  |   |         |  
|                                     |  |        |         |   |                       |   | 520,730 |                           |  |   | 333,539     |   |  |       | (276,644 | ) |  |   | 577,625 |  
|                                     |  |        |         |   |                      
|Direct cost of revenue               |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |          |   |  |   |         |  
|Customers                            |  |        |        |   |                       |   | 160,898 |                           |  |   | 176,885     |   |  |       |         |   |  |   | 337,783 |  
|Intercompany                         |  |        |        |   |                       |   | 245,522 |                           |  |   | 31,122      |   |  |       | (276,644 | ) |  |   |        |  
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |          |   |  |   |         |  
|                                     |  |        |         |   |                       |   | 406,420 |                           |  |   | 208,007     |   |  |       | (276,644 | ) |  |   | 337,783 |  
|Gross Profit                         |  |        |        |   |                       |   | 114,310 |                           |  |   | 125,532     |   |  |       |         |   |  |   | 239,842 |  
|Operating expenses                   |  |        | 5,575   |   |                       |   | 136,050 |                           |  |   | 114,934     |   |  |       |         |   |  |   | 256,559 |  
|Other (income) expenses, net         |  |        | 19,312  |   |                       |   | (6,588  | )                         |  |   | 8,454       |   |  |       |         |   |  |   | 21,178  |  
|Equity in Earnings of Subsidiaries   |  |        | 27,277  |   |                       |   |        |                           |  |   |            |   |  |       | (27,277  | ) |  |   |        |  
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |          |   |  |   |         |  
|Income (loss) before income taxes    |  |        | (52,164 | ) |                       |   | (15,152 | )                         |  |   | 2,144       |   |  |       | 27,277   |   |  |   | (37,895 | )
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |          |   |  |   |         |  
|Provision (benefit) for income taxes |  |        | (7,604  | ) |                       |   | 10,904  |                           |  |   | 3,365       |   |  |       |         |   |  |   | 6,665   |  
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |          |   |  |   |         |  
|Net income (loss)                    |  | $      | (44,560 | ) |                       | $ | (26,056 | )                         |  | $ | (1,221      | ) |  | $     | 27,277   |   |  | $ | (44,560 | )
|                                     |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |          |   |  |   |         |  

Condensed Consolidating Statement of Operations

For the nine months ended September 30, 2009

(unaudited)



|                                                      |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  
|----------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ----------- |  |  | ----- | -------- | - |  | - | ------- | -
|                                                      |  | Parent |         |   | Guarantorsubsidiaries |   |         | Non-Guarantorsubsidiaries |  |   | Elimination |  |  | Total |         
|Net revenue:                                          |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  
|Customers                                             |  | $      |        |   |                       | $ | 366,677 |                           |  | $ | 16,482      |  |  | $     |         |   |  | $ | 383,159 |  
|Intercompany                                          |  |        |        |   |                       |   | 50,901  |                           |  |   | 177,876     |  |  |       | (228,786 | ) |  |   |        |  
|                                                      |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  
|                                                      |  |        |        |   |                       |   | 417,587 |                           |  |   | 194,358     |  |  |       | (228,786 | ) |  |   | 383,159 |  
|                                                      |  |        |         |   |                      
|Direct cost of revenue                                |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  
|Customers                                             |  |        |        |   |                       |   | 115,646 |                           |  |   | 108,941     |  |  |       |         |   |  |   | 224,587 |  
|Intercompany                                          |  |        |        |   |                       |   | 209,563 |                           |  |   | 19,223      |  |  |       | (228,786 | ) |  |   |        |  
|                                                      |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  
|                                                      |  |        |        |   |                       |   | 325,209 |                           |  |   | 128,164     |  |  |       | (228,786 | ) |  |   | 224,587 |  
|Gross Profit                                          |  |        |        |   |                       |   | 92,378  |                           |  |   | 66,194      |  |  |       |         |   |  |   | 158,572 |  
|                                                      |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  
|Operating expenses                                    |  |        | 1,262   |   |                       |   | 95,550  |                           |  |   | 54,849      |  |  |       |         |   |  |   | 151,661 |  
|Other (income) expenses, net                          |  |        | (1,195  | ) |                       |   | 8,255   |                           |  |   | 1,180       |  |  |       |         |   |  |   | 8,240   |  
|Equity in Earnings of Subsidiaries                    |  |        | 7,577   |   |                       |   |        |                           |  |   |            |  |  |       | (7,577   | ) |  |   |        |  
|                                                      |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  
|Income (loss) before income taxes                     |  |        | (7,644  | ) |                       |   | (11,427 | )                         |  |   | 10,165      |  |  |       | 7,577    |   |  |   | (1,329  | )
|                                                      |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  
|Provision (benefit) for income taxes                  |  |        |        |   |                       |   | 4,608   |                           |  |   | 1,706       |  |  |       |         |   |  |   | 6,314   |  
|                                                      |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  
|Net income (loss)                                     |  |        | (7,644  | ) |                       |   | (16,035 | )                         |  |   | 8,459       |  |  |       | 7,577    |   |  |   | (7,643  | )
|                                                      |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  
|Cumulative convertible Preferred Stock dividends      |  |        | 5,060   |   |                       |   |        |                           |  |   |            |  |  |       |         |   |  |   | 5,060   |  
|Preferred Stock accretion                             |  |        | 1,201   |   |                       |   |        |                           |  |   |            |  |  |       |         |   |  |   | 1,201   |  
|                                                      |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  
|Net income (loss) attributable to common stockholders |  | $      | (13,905 | ) |                       | $ | (16,035 | )                         |  | $ | 8,459       |  |  | $     | 7,577    |   |  | $ | (13,904 | )
|                                                      |  |        |         |   |                       |   |         |                           |  |   |             |  |  |       |          |   |  |   |         |  



18



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





Condensed
Statements of Cash Flows

For the nine months ended September 30, 2010

(unaudited)



