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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 March 31, 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 80,530,546 shares of the Registrants common stock, $0.001 par value per share, issued and outstanding as of
April 30, 2010 (including shares of common stock that are part of the Registrants outstanding, publicly traded units).









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##### Table of Contents

TABLE OF CONTENTS



|                              |  |                                                                                                    |  |     
|----------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                    |  | Page
|PART I. FINANCIAL INFORMATION |  | 1                                                                                                 
|                              |  |                                                                                                   
|Item 1.                       |  | Financial Statements                                                                               |  | 1   
|                              |  |                                                                                                   
|                              |  | Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009                             |  | 1   
|                              |  |                                                                                                   
|                              |  | Consolidated Statements of Operations for the three months ended March 31, 2010 and March 31, 2009 |  | 2   
|                              |  |                                                                                                   
|                              |  | Consolidated Statements of Stockholders Equity for the three months ended March 31,
2010           |  | 3   
|                              |  |                                                                                                   
|                              |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and March 31, 2009 |  | 4   
|                              |  |                                                                                                   
|                              |  | Notes to Unaudited Consolidated Financial Statements                                               |  | 5   
|                              |  |                                                                                                   
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations              |  | 22  
|                              |  |                                                                                                   
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 29  
|                              |  |                                                                                                   
|Item 4.                       |  | Controls and Procedures                                                                            |  | 30  
|                              | 
|PART II. OTHER INFORMATION    |  | 31                                                                                                
|                              |  |                                                                                                   
|Item 1A.                      |  | Risk Factors                                                                                       |  | 31  
|                              |  |                                                                                                   
|Item 6.                       |  | Exhibits                                                                                           |  | 31  
|                              | 
|SIGNATURES                    |  | 32                                                                                                

Stream is a trademark of Stream Global
Services, Inc.



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##### Table of Contents

PART IFINANCIAL INFORMATION

ITEM 1CONSOLIDATED FINANCIAL STATEMENTS

STREAM GLOBAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)



|                                                                                                                                                                                                                                                          |  |                          |         |   |                  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                                                                          |  | March 31,2010(unaudited) |         |   | December 31,2009 |  
|Assets                                                                                                                                                                                                                                                    |  |                          |         |   |                  |   |         |  
|Current assets:                                                                                                                                                                                                                                           |  |                          |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                                 |  | $                        | 21,599  |   |                  | $ | 14,928  |  
|Accounts receivable, net of allowance for bad debts of $593 and $532 at March 31, 2010 and December 31, 2009,
respectively                                                                                                                                |  |                          | 160,362 |   |                  |   | 175,557 |  
|Income taxes receivable                                                                                                                                                                                                                                   |  |                          | 3,138   |   |                  |   | 2,988   |  
|Deferred income taxes                                                                                                                                                                                                                                     |  |                          | 18,648  |   |                  |   | 15,870  |  
|Prepaid expenses and other current assets                                                                                                                                                                                                                 |  |                          | 20,946  |   |                  |   | 18,043  |  
|                                                                                                                                                                                                                                                          |  |                          |         |   |                  |   |         |  
|Total current assets                                                                                                                                                                                                                                      |  |                          | 224,693 |   |                  |   | 227,386 |  
|Equipment and fixtures, net                                                                                                                                                                                                                               |  |                          | 89,329  |   |                  |   | 96,816  |  
|Deferred income taxes                                                                                                                                                                                                                                     |  |                          | 1,400   |   |                  |   | 5,306   |  
|Goodwill                                                                                                                                                                                                                                                  |  |                          | 226,027 |   |                  |   | 226,027 |  
|Intangible assets, net                                                                                                                                                                                                                                    |  |                          | 99,626  |   |                  |   | 104,834 |  
|Other assets                                                                                                                                                                                                                                              |  |                          | 19,440  |   |                  |   | 20,454  |  
|                                                                                                                                                                                                                                                          |  |                          |         |   |                  |   |         |  
|Total assets                                                                                                                                                                                                                                              |  | $                        | 660,515 |   |                  | $ | 680,823 |  
|                                                                                                                                                                                                                                                          |  |                          |         |   |                  |   |         |  
|Liabilities and Stockholders Equity                                                                                                                                                                                                                      |  |                          |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                                                                                                      |  |                          |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                                                                                                          |  | $                        | 13,546  |   |                  | $ | 13,532  |  
|Accrued employee compensation and benefits                                                                                                                                                                                                                |  |                          | 51,735  |   |                  |   | 57,475  |  
|Other accrued expenses                                                                                                                                                                                                                                    |  |                          | 33,268  |   |                  |   | 28,499  |  
|Income taxes payable                                                                                                                                                                                                                                      |  |                          | 547     |   |                  |   | 2,199   |  
|Current portion of long-term debt                                                                                                                                                                                                                         |  |                          | 91      |   |                  |   | 90      |  
|Current portion of capital lease obligations                                                                                                                                                                                                              |  |                          | 6,921   |   |                  |   | 5,529   |  
|Other liabilities                                                                                                                                                                                                                                         |  |                          | 7,345   |   |                  |   | 8,013   |  
|                                                                                                                                                                                                                                                          |  |                          |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                                                                                 |  |                          | 113,453 |   |                  |   | 115,337 |  
|Long-term debt, net of current portion                                                                                                                                                                                                                    |  |                          | 198,644 |   |                  |   | 206,880 |  
|Capital lease obligations, net of current portion                                                                                                                                                                                                         |  |                          | 11,059  |   |                  |   | 11,279  |  
|Deferred income taxes                                                                                                                                                                                                                                     |  |                          | 20,373  |   |                  |   | 21,050  |  
|Other long-term liabilities                                                                                                                                                                                                                               |  |                          | 22,643  |   |                  |   | 22,866  |  
|                                                                                                                                                                                                                                                          |  |                          |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                                                                         |  |                          | 366,172 |   |                  |   | 377,412 |  
|Stockholders equity:                                                                                                                                                                                                                                     |  |                          |         |   |                  |   |         |  
|Common stock, par value $0.001 per share, shares authorized200,000 shares authorized at March 31, 2010 and
December 31, 2009, respectively, issued and outstanding shares80,499 and 79,616 shares at March 31, 2010 and December 31, 2009, respectively |  |                          | 80      |   |                  |   | 80      |  
|Additional paid-in-capital                                                                                                                                                                                                                                |  |                          | 339,477 |   |                  |   | 337,035 |  
|Retained deficit                                                                                                                                                                                                                                          |  |                          | (40,447 | ) |                  |   | (29,972 | )
|Accumulated other comprehensive income (loss)                                                                                                                                                                                                             |  |                          | (4,767  | ) |                  |   | (3,732  | )
|                                                                                                                                                                                                                                                          |  |                          |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                                                                                                                |  |                          | 294,343 |   |                  |   | 303,411 |  
|                                                                                                                                                                                                                                                          |  |                          |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                |  | $                        | 660,515 |   |                  | $ | 680,823 |  
|                                                                                                                                                                                                                                                          |  |                          |         |   |                  |   |         |  