|                                                                                       |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |   |  |  |   |         |  
|-------------------------------------------------------------------------------------- |  | ------ | -------- | - | --------------------- | - | -------- | ------------------------- |  | - | ----------- | - |  | ----- | - |  |  | - | ------- | -
|                                                                                       |  | Parent |          |   | Guarantorsubsidiaries |   |          | Non-Guarantorsubsidiaries |  |   | Elimination |   |  | Total |  
|Net cash provided by (used in) operating activities                                    |  | $      | (10,773  | ) |                       | $ | 1,890    |                           |  | $ | 23,656      |   |  | $     |   |  |  | $ | 14,773  |  
|Cash Flows from investing activities:                                                  |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Investment in Subsidiary                                                               |  |        | (106,505 | ) |                       |   | 105,475  |                           |  |   | 1,030       |   |  |       |   |  |  |   |        |  
|Additions to equipment and fixtures, net                                               |  |        |         |   |                       |   | (7,840   | )                         |  |   | (5,230      | ) |  |       |  |  |  |   | (13,070 | )
|                                                                                       |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Net cash provided by (used in) investing activities                                    |  |        | (106,505 | ) |                       |   | 97,635   |                           |  |   | (4,200      | ) |  |       |  |  |  |   | (13,070 | )
|                                                                                       |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Cash Flows from financing activities:                                                  |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Net borrowings (repayments) on line of credit                                          |  |        | 7,131    |   |                       |   |         |                           |  |   |            |   |  |       |  |  |  |   | 7,131   |  
|Net borrowings (repayments) on long term debt                                          |  |        |         |   |                       |   | (67      | )                         |  |   |            |   |  |       |  |  |  |   | (67     | )
|Net borrowings (repayments) on capital leases                                          |  |        |         |   |                       |   | (1,711   | )                         |  |   | (1,847      | ) |  |       |  |  |  |   | (3,558  | )
|Net Intercompany                                                                       |  |        | 109,203  |   |                       |   | (98,429  | )                         |  |   | (10,774     | ) |  |       |  |  |  |   |        |  
|Proceeds from issuance of common stock related to pre-emptive rights and stock options |  |        | 268      |   |                       |   |         |                           |  |   |            |   |  |       |  |  |  |   | 268     |  
|Tax withholding on Restricted Stock                                                    |  |        | (143     | ) |                       |   |         |                           |  |   |            |   |  |       |  |  |  |   | (143    | )
|Proceeds from exercise of warrants                                                     |  |        | 2,307    |   |                       |   |         |                           |  |   |            |   |  |       |  |  |  |   | 2,307   |  
|Re-purchase of warrants                                                                |  |        | (1,608   | ) |                       |   |         |                           |  |   |            |   |  |       |  |  |  |   | (1,608  | )
|                                                                                       |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Net cash provided by financing activities                                              |  |        | 117,158  |   |                       |   | (100,207 | )                         |  |   | (12,621     | ) |  |       |  |  |  |   | 4,330   |  
|Effect of exchange rates on cash and cash equivalents                                  |  |        |         |   |                       |   | 1,632    |                           |  |   | (1,149      | ) |  |       |  |  |  |   | 483     |  
|                                                                                       |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                   |  |        | (120     | ) |                       |   | 950      |                           |  |   | 5,686       |   |  |       |  |  |  |   | 6,516   |  
|                                                                                       |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Cash and cash equivalents, beginning of period                                         |  |        | 126      |   |                       |   | 3,195    |                           |  |   | 11,607      |   |  |       |  |  |  |   | 14,928  |  
|                                                                                       |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Cash and cash equivalents, end of period                                               |  | $      | 6        |   |                       | $ | 4,145    |                           |  | $ | 17,293      |   |  | $     |  |  |  | $ | 21,444  |  
|                                                                                       |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |   |  |  |   |         |  



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STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements September 30, 2010(Continued)

(Unaudited)

(In thousands, except per share and per warrant amounts)





Condensed
Statements of Cash Flows

For the nine months ended September 30, 2009

(unaudited)



|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |   |  |  |   |         |  
|----------------------------------------------------- |  | ------ | ------ | - | --------------------- | - | ------- | ------------------------- |  | - | ----------- | - |  | ----- | - |  |  | - | ------- | -
|                                                      |  | Parent |        |   | Guarantorsubsidiaries |   |         | Non-Guarantorsubsidiaries |  |   | Elimination |   |  | Total |  
|Net cash provided by (used in) operating activities   |  | $      | (1,508 | ) |                       | $ | (12,377 | )                         |  | $ | 16,320      |   |  | $     |  |  |  | $ | 2,435   |  
|Cash Flows from investing activities:                 |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Investment in Subsidiary                              |  |        | 1,658  |   |                       |   | (1,668  | )                         |  |   | 10          |   |  |       |  |  |  |   |        |  
|Additions to equipment and fixtures, net              |  |        |       |   |                       |   | (5,332  | )                         |  |   | (8,028      | ) |  |       |  |  |  |   | (13,360 | )
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Net cash provided by (used in) investing activities   |  |        | 1,658  |   |                       |   | (7,000  | )                         |  |   | (8,018      | ) |  |       |  |  |  |   | (13,360 | )
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Cash Flows from financing activities:                 |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Net borrowings (repayments) on line of credit         |  |        |       |   |                       |   | (5,302  | )                         |  |   |            |   |  |       |  |  |  |   | (5,302  | )
|Net borrowings (repayments) on long term debt         |  |        |       |   |                       |   | 21,884  |                           |  |   |            |   |  |       |  |  |  |   | 21,884  |  
|Net borrowings (repayments) on capital leases         |  |        |       |   |                       |   | (334    | )                         |  |   | (294        | ) |  |       |  |  |  |   | (628    | )
|Net Intercompany                                      |  |        | (133   | ) |                       |   | 5,589   |                           |  |   | (5,456      | ) |  |       |  |  |  |   |        |  
|Proceeds from exercise of warrants                    |  |        |       |   |                       |   |        |                           |  |   |            |   |  |       |  |  |  |   |        |  
|Re-purchase of warrants                               |  |        | (2,146 | ) |                       |   |        |                           |  |   |            |   |  |       |  |  |  |   | (2,146  | )
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Net cash provided by financing activities             |  |        | (2,279 | ) |                       |   | 21,837  |                           |  |   | (5,750      | ) |  |       |  |  |  |   | 13,808  |  
|Effect of exchange rates on cash and cash equivalents |  |        |       |   |                       |   | 2,144   |                           |  |   | 1,055       |   |  |       |  |  |  |   | 3,199   |  
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Net increase (decrease) in cash and cash equivalents  |  |        | (2,129 | ) |                       |   | 4,604   |                           |  |   | 3,607       |   |  |       |  |  |  |   | 6,082   |  
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Cash and cash equivalents, beginning of period        |  |        | 3,090  |   |                       |   | 2,677   |                           |  |   | 4,893       |   |  |       |  |  |  |   | 10,660  |  
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |   |  |  |   |         |  
|Cash and cash equivalents, end of period              |  | $      | 961    |   |                       | $ | 7,281   |                           |  | $ | 8,500       |   |  | $     |  |  |  | $ | 16,742  |  
|                                                      |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |   |  |  |   |         |  



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

The following Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction
with the accompanying consolidated financial statements for the periods specified and associated notes. This Report includes 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, or the Exchange Act, made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that relate to future events or our future
financial performance. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us
that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as may, should, could, would, expect, plan, anticipate, believe,
estimate, continue, or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, risks relating to our operation in, as well as
entry into, new markets; changes in general economic and business conditions; fluctuations in foreign currency rates; fluctuations in sales volume and timing, and lengthy sales cycles; our ability to make payments required under our outstanding
indebtedness; delays in obtaining new clients or sales from existing clients; delays or interruptions of service as a result of power loss, fire, natural disasters, labor unrest, security breaches and other similar events; intense competition in the
marketplace from competitors with greater financial resources; our ability to obtain necessary financing in the future; future acquisitions, joint ventures or other strategic investments; litigation; plus other risks detailed in our filings with the
SEC, including those discussed in our Annual Report on Form 10-K for the year ended December 31, 2009 and our quarterly report on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010.

Overview

Stream Global Services, Inc. (we, us, Stream, or SGS) is a corporation organized under the laws of the State of Delaware. We were incorporated on
June 26, 2007 as a blank check company for the purpose of acquiring, through a merger, capital stock exchange, asset or stock acquisition, exchangeable share transaction or other similar business combination, one or more domestic or
international operating businesses. We consummated our initial public offering in October 2007, receiving total gross proceeds of $250 million, and in July 2008, we acquired Stream Holdings Corporation for $128 million (which reflected the $200
million purchase price less assumed indebtedness, transaction fees, employee transaction related bonuses, professional fees, stock option payments and payments for working capital).

In October 2009, pursuant to a Share Exchange Agreement, dated as of August 14, 2009 (the Exchange Agreement), among us,
EGS Corp., a Philippine corporation (EGS), the parent company of eTelecare Global Solutions, Inc., a Philippine company (eTelecare), EGS Dutchco B.V., a corporation organized under the laws of the Netherlands
(Dutchco), and NewBridge International Investment Ltd., a British Virgin Islands company (NewBridge and, together with Dutchco, the EGS Stockholders), we acquired EGS in a stock-for-stock exchange (the
Combination). At the closing of the Combination (the Closing), we acquired all of the issued and outstanding capital stock of EGS (the EGS Shares) from the EGS Stockholders, and NewBridge and/or its affiliate
contributed, and we accepted, the rights of such transferor with respect to approximately $35,841,000 in principal under a bridge loan of EGS (the Bridge Loan) in consideration for the issuance and delivery of an aggregate of 23,851,561
shares of our common stock and 9,800,000 shares of our non-voting common stock, and the payment of $9,990 in cash. Subsequent to the Closing, all of the 9,800,000 shares of non-voting common stock held by the EGS Stockholders were converted into
shares of our voting common stock on a one-for-one basis. As of the Closing, the pre-Combination Stream stockholders and the EGS Stockholders owned approximately 57.5% and 42.5%, respectively, of the combined entity.

Immediately prior to the Closing, pursuant to a letter agreement, dated as of August 14, 2009, between us and Ares Corporate
Opportunities Fund II, L.P. (Ares), all of the issued and outstanding shares of our Series A Convertible Preferred Stock, $.001 par value per share (Series A Preferred Stock), and Series B Convertible Preferred Stock, $.001
par value per share (Series B Preferred Stock and together with the Series A Preferred Stock, the Preferred Stock), all of which were held by Ares, were converted into 35,085,134 shares of our common stock. The Series A
Preferred Stock and Series B Preferred Stock was subsequently cancelled. In addition, we purchased from Ares a warrant to purchase 7,500,000 shares of our common stock in partial consideration for the issuance to Ares of 1,000,000 shares of our
common stock.

Also in October 2009, pursuant to an indenture, dated as of October 1, 2009 (the Indenture),
among Stream, certain of our subsidiaries (the Note Guarantors) and Wells Fargo Bank, National Association (Wells Fargo), as trustee, we issued $200 million aggregate principal amount of 11.25% Senior Secured Notes due 2014
(the Notes) at an initial offering price of 95.454% of the principal amount. In addition, we and certain of our subsidiaries entered into a credit agreement, dated as of October 1, 2009 (the Credit Agreement), with Wells
Fargo Foothill, LLC, as agent and co-arranger, and Goldman Sachs Lending Partners LLC, as co-arranger, and each of the lenders party thereto, as lenders, providing for revolving credit financing (the ABL Facility) of up to
$100 million, including a $20 million sub-limit for letters of credit. The ABL Facility has a term of four years at an interest rate of Wells Fargos base rate plus 300 basis points or LIBOR plus 400 basis points, at our discretion.



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We used the proceeds
from the offering of the Notes, together with approximately $26.0 million of cash on hand, to repay all outstanding indebtedness under the Fifth Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of January 8,
2009, as amended (the PNC Agreement), with PNC Bank, National Association and other parties thereto, the Bridge Loan, and to pay fees and expenses incurred in connection with the Combination, the Note offering and the ABL Facility.

We are a leading global business process outsourcing (BPO) service provider specializing in customer relationship
management (CRM) including sales, customer care and technical support for Fortune 1000 companies. Our clients include leading technology, computing, telecommunications, retail, entertainment/media, and financial services
companies. Our service programs are delivered through a set of standardized best practices and sophisticated technologies by a highly skilled multilingual workforce capable of supporting over 35 languages across 50 locations in 22
countries. We continue to expand our global presence and service offerings to increase our clients revenue, improve operational efficiencies and drive brand loyalty for our clients customers. As of September 30, 2010, we had
over 30,000 employees worldwide.

We are subject to quarterly fluctuations in our revenues and earnings, based on the timing
of new and expiring client programs and seasonality in certain client programs. From time to time clients seek to shift their CRM programs to lower cost locations, which may interrupt or decrease our results of operations as we seek to shift
personnel to the lower cost off-shore locations resulting in less revenue but a higher gross margin percentage.

We bill
monthly for our services in a variety of manners, including per minute, per contact, per hour and per full-time employee equivalent. Revenues also include reimbursement of certain expenses including telecom, training and miscellaneous costs for
certain customers. A substantial amount of our operating costs is incurred in foreign currencies. In many cases, we bill our clients in U.S. Dollar, Canadian Dollar, Euro and U.K. pound sterling denominated amounts and incur costs in the host
country in local currency.

A substantial portion of our costs are incurred and paid in Philippine pesos. Therefore, we are
exposed to the risk of an increase in the value of the Philippine peso relative to the U.S. Dollar, which would increase the value of our expenses when measured in U.S. Dollars. We use derivatives to mitigate risk relating to the Canadian
Dollar, the Indian rupee and the Philippine peso against the U.S. Dollar. For our EMEA region, we operate principally using the Euro and, accordingly, we are exposed to foreign currency translation impacts of the Euro to the U.S. Dollar.

Critical Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in
conformity with generally accepted accounting principles in the United States requires the appropriate application of accounting policies, many of which require management to make estimates and assumptions about future events and their impact on
amounts reported in our consolidated financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results may differ from estimates. Such differences may be material to the consolidated
financial statements.

Equipment and Fixtures

Equipment and fixtures are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Furniture and fixtures are depreciated over a five-year life,
software over a three- to five-year life and equipment generally over a three- to five-year life. Leasehold improvements are depreciated over the shorter of their estimated useful life or the remaining term of the associated lease. Assets held under
capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of
the estimated useful lives of the assets or the period of the related lease and is recorded in depreciation and amortization expense. Repair and maintenance costs are expensed as incurred. We record all estimated asset retirement obligations at fair
value that are associated with the retirement of tangible long-lived assets such as property and equipment when the long-lived asset is acquired, constructed, developed or through normal operations.