See accompanying notes to consolidated 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 EndedMarch
31, |        
|                                                                 |  | 2010                        |         |   | 2009 |  
|Revenue                                                          |  | $                           | 196,575 |   |      | $ | 135,614 |  
|Direct cost of revenue                                           |  |                             | 112,840 |   |      |   | 78,613  |  
|                                                                 |  |                             |         |   |      |   |         |  
|Gross profit                                                     |  |                             | 83,735  |   |      |   | 57,001  |  
|                                                                 |  |                             |         |   |      |   |         |  
|                                                                 |  |                            
|Operating expenses:                                              |  |                             |         |   |      |   |         |  
|Selling, general and administrative expenses                     |  |                             | 69,264  |   |      |   | 43,502  |  
|Transaction related expenses                                     |  |                             | 910     |   |      |   |        |  
|Depreciation and amortization                                    |  |                             | 16,429  |   |      |   | 6,665   |  
|                                                                 |  |                             |         |   |      |   |         |  
|Total operating expenses                                         |  |                             | 86,603  |   |      |   | 50,167  |  
|                                                                 |  |                             |         |   |      |   |         |  
|Income (loss) from operations                                    |  |                             | (2,868  | ) |      |   | 6,834   |  
|                                                                 |  |                             |         |   |      |   |         |  
|                                                                 |  |                            
|Other (income) expenses, net:                                    |  |                             |         |   |      |   |         |  
|Foreign currency transaction loss (gain)                         |  |                             | (1,805  | ) |      |   | (852    | )
|Other (income) expense, net                                      |  |                             |        |   |      |   | 7       |  
|Interest expense, net                                            |  |                             | 7,602   |   |      |   | 2,895   |  
|                                                                 |  |                             |         |   |      |   |         |  
|Total other (income) expenses, net                               |  |                             | 5,797   |   |      |   | 2,050   |  
|                                                                 |  |                             |         |   |      |   |         |  
|Income (loss) before income taxes                                |  |                             | (8,665  | ) |      |   | 4,784   |  
|Provision (benefit) for income taxes                             |  |                             | 1,810   |   |      |   | 3,086   |  
|                                                                 |  |                             |         |   |      |   |         |  
|Net income (loss)                                                |  |                             | (10,475 | ) |      |   | 1,698   |  
|                                                                 |  |                             |         |   |      |   |         |  
|Cumulative convertible preferred stock dividends                 |  |                             |        |   |      |   | 1,293   |  
|Preferred Stock accretion                                        |  |                             |        |   |      |   | 225     |  
|                                                                 |  |                             |         |   |      |   |         |  
|Net income (loss) attributable to common shareholders            |  | $                           | (10,475 | ) |      | $ | 180     |  
|                                                                 |  |                             |         |   |      |   |         |  
|                                                                 |  |                            
|Net income (loss) attributable to common shareholders per share: |  |                             |         |   |      |   |         |  
|Basic                                                            |  | $                           | (0.13   | ) |      | $ | 0.02    |  
|                                                                 |  |                             |         |   |      |   |         |  
|Diluted                                                          |  | $                           | (0.13   | ) |      | $ | 0.02    |  
|                                                                 |  |                             |         |   |      |   |         |  
|                                                                 |  |                            
|Shares used in computing per share amounts:                      |  |                             |         |   |      |   |         |  
|Basic                                                            |  |                             | 80,009  |   |      |   | 9,456   |  
|                                                                 |  |                             |         |   |      |   |         |  
|Diluted                                                          |  |                             | 80,009  |   |      |   | 9,456   |  
|                                                                 |  |                             |         |   |      |   |         |  

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 three months ended March 31, 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 income (loss)                                            |  |             |  |                          |   |                           |   |        |                                            |   | (10,475 | )     |  |   |       |   |  |   | (10,475 | )
|Currency translation adjustment                              |  |             |  |                          |   |                           |   |        |                                            |   |        |       |  |   | (2,301 | ) |  |   | (2,301  | )
|Unrealized loss on derivatives, net of tax of $0             |  |             |  |                          |   |                           |   |        |                                            |   |        |       |  |   | 1,266  |   |  |   | 1,266   |  
|                                                             |  |              |  |                          |    |                           |   |         |                                            |   |         |       |  |   |        |   |  |   |         |  
|Comprehensive loss                                           |  |             |  |                          |   |                           |   |        |                                            |   |        |       |  |   |       |   |  |   | (11,510 | )
|Common stock issued for pre-emptive rights                   |  | 25           |  |                          |   |                           |   | 79      |                                            |   |        |       |  |   |       |   |  |   | 79      |  
|Common shares issued under stock plans, net of cancellations |  | 669          |  |                          |   |                           |   |        |                                            |   |        |       |  |   |       |   |  |   |        |  
|Warrant exercises                                            |  | 167          |  |                          |   |                           |   | 1,001   |                                            |   |        |       |  |   |       |   |  |   | 1,001   |  
|Stock option exercises                                       |  | 22           |  |                          |   |                           |   | 33      |                                            |   |        |       |  |   |       |   |  |   | 33      |  
|Stock-based compensation expense                             |  |             |  |                          |   |                           |   | 1,329   |                                            |   |        |       |  |   |       |   |  |   | 1,329   |  
|                                                             |  |              |  |                          |    |                           |   |         |                                            |   |         |       |  |   |        |   |  |   |         |  
|Balances at March 31, 2010                                   |  | 80,499       |  | $                        | 80 |                           | $ | 339,477 |                                            | $ | (40,447 | )     |  | $ | (4,767 | ) |  | $ | 294,343 |  
|                                                             |  |              |  |                          |    |                           |   |         |                                            |   |         |       |  |   |        |   |  |   |         |  

See accompanying notes to consolidated condensed financial statements



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STREAM GLOBAL SERVICES, INC.

Consolidated Condensed Statements of Cash Flows

(Unaudited)

(In thousands)



|                                                                                                   |  |                                  |         |   |                                  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | -------------------------------- | - | ------- | -
|                                                                                                   |  | Three MonthsEnded March 31, 2010 |         |   | Three MonthsEnded March 31, 2009 |  
|Operating activities:                                                                              |  |                                  |         |   |                                  |   |         |  
|                                                                                                   |  |                                 
|Net income (loss)                                                                                  |  | $                                | (10,475 | ) |                                  | $ | 1,698   |  
|                                                                                                   |  |                                 
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                                  |         |   |                                  |   |         |  
|Depreciation and amortization                                                                      |  |                                  | 16,429  |   |                                  |   | 6,665   |  
|Amortization and write-off of debt issuance costs                                                  |  |                                  | 843     |   |                                  |   | 1,194   |  
|Deferred taxes                                                                                     |  |                                  | 386     |   |                                  |   | 235     |  
|Loss on disposal of assets                                                                         |  |                                  | (13     | ) |                                  |   |        |  
|Noncash stock compensation                                                                         |  |                                  | 1,329   |   |                                  |   | 204     |  
|Changes in operating assets and liabilities, net of the effect of acquisitions:                    |  |                                  |         |   |                                  |   |         |  
|Accounts receivable                                                                                |  |                                  | 12,187  |   |                                  |   | (3,548  | )
|Income taxes receivable                                                                            |  |                                  | (172    | ) |                                  |   | (119    | )
|Prepaid expenses and other current assets                                                          |  |                                  | (1,762  | ) |                                  |   | (1,199  | )
|Other assets                                                                                       |  |                                  | 450     |   |                                  |   | (1,955  | )
|Accounts payable                                                                                   |  |                                  | 243     |   |                                  |   | 215     |  
|Accrued expenses and other liabilities                                                             |  |                                  | (2,128  | ) |                                  |   | (2,482  | )
|                                                                                                   |  |                                  |         |   |                                  |   |         |  
|Net cash provided by (used in) operating activities                                                |  |                                  | 17,317  |   |                                  |   | 908     |  
|                                                                                                   |  |                                  |         |   |                                  |   |         |  
|Investing activities:                                                                              |  |                                  |         |   |                                  |   |         |  
|                                                                                                   |  |                                 
|Additions to equipment and fixtures, net                                                           |  |                                  | (2,776  | ) |                                  |   | (4,052  | )
|                                                                                                   |  |                                  |         |   |                                  |   |         |  
|Net cash provided by (used in) investing activities                                                |  |                                  | (2,776  | ) |                                  |   | (4,052  | )
|                                                                                                   |  |                                  |         |   |                                  |   |         |  
|Financing activities:                                                                              |  |                                  |         |   |                                  |   |         |  
|                                                                                                   |  |                                 
|Net borrowings (repayments) on line of credit                                                      |  |                                  | (8,548  | ) |                                  |   | (15,823 | )
|Proceeds from issuance of long-term debt                                                           |  |                                  |        |   |                                  |   | 22,959  |  
|Payments on long-term debt                                                                         |  |                                  | (21     | ) |                                  |   | (508    | )
|Exercise of public warrants                                                                        |  |                                  | 1,001   |   |                                  |   |        |  
|Proceeds on capital leases                                                                         |  |                                  | 1,669   |   |                                  |   |        |  
|Proceeds from issuance of common stock related to pre-emptive rights and stock options             |  |                                  | 112     |   |                                  |   |        |  
|Payment of capital lease obligations                                                               |  |                                  | (1,697  | ) |                                  |   | (520    | )
|                                                                                                   |  |                                  |         |   |                                  |   |         |  
|Net cash provided by (used in) financing activities                                                |  |                                  | (7,484  | ) |                                  |   | 6,108   |  
|                                                                                                   |  |                                  |         |   |                                  |   |         |  
|Effect of exchange rates on cash and cash equivalents                                              |  |                                  | (386    | ) |                                  |   | (251    | )
|                                                                                                   |  |                                  |         |   |                                  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                               |  |                                  | 6,671   |   |                                  |   | 2,713   |  
|Cash and cash equivalents, beginning of period                                                     |  |                                  | 14,928  |   |                                  |   | 10,660  |  
|                                                                                                   |  |                                  |         |   |                                  |   |         |  
|Cash and cash equivalents, end of period                                                           |  | $                                | 21,599  |   |                                  | $ | 13,373  |  
|                                                                                                   |  |                                  |         |   |                                  |   |         |  
|Supplemental cash flow information:                                                                |  |                                  |         |   |                                  |   |         |  
|Cash paid for interest                                                                             |  | $                                | 880     |   |                                  | $ | 1,293   |  
|Cash paid for income taxes                                                                         |  |                                  | 3,520   |   |                                  | $ | 1,922   |  
|Noncash financing activities:                                                                      |  |                                  |         |   |                                  |   |         |  
|Gain (loss) on foreign exchange forward contracts                                                  |  | $                                | (1,266  | ) |                                  | $ | 136     |  
|Capital lease financing                                                                            |  | $                                | 1,282   |   |                                  | $ |        |  