The carrying value of equipment and fixtures to be held and used is evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable in accordance with authoritative guidance. An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its
eventual disposition proceeds do not exceed its carrying amount. The amount of the impairment loss, if any, is measured as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally determined based on
appraisals or sales prices of comparable assets.

Goodwill and Other Intangible Assets

In accordance with authoritative guidance, goodwill is reviewed for impairment annually in December and on an interim basis if events or
changes in circumstances between annual tests indicate that an asset might be impaired. Impairment



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occurs when the carrying amount of goodwill exceeds its estimated fair value. The impairment, if any, is measured based on the estimated fair value of the reporting unit. We operate in one
reporting unit, which is the basis for our impairment testing and the allocation of acquired goodwill.

Intangible assets with
a finite life are recorded at cost and amortized based upon their projected cash flows over their estimated useful life. Client lists and relationships are amortized over periods up to ten years, market value of the lease adjustments related to
facility leases acquired in business combinations are amortized over the term of the respective leases and developed software is amortized over five years. Brands and trademarks are not amortized as their life is indefinite. In accordance with
authoritative guidance, indefinite lived intangible assets are reviewed for impairment annually and on an interim basis if events or changes in circumstances between annual tests indicate that an asset might be impaired.

The carrying value of intangibles is evaluated for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable in accordance with authoritative guidance. An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition does not
exceed its carrying amount. The amount of the impairment loss, if any, is measured as the amount by which the carrying value of the asset exceeds its estimated fair value, which is generally determined based on appraisals, discounted cash flow
analyses, or sales prices of comparable assets.

Stock-Based Compensation

For share-based payments, the fair value of each grant, including both time-based grants and performance-based grants, is estimated on the
date of grant using the Black-Scholes-Merton option valuation model, with the exception of two grants to our former Chief Executive Officer that were valued using a Monte Carlo simulation. Stock compensation expense is generally recognized on a
straight-line basis over the vesting term, net of an estimated future forfeiture rate. The forfeiture rate assumption (19.5% as of September 30, 2010 and 2009) is based on historical experience.

Income Taxes

We recognize income taxes in accordance with the authoritative guidance, which requires recognition of deferred assets and liabilities for the future income tax consequence of transactions that have
been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the carrying amounts of assets and liabilities for financial reporting
purposes, and the amounts used for income tax, using the enacted tax rates for the year in which the differences are expected to reverse. We provide valuation allowances against deferred tax assets whenever we believe it is more likely than not,
based on available evidence, that deferred tax assets will not be realized. Further, we record liabilities for uncertainty in income tax positions if a tax position is evaluated by us to be more likely than not of being sustained on audit.

Contingencies

We consider the likelihood of loss contingencies, including non-income tax and legal contingencies arising in the ordinary course of business, and our ability to reasonably estimate the amount of loss in
determining loss contingencies. An estimated loss contingency is accrued in accordance with the authoritative guidance, when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate
current information available to determine whether such accruals should be adjusted.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued guidance to amend the disclosure
requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities)
and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance,
and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for us with the reporting period beginning January 1, 2010. Other than requiring
additional disclosures, adoption of this new guidance did not have a material impact on our financial statements.

In October
2009, the FASB issued guidance on revenue recognition that will become effective for us beginning January 1, 2011, with earlier adoption permitted. Under the new guidance, when vendor specific objective evidence or third party evidence for
multi-element deliverables in an arrangement cannot be determined, a best estimate of the selling price is



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required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of
the relative selling price method affects the timing and amount of revenue recognition. We believe adoption of this new guidance will not have a material impact on our financial statements.

Results of Operations

The following are unaudited results of operations for the three and nine months ended September 30, 2010 and 2009 as a percentage of revenue:



|                                                          |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   
|--------------------------------------------------------- |  | ------------------------------- | ---- | -- | ------------------------------ |  | ---- | ---- |  |  | ---- | -- |  |  | ---- | --
|                                                          |  | Three Months EndedSeptember 30, |      |    | Nine Months EndedSeptember 30, | 
|                                                          |  | 2010                            |      |    | 2009                           |  |      | 2010 |  |  | 2009 |   
|Revenue                                                   |  |                                 | 100  | %  |                                |  | 100  | %    |  |  | 100  | %  |  |  | 100  | % 
|                                                          |  |                                 |      |   
|Direct cost of revenue                                    |  |                                 | 57.8 |    |                                |  | 59.5 |      |  |  | 58.5 |    |  |  | 58.6 |   
|                                                          |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   
|Gross profit                                              |  |                                 | 42.2 |    |                                |  | 40.5 |      |  |  | 41.5 |    |  |  | 41.4 |   
|                                                          |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   
|                                                          |  |                                 |      |   
|Operating expenses:                                       |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   
|Selling, general and administrative expenses              |  |                                 | 33.0 |    |                                |  | 34.2 |      |  |  | 33.8 |    |  |  | 33.0 |   
|Stock-based compensation                                  |  |                                 | 0.5  |    |                                |  | 0.2  |      |  |  | 0.6  |    |  |  | 0.1  |   
|Transaction related, restructuring and severance expenses |  |                                 | 1.9  |    |                                |  | 2.7  |      |  |  | 1.4  |    |  |  | 1.0  |   
|Depreciation and amortization                             |  |                                 | 8.3  |    |                                |  | 6.0  |      |  |  | 8.6  |    |  |  | 5.5  |   
|                                                          |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   
|Total operating expenses                                  |  |                                 | 43.7 |    |                                |  | 43.1 |      |  |  | 44.4 |    |  |  | 39.6 |   
|                                                          |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   
|Income (loss) from operations                             |  |                                 | (1.5 | )  |                                |  | (2.6 | )    |  |  | (2.9 | )  |  |  | 1.8  |   
|                                                          |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   
|                                                          |  |                                 |      |   
|Other (income) expenses, net:                             |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   
|Foreign currency transaction loss (gain)                  |  |                                 | (0.6 | )  |                                |  | 0.1  |      |  |  | (0.3 | )  |  |  | 0.1  |   
|Other (income) expense, net                               |  |                                 |     |    |                                |  |     |      |  |  |     |    |  |  |     |   
|Interest expense, net                                     |  |                                 | 3.9  |    |                                |  | 2.1  |      |  |  | 4.0  |    |  |  | 2.0  |   
|                                                          |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   
|Total other (income) expenses, net                        |  |                                 | 3.3  |    |                                |  | 2.2  |      |  |  | 3.7  |    |  |  | 2.2  |   
|                                                          |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   
|Income (loss) before income taxes                         |  |                                 | (4.8 | )  |                                |  | (4.8 | )    |  |  | (6.6 | )  |  |  | (0.4 | ) 
|                                                          |  |                                 |      |   
|Provision (benefit) for income taxes                      |  |                                 | 1.6  |    |                                |  | 0.8  |      |  |  | 1.1  |    |  |  | 1.6  |   
|                                                          |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   
|Net income (loss)                                         |  |                                 | (6.4 | )% |                                |  | (5.6 | )%   |  |  | (7.7 | )% |  |  | (2.0 | )%
|                                                          |  |                                 |      |    |                                |  |      |      |  |  |      |    |  |  |      |   

Revenues

We derive the majority of our revenues by providing CRM services such as technical support, sales and revenue generation services and customer care services. We bill monthly for our services in a variety
of manners, including per minute, per contact, per hour and per full-time employee equivalent. Certain customer contracts contain provisions under which we can earn bonuses or are required to pay penalties on a monthly basis based upon performance.