See accompanying notes
to consolidated condensed financial statements.



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STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements

March 31, 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.

In August 2009, Stream, EGS Corp.
(EGS), the parent company of eTelecare Global Solutions, Inc. (eTelecare) and other parties signatory 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 (the Series B Preferred Stock), 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 that it held in consideration for the issuance of 1,000 shares of our common stock.

In November 2009, we commenced a self-tender offer to purchase up to 17,500 of our public warrants, each of which is exercisable for one
share of our common stock for $6.00 in cash, at a purchase price of $.50 per warrant net to the seller in cash. In December 2009, we closed the self-tender and accepted for purchase approximately 9,957 warrants for a total purchase price of
approximately $4,978, excluding fees and expenses related to the tender offer. (See Note 7)

eTelecare results of operations
are included in the consolidated results for the period October 1, 2009 (the date of the acquisition) through December 31, 2009.

We have evaluated subsequent events through the date of filing the financial statements, and no events, other than what has been
disclosed above, have occurred from the balance sheet date through that date that would impact the consolidated 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 revenue, improve operational efficiencies and drive brand loyalty for our clients.

Note 3Basis of Presentation

The consolidated financial statements of SGS as of March 31, 2010 and December 31, 2009, and for the three months ended
March 31, 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.

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 acquisition 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 March 31, 2010 and for the three months ended March 31, 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 months ended March 31, 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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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(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 24 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 do not believe that we are exposed to a concentration of credit risk with our derivative financial instruments as the counterparties are well established institutions and counterparty credit risk
information is monitored on an ongoing basis.

All derivatives, including foreign currency forward contracts, are recognized
in other current assets 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
(excluding certain cash flow hedges previously determined to be effective but, as of October 1, 2009, the date of the Combination, determined to be ineffective). 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 recognized together with the hedged transaction 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. Ineffectiveness is measured based on the change in fair value of the forward contracts and the fair value of the
hypothetical derivatives with terms that match the critical terms of the risk being hedged.

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
Other Income/Expense 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, 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 transaction 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) when assumed in purchase accounting.



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



As of March 31, 2010 and December 31, 2009, we had approximately $154,581 and
$111,994, respectively, of foreign exchange risk hedged using forward exchange contracts. As of March 31, 2010, the $154,581 of forward exchange contracts we held were comprised of $55,131 of contracts previously determined to be effective cash
flow hedges, but as of October 1, 2009, determined to be ineffective, $67,782 of contracts determined to be effective cash flow hedges and $31,668 of contracts for 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 March 31,
2010 and 2009, the change in the fair market value of these derivative instruments designated as cash flow hedges during the period was a gain of $1,260 and $1,241, respectively, which is reflected in accumulated other comprehensive income (loss).
As of March 31, 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 a gain of $4,050 of which $2,548 was recognized in Other
Income/Expense In the Statement of Operations. As of March 31, 2010, the fair market value of derivatives for which we elected not to apply hedge accounting was a gain of $106, 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:



|                           |  |                |         |                                         |   |                                             |  |                                  |       |  |   |  
|-------------------------- |  | -------------- | ------- | --------------------------------------- | - | ------------------------------------------- |  | -------------------------------- | ----- |  | - | -
|                           |  | March 31, 2010 |         | Quoted Prices inActive Markets(Level 1) |   | Significant OtherObservableInputs (Level 2) |  | SignificantUnobservable(Level 3)
|Description                |  |                |         |                                         |   |                                             |  |                                  |       |  |   |  
|Long-term debt             |  | $              | 224,250 |                                         | $ | 224,250                                     |  | $                                |      |  | $ | 
|Forward exchange contracts |  |                | 6,306   |                                         |   |                                            |  |                                  | 6,306 |  |   | 
|                           |  |                |         |                                         |   |                                             |  |                                  |       |  |   |  
|Total                      |  | $              | 230,556 |                                         | $ | 224,250                                     |  | $                                | 6,306 |  | $ | 
|                           |  |                |         |                                         |   |                                             |  |                                  |       |  |   |  

The fair value of our long term debt is determined
from market quotations. The fair values of our forward exchange contracts are determined through market, 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 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.



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STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



|                                                       |  |                                   |      
|------------------------------------------------------ |  | --------------------------------- | -----
|                                                       |  | Three months endedMarch 
31, 2009
|Net income (loss)                                      |  | $                                 | 1,698
|Cumulative preferred stock dividends                   |  |                                   | 1,293
|Preferred stock accretion                              |  |                                   | 225  
|                                                       |  |                                   |      
|Net income (loss) attributable for common stockholders |  | $                                 | 180  
|                                                       |  |                                   |      

The two-class method is not applicable to the three
month period ended March 31, 2010 due to the conversion of our preferred stock to common stock on October 1, 2009.

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:



|                                                                                                                |  |                                  |  |                                 
|--------------------------------------------------------------------------------------------------------------- |  | -------------------------------- |  | --------------------------------
|                                                                                                                |  | Three months endedMarch 31, 2010 |  | Three Months endedMarch 31, 2009
|Options to purchase common stock at $6.00 per share                                                             |  | 8,054                            |  | 3,367                           
|Pre-emptive rights at $6.00 per share                                                                           |  | 23,979                           |  |                                
|Preferred stock convertible to common stock at $6.00 per share                                                  |  |                                 |  | 25,415                          
|Ares warrants to purchase common stock at $6.00 per share                                                       |  |                                 |  | 7,500                           
|Publicly held warrants at $6.00 per share                                                                       |  | 9,842                            |  | 31,250                          
|Shares of Restricted stock                                                                                      |  | 728                              |  |                                
|                                                                                                                |  |                                  |  |                                 
|Total options, pre-emptive rights, preferred stock, warrants and restricted stock exercisable into common stock |  | 42,603                           |  | 67,532                          
|                                                                                                                |  |                                  |  |                                 

Accumulated other comprehensive income (loss) consists
of the following:



|                                                     |  |                |        |   |                   |   |        |  
|---------------------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------ | -
|                                                     |  | March 31, 2010 |        |   | December 31, 2009 |  
|Unrealized (loss) gain on forward exchange contracts |  | $              | 1,179  |   |                   | $ | (87    | )
|Cumulative Translation adjustment                    |  |                | (5,946 | ) |                   |   | (3,645 | )
|                                                     |  |                |        |   |                   |   |        |  
|                                                     |  | $              | (4,767 | ) |                   | $ | (3,732 | )
|                                                     |  |                |        |   |                   |   |        |  

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 on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the
tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued guidance on revenue
arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for 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.



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STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



Note 5Acquisitions

EGS Acquisition:

SGS acquired EGS to create one of the leading CRM and BPO services companies in the world. 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 SGS with the ability to broaden 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. We believe this broad and integrated portfolio of global services
is a key differentiating factor to win new clients and realize attractive cross selling opportunities between clients.

SGS and EGS entered
into a share exchange agreement pursuant to which Stream issued 33,652 shares of our 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 the following shareholders: Ares Management, Ayala Corporation and Providence Equity Partners (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 exercise of the publicly traded warrants. Ayala
and Providence 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.

Under the purchase method of accounting, the assets and liabilities of EGS are recorded as of the acquisition date at their respective
fair values. The excess purchase price over those values is recorded as goodwill. The goodwill recognized is attributable primarily to the fair value of the going-concern element and the fair value of expected synergies to be achieved. The following
table summarizes the estimated fair value of assets acquired and the liabilities assumed and related deferred income taxes at October 1, 2009, the date of the acquisition.



|                          |  |   |          |  
|------------------------- |  | - | -------- | -
|Current assets            |  | $ | 99,631   |  
|Property and equipment    |  |   | 46,952   |  
|Goodwill                  |  |   | 177,478  |  
|Trade names               |  |   | 100      |  
|Customer relationships    |  |   | 30,300   |  
|Customer contracts        |  |   | 1,701    |  
|Other non-current assets  |  |   | 4,898    |  
|                          |  |   |          |  
|Total assets acquired     |  |   | 361,060  |  
|Current liabilities       |  |   | (81,866  | )
|Related party debt        |  |   | (85,254  | )
|Other liabilities         |  |   | (10,838  | )
|                          |  |   |          |  
|Total liabilities assumed |  |   | (177,958 | )
|                          |  |   |          |  
|Allocated purchase price  |  | $ | 183,102  |  
|                          |  |   |          |  

We recognized $12,245 of transaction related costs that were expensed in the year ended December 31,
2009 and an additional $910 of such costs during the three months ended March 31, 2010. These costs are included in the consolidated income statement in the line titled transaction related costs.