Direct Cost of Revenue

We record the costs specifically associated with client billable programs associated with a statement of work as direct cost of revenues. These costs include direct labor wages and benefits of service
agents in our call centers as well as reimbursable expenses such as telecommunication charges. The most significant portion of our direct cost of revenue is attributable to employee compensation, benefits and payroll taxes. These costs are expensed
as they are incurred. Direct costs are affected by prevailing wage rates in the countries in which they are incurred and are subject to the effects of foreign currency fluctuations.

Selling, general and administrative expenses

Our selling, general and administrative expenses consist of all expenses of operations other than direct costs of revenue, such as information technology, telecommunications, sales and marketing costs,
finance, human resource management and other functions and service center operational expenses such as facilities, operations and training.



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Transaction
related, restructuring and severance expenses

Our transaction related and restructuring expenses include expenses related
to acquisitions, non-agent severance events and expenses related to exiting leased facilities.

Other Income and Expenses

Other income and expenses consists of the foreign currency transaction gains or losses, other income, interest income and
interest expense. Interest expense includes interest expense and amortization of debt issuance costs associated with our indebtedness under our credit lines, term loans, and capitalized lease obligations.

We generate revenue and incur expenses in several different currencies. We do not operate in any countries subject to hyper-inflationary
accounting treatment. Our most common transaction currencies are the U.S. Dollar, the Euro, the Canadian Dollar, the British Pound, Philippine Peso and the Indian Rupee. Our customers are most commonly billed in the U.S. Dollar or the
Euro. We translate our results from functional currencies to U.S. Dollars using the average exchange rates in effect during the accounting period.

Results of Operations

Three months ended September 30, 2010
compared with three months ended September 30, 2009

Revenues. Revenues increased $75.2 million, or 62%, to
$197.1 million for the three months ended September 30, 2010, compared to $121.9 million for the three months ended September 30, 2009. The increase is primarily attributable to the acquisition of EGS on October 1, 2009 and the
inclusion of the EGS business (Legacy EGS) in our results of operations subsequent to the acquisition. Partially offsetting the increased revenue was a decrease to revenue of $4.1 million resulting from the changes in foreign currencies,
principally the Euro and Canadian Dollar, and a decline in customer volumes for a few of our key clients.

Revenues for
services performed in our United States and Canadian service centers increased $37.2 million, or 84.0%, for the three months ended September 30, 2010, compared to the three months ended September 30, 2009, as a result of the acquisition of
EGS on October 1, 2009 and the inclusion of the Legacy EGS business in our results of operations subsequent to the acquisition. Revenues for services performed in European service centers decreased $6.9 million, or 16.4%, for the three months
ended September 30, 2010, compared to the three months ended September 30, 2009. This decrease is attributable to the shift of revenue to Tunisia and Egypt at lower price points. Revenues for services performed in offshore service centers
in the Philippines, India, El Salvador, Costa Rica, the Dominican Republic, Tunisia and Egypt increased $45.0 million, or 127.8%, for the three months ended September 30, 2010, compared to the three months ended September 30, 2009 due to
the acquisition of EGS on October 1, 2009 and the inclusion of the Legacy EGS business in our results of operations subsequent to the acquisition. Revenues in our offshore service centers represented 40.7% of consolidated revenues for the three
months ended September 30, 2010, compared to 28.9% in the same period in 2009.

Direct Cost of Revenue. Direct
cost of revenue (exclusive of depreciation and amortization) increased $41.3 million, or 56.9%, to $113.9 million for the three months ended September 30, 2010, compared to $72.6 million for the three months ended September 30, 2009. The
increase is primarily attributable to the acquisition of EGS on October 1, 2009 and the inclusion of the Legacy EGS business in our results of operations subsequent to the acquisition. In the three months ended September 30, 2009 Legacy
EGS direct cost of revenue was $38.2 million.

Gross Profit. Gross profit increased $33.9 million, or 68.8%, to $83.2
million for the three months ended September 30, 2010 from $49.3 million for the three months ended September 30, 2009. The increase is primarily attributable to the acquisition of EGS on October 1, 2009 and the inclusion of the
Legacy EGS business in our results of operations subsequent to the acquisition. Gross profit as a percentage of revenue increased from 40.5% to 42.2% for the three months ended September 30, 2010, compared to the three months ended
September 30, 2009. Gross profit percentage increased primarily due to the shift in revenue to off-shore, higher margin geographies.

Operating Expenses. Operating expenses increased $33.7 million, or 64.3%, to $86.1 million for the three months ended September 30, 2010, compared to $52.4 million for the three months ended
September 30, 2009. The increase is primarily attributable to the acquisition of EGS on October 1, 2009 and the inclusion of the Legacy EGS results in 2010. Selling, general and administrative expense grew from $41.9 million for the three
months ended September 30, 2009 to $66.0 million, or 57.5%, for the three months ended September 30, 2010. Transaction related and restructuring expenses of $3.7 in the three months ended September 30, 2010 relate to non-agent
severance during the quarter. Depreciation and amortization increased $9.1 million as a result of the inclusion of the Legacy EGS business in our results of operations subsequent to the acquisition and increased amortization associated with the
intangibles acquired in the EGS acquisition. Operating expenses as a percentage of revenues increased to 43.7% for the three months ended September 30, 2010 compared to 43.0% for the three months ended September 30, 2009 primarily as a
result of increased amortization of intangible assets related to the acquisition of EGS.

Other (Income) Expenses, Net.
Other (income) expenses, net increased $3.9 million, or 144.4%, to $6.6 million for the three months ended September 30, 2010, compared to $2.7 million for the three months ended September 30, 2009. This increase is primarily due to
increased interest expense of $5.1 million from our issuance of $200 million of Senior Secured Notes during October 2009.



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Provision for
Income Taxes. Income taxes increased $2.1 million, or 210.0%, to $3.1 million for the three months ended September 30, 2010, compared to $1.0 million for the three months ended September 30, 2009. Foreign tax expense comprised $1.8
million and $1.0 million for the three months ended September 30, 2010 and 2009, respectively. In the U.S., where we operated at a loss for tax purposes, we recorded $1.3 million income tax expense for the three months ended September 30,
2010 primarily related to the finalization of purchase accounting. For the three months ended September 30, 2009 we recorded no U.S. income tax expense. We operate in a number of countries outside the U.S. that are generally taxed at lower
statutory rates than the U.S. and also benefit from tax holidays. The addition of the EGS Philippines entities, for which we benefit from tax holidays, contributed to the reduction in the foreign tax rate compared to the same period in 2009.