We have not identified any material unrecorded pre-acquisition contingencies where the related asset, liability, or impairment is
probable and the amount can be reasonably estimated. Our purchase accounting for the EGS acquisition is preliminary, therefore prior to the end of the measurement period, if information becomes available that would indicate it is probable that such
events had occurred and the amounts can be reasonably estimated, such items will be included in the final purchase price allocation and may adjust goodwill. During the three month period ended March 31, 2010, we have made no material
adjustments to the initially estimated fair value of assets and liabilities for the EGS acquisition.



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



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 acquisition, debt costs associated with high yield debt offering and conversion of preferred stock to common stock), and in case of 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.



|                                                      |  |      |         |   |      |   |         |  
|----------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                      |  | 2009 |         |   | 2008 |  
|Revenue                                               |  | $    | 797,005 |   |      | $ | 823,239 |  
|Net income (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 monthsended March 31,2010 |       | Three monthsended March 31,2009
|Amortization expense |  | $                               | 5,210 |                                 | $ | 2,479
|                     |  |                                 |       |                                 |   |      

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

Pursuant to our IPO, 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 beginning on
October 17, 2008 and will expire on October 17, 2011, unless redeemed earlier. Beginning 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 last sales 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 ended March 31, 2010, holders of our publicly traded warrants exercised 167 warrants for proceeds to us of
$1,001. As of March 31, 2010 there were 9,842 warrants outstanding, including 31 warrants embedded in our outstanding units.

The exercise of our publicly traded warrants triggers certain pre-emptive rights held by the following shareholders: Ares Management,
Ayala Corporation and Providence Equity Partners. 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 actually issued upon exercise of the publicly traded warrants. During the three months ended March 31, 2010, the Participating Shareholders exercised their pre-emptive rights
and purchased 25 shares of our common stock for proceeds to us of $80. As of March 31, 2010, Stream had 9,842 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 March 31, 2010, pursuant to their pre-emptive rights, the Participating Shareholders may acquire shares of our common stock for $6.00 per share in cash, at a rate of 2.4364 of common stock for each
warrant that is exercised for cash at $6.00 per share, if and when any of the publicly traded warrants are exercised, up to an aggregate 23,979 shares. These pre-emptive rights expire when the publicly traded warrants expire on October 17, 2011
and are reduced pro rata as the number of publicly traded warrants outstanding is reduced.



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



Note 8Equipment and Fixtures, Net

Equipment and fixtures, net, consists of the following:



|                                                 |  |               |         |   |                  |   |         |  
|------------------------------------------------ |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                 |  | March 31,2010 |         |   | December 31,2009 |  
|Furniture and fixtures                           |  | $             | 10,725  |   |                  | $ | 10,948  |  
|Building improvements                            |  |               | 31,946  |   |                  |   | 32,044  |  
|Computer equipment                               |  |               | 32,235  |   |                  |   | 31,142  |  
|Software                                         |  |               | 16,167  |   |                  |   | 14,586  |  
|Telecom and other equipment                      |  |               | 39,499  |   |                  |   | 38,157  |  
|Fixed assets held for sale                       |  |               | 214     |   |                  |   | 228     |  
|Equipment and fixtures not yet placed in service |  |               | 1,311   |   |                  |   | 1,415   |  
|                                                 |  |               |         |   |                  |   |         |  
|                                                 |  |               | 132,097 |   |                  |   | 128,520 |  
|Less: accumulated depreciation                   |  |               | (42,768 | ) |                  |   | (31,704 | )
|                                                 |  |               |         |   |                  |   |         |  
|                                                 |  | $             | 89,329  |   |                  | $ | 96,816  |  
|                                                 |  |               |         |   |                  |   |         |  

Depreciation expense consists of the following:



|                     |  |                                 |        |                                 |   |      
|-------------------- |  | ------------------------------- | ------ | ------------------------------- | - | -----
|                     |  | Three monthsended March 31,2010 |        | Three monthsended March 31,2009
|Depreciation expense |  | $                               | 11,219 |                                 | $ | 4,186

Note 9Accrued Employee
Compensation and Benefits

Accrued employee compensation and benefits consists of the following:



|                                  |  |               |        |                  |   |       
|--------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                  |  | March 31,2010 |        | December 31,2009
|Compensation related amounts      |  | $             | 23,167 |                  | $ | 29,213
|Vacation liabilities              |  |               | 14,230 |                  |   | 13,492
|Medical and dental liabilities    |  |               | 2,891  |                  |   | 2,972 
|Employer taxes                    |  |               | 2,671  |                  |   | 1,531 
|Retirement plans                  |  |               | 6,327  |                  |   | 7,806 
|Other benefit related liabilities |  |               | 2,449  |                  |   | 2,461 
|                                  |  |               |        |                  |   |       
|                                  |  | $             | 51,735 |                  | $ | 57,475
|                                  |  |               |        |                  |   |       



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



Note 10Other Accrued Expenses and Other Liabilities

Other accrued expenses consists of the following:



|                       |  |               |        |                  |   |       
|---------------------- |  | ------------- | ------ | ---------------- | - | ------
|                       |  | March 31,2010 |        | December 31,2009
|Professional fees      |  |               | 5,273  |                  |   | 5,447 
|Accrued interest       |  |               | 11,570 |                  |   | 6,041 
|Occupancy expense      |  |               | 3,574  |                  |   | 3,678 
|Technology expense     |  |               | 4,024  |                  |   | 4,050 
|Other accrued expenses |  |               | 8,827  |                  |   | 9,283 
|                       |  |               |        |                  |   |       
|                       |  | $             | 33,268 |                  | $ | 28,499
|                       |  |               |        |                  |   |       

Other liabilities consists of the following:



|                             |  |               |        |                  |   |       
|---------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                             |  | March 31,2010 |        | December 31,2009
|Lease exit liability         |  | $             | 545    |                  | $ | 924   
|Deferred revenue             |  |               | 273    |                  |   | 635   
|Market lease reserves        |  |               | 5,402  |                  |   | 5,548 
|Other                        |  |               | 1,125  |                  |   | 906   
|                             |  |               |        |                  |   |       
|Total current liabilities    |  | $             | 7,345  |                  | $ | 8,013 
|                             |  |               |        |                  |   |       
|Deferred rent                |  | $             | 1,231  |                  | $ | 955   
|Accrued income taxes         |  |               | 12,054 |                  |   | 11,976
|Market value lease reserves  |  |               | 6,246  |                  |   | 7,418 
|Asset retirement obligations |  |               | 2,256  |                  |   | 2,162 
|Other                        |  |               | 856    |                  |   | 355   
|                             |  |               |        |                  |   |       
|Total long-term              |  | $             | 22,643 |                  | $ | 22,866
|                             |  |               |        |                  |   |       

Note 11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 (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, the purpose of which was 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 maturity of four years. 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 months ended March 31, 2010, $278 and $209, respectively, of such capitalized
fees.

We are in compliance with the financial covenants as of March 31, 2010. Substantially all of the assets of Stream
excluding intangible assets secure the Notes and the ABL Facility. See Note 17 for Guarantor Financial Information.

Long-term
borrowings consist of the following:



|                            |  |               |         |   |                  |   |         |  
|--------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                            |  | March 31,2010 |         |   | December 31,2009 |  
|Revolving line of credit    |  | $             | 6,953   |   |                  | $ | 15,501  |  
|11.25% Senior Secured Notes |  |               | 200,000 |   |                  |   | 200,000 |  
|Other                       |  |               | 215     |   |                  |   | 237     |  
|                            |  |               |         |   |                  |   |         |  
|                            |  |               | 207,168 |   |                  |   | 215,738 |  
|Less: current portion       |  |               | (91     | ) |                  |   | (90     | )
|                            |  |               |         |   |                  |   |         |  
|Long-term debt              |  | $             | 207,077 |   |                  | $ | 215,648 |  
|                            |  |               |         |   |                  |   |         |  



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



Minimum principal payments on long-term debt subsequent to March 31, 2010 are as
follows:



|      |  |       |        
|----- |  | ----- | -------
|      |  | Total
|2010  |  | $     | 68     
|2011  |  |       | 96     
|2012  |  |       | 51     
|2013  |  |       | 6,953  
|2014  |  |       | 200,000
|      |  |       |        
|Total |  | $     | 207,168
|      |  |       |        

We had zero and $6,600 Letter of Credit Guarantees
outstanding at March 31, 2010 and December 31, 2009, respectively.

We had $8,664 and $1,988 Letters of Credit
outstanding at March 31, 2010 and December 31, 2009, respectively.

There was $77,621 available on the ABL Facility
at March 31, 2010.

We have $337 and $359 of restricted cash as of March 31, 2010 and December 31, 2009,
respectively.

Note 12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. 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
March 31, 2010 and December 31, 2009, the liability for unrecognized tax benefits (including interest and penalties) was $13,698 and $13,319, respectively, of which $12,055 and $11,975, respectively, was recorded within other long term
liabilities in our consolidated financial statements. Included in these amounts is approximately $1,291 of unbenefitted 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 had increased to $2,662 at March 31, 2010 and is included in the $13,698 liability. 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 $13,135. This amount includes interest and penalties of $2,662. 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 $1,112 and $914, respectively.

Note 13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 options 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 the options shall be exercisable
for a period not to exceed ten years from the grant date. During the three months ended March 31, 2010 and 2009, we granted options to purchase 1,670 shares and 353 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 March 31, 2010, we granted our founder, Chairman, and
Chief Executive Officer an option to purchase 1,000 shares of our common stock that is subject to a time-based vesting schedule and become exercisable under certain conditions. The option becomes exercisable upon 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 the affiliated stockholders have, in the aggregate sold 25% or more of their aggregate ownership as measured against their
ownership as of November 10, 2009. We have used the Monte Carlo method to value this option. The accounting guidance requires us to recognize compensation expense related to options with market or performance conditions using an accelerated
attribution method. The derived service period, as defined by the accounting guidance, was determined with the assistance of the valuation specialist and compensation expense will be recorded ratably for each tranche over the requisite service
period.

For the three months ended March 31, 2010 and 2009, 844 and zero outstanding stock options, respectively, were
vested, 21,500 and zero stock options, respectively, had been exercised, and 572 and 195 stock options, respectively, had been forfeited.

The per share fair value of options granted was determined using the Black-Scholes-Merton model.