Nine months ended September 30, 2010 compared with nine months ended September 30, 2009

Revenues. Revenues increased $194.4 million, or 50.7%, to $577.6 million for the nine months ended September 30, 2010,
compared to $383.2 million for the nine months ended September 30, 2009. The increase is primarily attributable to the acquisition of EGS on October 1, 2009 and the inclusion of Legacy EGS in our results of operations subsequent to the
acquisition. For the nine months ended September 30, 2010 revenue was negatively affected by $1.1 million as compared to the nine months ended September 30, 2009 due to the translation of local currencies to U.S. Dollar.

Revenues for services performed in our United States and Canadian service centers increased $76.9 million, or 50.7%, for the nine months
ended September 30, 2010, compared to the nine months ended September 30, 2009, as a result of the acquisition of EGS on October 1, 2009 and the inclusion of the Legacy EGS business in our results of operations subsequent to the
acquisition. Revenues for services performed in European service centers decreased $30.0 million, or 21.9%, for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009. This decrease is attributable
to decreased volumes from existing clients and the shift of revenue to Tunisia and Egypt. Revenues for services performed in offshore service centers in the Philippines, India, El Salvador, Costa Rica, the Dominican Republic, Tunisia and Egypt
increased $137.2 million, or 145.6%, for the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009 due to the acquisition of EGS on October 1, 2009 and the inclusion of the Legacy EGS results in
2010. Revenues in our offshore service centers represented 41.9% of consolidated revenues for the nine months ended September 30, 2010, compared to 24.6% in the same period in 2009.

Direct Cost of Revenue. Direct cost of revenue (exclusive of depreciation and amortization) increased $113.2 million, or 50.4%, to
$337.8 million for the nine months ended September 30, 2010, compared to $224.6 million for the nine months ended September 30, 2009. The increase is primarily attributable to the acquisition of EGS on October 1, 2009 and the
inclusion of the Legacy EGS results in 2010. For the nine months ended September 30, 2009, Legacy EGS direct cost of revenue was $113.2 million.

Gross Profit. Gross profit increased $81.2 million, or 51.2%, to $239.8 million for the nine months ended September 30, 2010 from $158.6 million for the nine months ended September 30,
2009. The increase is primarily attributable to the acquisition of EGS on October 1, 2009 and the inclusion of the Legacy EGS results in 2010. Gross profit as a percentage of revenue was 41.4% for the nine months ended September 30, 2009
and 41.5% for the nine months ended September 30, 2010.

Operating Expenses. Operating expenses increased $104.9
million, or 69.1%, to $256.6 million for the nine months ended September 30, 2010, compared to $151.7 million for the nine months ended September 30, 2009. The increase is primarily attributable to the acquisition of EGS on October 1,
2009 and the inclusion of the Legacy EGS results in 2010. Selling, general and administrative expense grew from $126.9 million for the nine months ended September 30, 2009 to $198.5 million, or increased by 56.4%, for the nine months ended
September 30, 2010. Transaction related and restructuring expenses of $8.7 in the nine months ended September 30, 2010 primarily include (1) non-agent severance expense and (2) expenses incurred during the first half of 2010 to
exit leased facilities. Depreciation and amortization increased $28.5 million as a result of the inclusion of the Legacy EGS results in 2010, and increased amortization associated with the intangibles acquired in the EGS acquisition. Operating
expenses as a percentage of revenues increased to 44.4% for the nine months ended September 30, 2010 compared to 39.6% for the nine months ended September 30, 2009 primarily as a result of increased amortization of intangible assets
related to the acquisition of EGS.

Other (Income) Expenses, Net. Other (income) expenses, net increased $13.0 million,
or 158.5%, to $21.2 million for the nine months ended September 30, 2010, compared to $8.2 million for the nine months ended September 30, 2009. This increase is primarily due to increased interest expense of $15.2 million from our
issuance of $200 million of Senior Secured Notes during October 2009.



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Provision for
Income Taxes. Income taxes increased $0.4 million, or 6.3%, to $6.7 million for the nine months ended September 30, 2010, compared to $6.3 million for the nine months ended September 30, 2009. Foreign tax expense comprised $5.4 million
and $5.9 million for the nine months ended September 30, 2010 and 2009, respectively. In the U.S., where we operated at a loss for tax purposes, we recorded $1.3 million income tax expense for the nine months ended September 30, 2010
primarily related to the finalization of purchase accounting. For the nine months ended September 30, 2009 we recorded no U.S. income tax expense. We operate in a number of countries outside the U.S. that are generally taxed at lower statutory
rates than the U.S. and also benefit from tax holidays. The addition of the EGS Philippines entities, for which we benefit from tax holidays, contributed to the reduction in the foreign tax rate compared to the same period in 2009.

Liquidity and Capital Resources

Our primary liquidity needs are for financing working capital associated with the expenses we incur in performing services under our client contracts and capital expenditures for the opening of new
service centers, including the purchase of computers and related equipment. We have in place a credit facility that consists of a revolving line of credit that allows us to better manage our cash flows. Our ability to make payments on the credit
facility, to repay our-long term indebtedness, and to fund working capital and planned capital expenditures will depend on our ability to generate cash in the future. We have secured our working capital facility through our accounts receivable and
therefore, our ability to continue servicing debt is dependent upon the amount of and the timely collection of accounts receivables. We believe that our cash generated from operations, existing cash and cash equivalents, and available credit will be
sufficient to meet expected operating and capital expenditure requirements for the next 12 months.

We made capital
expenditures of $17.7 million in the nine months ended September 30, 2010 as compared to $19.9 million for the nine months ended September 30, 2009. We continue to make capital expenditures to build new service centers, renovate existing
centers and maintain and upgrade our technology. We expect to continue to expand into new and renovate existing facilities in the future.

On October 1, 2009, we issued $200 million aggregate principal amount of 11.25% Senior Secured Notes due 2014. The Notes were issued pursuant to the Indenture, among us, the Note
Guarantors, and Wells Fargo, as trustee. The Notes were issued by us at an initial offering price of 95.454% of the principal amount. The Indenture contains restrictions on our ability to incur additional secured indebtedness under certain
circumstances.

The Notes mature on October 1, 2014. The Notes bear interest at a rate of 11.25% per
annum. Interest on the Notes is computed on the basis of a 360-day year composed of twelve 30-day months and is payable semi-annually on April 1 and October 1 of each year, beginning on April 1, 2010.

The obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, by the Note Guarantors and will be
so guaranteed by any future domestic subsidiaries of ours, subject to certain exceptions.

The Notes and the Note
Guarantors guarantees of the Notes are secured by senior liens on our and the Guarantors Primary Notes Collateral and by junior liens on our and the Guarantors Primary ABL Collateral (each as defined in the Indenture).

On October 1, 2009, we, Stream Holdings Corporation, Stream International, Inc., Stream New York, Inc., Stream Global
Solutions-US, Inc., Stream Global Solutions-AZ, Inc. and Stream International Europe B.V. (collectively, the U.S. Borrowers), and SGS Netherland Investment Corporation B.V., Stream International Service Europe B.V., and Stream
International Canada Inc., (collectively, the Foreign Borrowers and together with the U.S. Borrowers, the Borrowers), entered into the Credit Agreement, with Wells Fargo Foothill, LLC, as agent and co-arranger, Goldman Sachs
Lending Partners LLC, as co-arranger, and each of the lenders party thereto, as lenders, providing for the ABL Facility of up to $100.0 million, including a $20.0 million sub-limit for letters of credit, in each case, with certain further sub-limits
for certain Foreign Borrowers. The ABL Facility has a term of four years at an interest rate of Wells Fargos base rate plus 300 basis points or LIBOR plus 400 basis points at our discretion. The ABL Facility has a fixed charge coverage ratio
financial covenant that is operative when our availability under the facility is less than $20 million. At September 30, 2010, we had $66,164 available under the ABL Facility. We are in compliance with the financial covenants in the Credit
Agreement as of September 30, 2010.

In the nine months ended September 30, 2010 we received $2.3 million from the
exercise of our publicly held warrants and $0.1 million from proceeds from issuance of common stock related to the exercise of pre-emptive rights and stock options. In the nine months ended September 30, 2010 we repurchased 2.3 million
warrants at a price of $0.70 per warrant for total cash outflows of $1.6 million.

Letters of Credit. We have certain
standby letters of credit for the benefit of landlords of certain sites in the United States and Canada. As of September 30, 2010, we had approximately $7.3 million of these letters of credit in place under our ABL Facility.

We had $0 and $6,600 letter of credit guarantees outstanding at September 30, 2010 and December 31, 2009, respectively.



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Off-Balance
Sheet Arrangements

We do not have any off-balance sheet arrangements.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------- | -----------------------------------------------------------

We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in
market rates and prices. Our risk management strategy includes the use of derivative instruments to reduce the effects on our operating results and cash flows from fluctuations caused by volatility in currency exchange and interest rates. In using
derivative financial instruments to hedge exposures to changes in exchange rates, we have exposure to counterparty credit risk.

Interest Rate Risk

We are exposed to interest rate risk primarily through our debt facilities since some of those instruments, including capital leases, bear interest at variable rates. At September 30, 2010, we had
outstanding borrowings under variable debt agreements that totaled approximately $22.6 million. A hypothetical 1% increase in the interest rate would have increased interest expense by approximately $0.2 million and would have decreased annual cash
flow by a comparable amount. The carrying amount of our borrowings reflects fair value due to their short-term and variable interest rate features.

There were no outstanding interest rate swaps covering interest rate exposure at September 30, 2010.

Foreign Currency Exchange Rate Risk

We serve many of our U.S.-based
clients using our service centers in Canada, India, the Dominican Republic, El Salvador, Egypt, the Philippines, Nicaragua and Costa Rica. Although the contracts with these clients are typically priced in U.S. Dollars, a substantial portion of the
costs incurred to render services under these contracts are denominated in the local currency of the country in which the contracts are serviced which creates foreign exchange exposure. We serve most of our EMEA based clients using our service
centers in the Netherlands, the United Kingdom, Italy, Ireland, Spain, Sweden, France, Germany, Poland, Denmark, Bulgaria, Egypt, Tunisia and South Africa. We typically bill our EMEA based clients in Euro or British Pound Sterling. While a
substantial portion of the costs incurred to render services under these contracts are denominated in Euro, a part is also denominated in the local currency in which the contracts are serviced which creates foreign exchange exposure.

The expenses from these foreign operations create exposure to changes in exchange rates between the local currencies and the contractual
currencies. As a result, we may experience foreign currency gains and losses, which may positively or negatively affect our results of operations attributed to these subsidiaries. The majority of this exposure is related to work performed from call
centers in Canada, India and the Philippines. In addition, our reported results reflect the foreign currency translation of results of our subsidiaries in foreign locales to the U.S. Dollar. Our material exposure is the conversion of cash flows from
the U.S. Dollar to the Philippine Peso. For the first nine months of 2009 and 2010, the Philippine Peso averaged 48.00 and 45.74 respectively, and accordingly, the U.S. Dollar value of our Philippine Peso denominated expenses was
negatively impacted by the underlying currency movement.

In order to manage the risk of these foreign currencies from
strengthening against the currency used for billing, which thereby decreases the economic benefit of performing work in these countries, we may hedge a portion, though not 100%, of these foreign currency exposures. While our hedging strategy may
protect us from adverse changes in foreign currency rates in the short term, an overall strengthening of the foreign currencies would adversely impact margins over the long term.

The following summarizes the relative (weakening)/strengthening of the U.S. Dollar against the local currency during the periods
presented:



|                                    |  |                                      |      |    |                                      |  |       |   
|----------------------------------- |  | ------------------------------------ | ---- | -- | ------------------------------------ |  | ----- | --
|                                    |  | Nine months 
endedSeptember 30, 2010 |      |    | Nine months 
endedSeptember 30, 2009 | 
|U.S. Dollar vs. Canadian Dollar     |  |                                      | (2.1 | )% |                                      |  | (10.9 | )%
|U.S. Dollar vs. Euro                |  |                                      | 5.3  | %  |                                      |  | (3.9  | )%
|U.S. Dollar vs. Indian Rupee        |  |                                      | (4.3 | )% |                                      |  | (3.1  | )%
|U.S. Dollar vs. Philippine Peso     |  |                                      | (5.9 | )% |                                      |  | (0.5  | )%
|U.S. Dollar vs. S. African Rand     |  |                                      | (5.8 | )% |                                      |  | (20.8 | )%
|U.S. Dollar vs. U.K. Pound Sterling |  |                                      | 2.0  | %  |                                      |  | (9.8  | )%

Cash Flow Hedging
Program

Substantially all of our subsidiaries use the local currency as their functional currency as a result of
paying labor and operating costs in those local currencies. Certain of our subsidiaries in the Philippines use the U.S. Dollar as their functional currency while paying their labor and operating cost in local currency. Conversely, revenue for
most of these foreign



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subsidiaries is derived principally from client contracts that are invoiced and collected in U.S. Dollars and other foreign currencies. To mitigate against the risk of principally a weaker
U.S. Dollar we purchase forward exchange contracts to acquire the local currency of the foreign subsidiary at a fixed exchange rate at specific dates in the future. We have designated and account for certain of these derivative instruments as
cash flow hedges as defined by the authoritative guidance.

Given the significance of our foreign operations and the potential
volatility of the certain of these currencies versus the U.S. Dollar, we use forward purchases of Philippine peso, Canadian Dollars, Euros and Indian rupees to minimize the impact of currency fluctuations. As of September 30, 2010, we had
entered into forward contracts with three financial institutions to acquire the following currencies:



|                |  |                |           |  |                |  |         |              |  |  |             |  |  |  |       | 
|--------------- |  | -------------- | --------- |  | -------------- |  | ------- | ------------ |  |  | ----------- |  |  |  | ----- | 
|Currency        |  | Notional Value |           |  | USD Equivalent |  |         | Highest Rate |  |  | Lowest Rate | 
|Philippine Peso |  |                | 5,148,500 |  |                |  | 100,233 |              |  |  | 50.49       |  |  |  | 44.12 | 
|Canadian Dollar |  |                | 80,700    |  |                |  | 77,450  |              |  |  | 1.06        |  |  |  | 1.01  | 
|Indian Rupee    |  |                | 299,250   |  |                |  | 2,276   |              |  |  | 47.27       |  |  |  | 44.60 | 
|Euro            |  |                | 9,000     |  |                |  | 12,275  |              |  |  | 1.35        |  |  |  | 1.35  | 

While we have
implemented certain strategies to mitigate risks related to the impact of fluctuations in currency exchange rates, we cannot ensure that we will not recognize gains or losses from international transactions, as this is part of transacting business
in an international environment. Not every exposure is or can be hedged and, where hedges are put in place based on expected foreign exchange exposure, they are based on forecasts for which actual results may differ from the original estimate.
Failure to successfully hedge or anticipate currency risks properly could affect our consolidated operating results.



|ITEM 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our
disclosure controls and procedures as of September 30, 2010. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are
designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2010, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance level.

No change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.



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PART IIOTHER INFORMATION



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

We operate
in a rapidly changing environment that involves a number of risks, some of which are beyond our control. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A. Risk
Factors in our Annual Report on Form 10-K for the year ended December 31, 2009 and our quarterly report on Form 10-Q for the quarter ended March 31, 2010 which could have a material effect on our business, results of operations,
financial condition and/or liquidity and that could cause operating results to vary significantly from period to period. As of September 30, 2010, there have been no material changes to the risk factors disclosed in our most recent Annual
Report on Form 10-K for the year ended December 31, 2009 and our quarterly report on Form 10-Q for the quarter ended March 31, 2010, although we may disclose changes to such factors or disclose additional factors from time to time in our
future filings with the SEC. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.



|ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Issuer Purchases of Equity Securities

During the second quarter of
2010, our Compensation Committee approved the payment of applicable tax withholding on the vesting of shares of restricted stock held by certain members of our senior management team through the surrender by such shareholders and the repurchase by
us of that number of the vested shares equal to the total tax withholding obligations divided by the fair market value of our common stock on the trading day preceding the vesting date. Such repurchases by us were not made pursuant to a publicly
announced repurchase program. The aggregate number of shares repurchased by us during the quarter ended September 30, 2010 from such executives is set forth in the table below.



|                                         |  |                                    |       |  |                                |   |      |                                                                                 |  |  |                                                                           |  |  |  |   | 
|---------------------------------------- |  | ---------------------------------- | ----- |  | ------------------------------ | - | ---- | ------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------- |  |  |  | - | 
|Period                                   |  | (a)Total Number 
ofSharesPurchased |       |  | (b)Average PricePaid per Share |   |      | (c)Total Number 
ofSharesPurchased asPart of
PubliclyAnnounced Plansor Programs |  |  | (d)MaximumNumber ofShares thatmay yet bePurchased underthe Plan orProgram | 
|July 2010                                |  |                                    |       |  |                                |   |      |                                                                                 |  |  |                                                                           |  |  |  |   | 
|(July 1, 2010  July 31, 2010)           |  |                                    | 3,175 |  |                                | $ | 4.05 |                                                                                 |  |  |                                                                          |  |  |  |  | 
|August 2010                              |  |                                    |       |  |                                |   |      |                                                                                 |  |  |                                                                           |  |  |  |   | 
|(August 1, 2010  August 31, 2010)       |  |                                    |      |  |                                | $ | 6.28 |                                                                                 |  |  |                                                                          |  |  |  |  | 
|September 2010                           |  |                                    |       |  |                                |   |      |                                                                                 |  |  |                                                                           |  |  |  |   | 
|(September 1, 2010  September 30, 2010) |  |                                    |      |  |                                | $ |     |                                                                                 |  |  |                                                                          |  |  |  |  | 
|                                         |  |                                    |       |  |                                |   |      |                                                                                 |  |  |                                                                           |  |  |  |   | 
|Total                                    |  |                                    | 3,175 |  |                                |   |      |                                                                                 |  |  |                                                                          |  |  |  |  | 
|                                         |  |                                    |       |  |                                |   |      |                                                                                 |  |  |                                                                           |  |  |  |   | 



|ITEM 6. | EXHIBITS.
|------- | ---------

We are filing
as part of this Report the Exhibits listed in the Exhibit Index following the signature page to this Report.



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SIGNATURES

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



|                 |  |                              |  |                                                                                                               
|---------------- |  | ---------------------------- |  | --------------------------------------------------------------------------------------------------------------
|                 |  | STREAM GLOBAL SERVICES, INC.
|                 |  |                             
|November 3, 2010 |  | By:                          |  | /S/    KATHRYN V.
MARINELLO                                                                                   
|                 |  |                              |  | Kathryn V. Marinello Chairman, Chief Executive Officer and President (principal executive
officer)            
|                 |  |                             
|November 3, 2010 |  | By:                          |  | /S/    DENNIS
LACEY                                                                                           
|                 |  |                              |  | Dennis Lacey Executive Vice President and Chief Financial Officer (principal financial
and accounting officer)



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Exhibit Index



|            |  |                                                                                                                                                                                                                                                                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                       
|            | 
|10.1        |  | Separation Agreement, dated as of August 19, 2010, by and between R. Scott Murray and Stream Global Services, Inc. (filed as Exhibit 10.1 to the Registrants Current
Report on Form 8-K, as filed with the Securities and Exchange Commission on August 20, 2010 (File No. 001-33739) and incorporated herein by reference).     
|            | 
|10.2        |  | Employment Agreement, dated as of August 19, 2010, by and between Kathryn V. Marinello and Stream Global Services, Inc. (filed as Exhibit 10.2 to the Registrants Current
Report on Form 8-K, as filed with the Securities and Exchange Commission on August 20, 2010 (File No. 001-33739) and incorporated herein by reference).
|            | 
|31.1*       |  | Principal Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                                                                                                              
|            | 
|31.2*       |  | Principal Financial Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                                                                                                              
|            | 
|32.1**      |  | Principal Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                               
|            | 
|32.2**      |  | Principal Financial and Accounting Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                



|* | Filed herewith.
|- | ---------------

|** | Furnished herewith.
|-- | -------------------



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