13



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



The following assumptions were used for the option grants in the three months ended
March 31, 2010 and 2009:



|                                                          |  |                                  |           |   |                                  |   |             |  
|--------------------------------------------------------- |  | -------------------------------- | --------- | - | -------------------------------- | - | ----------- | -
|                                                          |  | Three months endedMarch 31, 2010 |           |   | Three months endedMarch 31, 2009 |  
|Option term (years)                                       |  |                                  | 6.375     |   |                                  |   | 6.375       |  
|Volatility                                                |  |                                  | 64        | % |                                  |   | 43          | %
|Risk-free interest rate                                   |  |                                  | 2.6  2.9 | % |                                  |   | 1.91  2.16 | %
|Dividend yield                                            |  |                                  | 0         | % |                                  |   | 0           | %
|Weighted-average grant date fair value per option granted |  | $                                | 3.90      |   |                                  | $ | 1.12        |  

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. In 2009 we transitioned to 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 three months ended March 31, 2010 was as follows:



|                                 |  |                  |   |  |                              |      |                          |   |                                                |  |     
|-------------------------------- |  | ---------------- | - |  | ---------------------------- | ---- | ------------------------ | - | ---------------------------------------------- |  | ----
|                                 |  | Numberof options |   |  | WeightedAverageExercisePrice |      | WeightedAverageFairValue |   | WeightedAverageRemainingContractualTerm(Years)
|Outstanding at December 31, 2009 |  | 6,978            |   |  | $                            | 6.15 |                          |   |                                                |  | 9.39
|Granted                          |  | 1,670            |   |  |                              | 6.12 |                          | $ | 3.90                                           |  |     
|Exercised                        |  | (22              | ) |  |                              | 6.00 |                          |   |                                                |  |     
|Forfeited or canceled            |  | (572             | ) |  |                              | 6.14 |                          |   |                                                |  |     
|                                 |  |                  |   |  |                              |      |                          |   |                                                |  |     
|Outstanding at March 31, 2010    |  | 8,054            |   |  | $                            | 6.14 |                          |   |                                                |  | 9.31
|                                 |  |                  |   |  |                              |      |                          |   |                                                |  |     

As of March 31, 2010, stock options to purchase 844 shares were exercisable and such options
had a weighted-average exercise of $6.05. The weighted average remaining contractual term of options currently exercisable is 8.7 years at March 31, 2010. The total fair value of options vested during the three months ended March 31, 2010
was $715. As of March 31, 2010 there were 5,430 options outstanding, vested, and expected to vest (including forfeiture adjusted unvested shares) with a weighted average exercise price of $6.14 and a weighted average remaining contractual term
of 9.27 years.

For the three months ended March 31, 2010 and 2009, we recognized net stock compensation expense of
$1,144 and $158, respectively, for the stock options in the table above.

As of March 31, 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 $2,520
and zero, respectively. The aggregate intrinsic value of exercisable shares at March 31, 2010 and December 31, 2009 was $468 and zero, respectively. The intrinsic value of options exercised for the three months ended March 31, 2010
and March 31, 2009, was $10 and zero, respectively.

As of March 31, 2010 and December 31, 2009, there was
$13,067 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 recognized over a weighted-average period of 4.5 years from issue
date.

Restricted stock award activity during the three months ended March 31, 2010 was as follows:



|                                 |  |                 |   |  |                                      |     
|-------------------------------- |  | --------------- | - |  | ------------------------------------ | ----
|                                 |  | Number ofShares |   |  | WeightedaverageGrant-Date Fair Value
|Outstanding at December 31, 2009 |  | 632             |   |  | $                                    | 6.28
|Granted                          |  | 100             |   |  |                                      | 6.11
|Vested                           |  |                |   |  |                                      |    
|Forfeited                        |  | (4              | ) |  |                                      | 7.85
|                                 |  |                 |   |  |                                      |     
|Outstanding at March 31, 2010    |  | 728             |   |  | $                                    | 6.25
|                                 |  |                 |   |  |                                      |     

For the three months ended March 31, 2010 and
2009, we recognized net compensation expense of $185 and $46, respectively, for the restricted stock awards. Restricted stock awards vest either quarterly over four years for grants in 2008 or semi-annually over five years for grants in 2009.



14



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



Note 14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 MonthsEndedMarch 31, 2010 |         | Three MonthsEndedMarch 31, 2009
|Revenues      |  |                                 |         |                                 |   |        
|Americas      |  | $                               | 143,332 |                                 | $ | 81,787 
|EMEA          |  |                                 | 53,243  |                                 |   | 53,827 
|              |  |                                 |         |                                 |   |        
|              |  | $                               | 196,575 |                                 | $ | 135,614
|              |  |                                 |         |                                 |   |        
|              |  |                                
|              |  | March 31, 2010                  |         | December 31, 2009              
|Total assets: |  |                                 |         |                                 |   |        
|Americas      |  | $                               | 579,577 |                                 | $ | 594,116
|EMEA          |  |                                 | 80,938  |                                 |   | 86,707 
|              |  |                                 |         |                                 |   |        
|              |  | $                               | 660,515 |                                 | $ | 680,823
|              |  |                                 |         |                                 |   |        

We derive significant revenues from three clients. At
March 31, 2010, our top clients were as follows:



|                |  |                                  |   |  |                                  |  
|--------------- |  | -------------------------------- | - |  | -------------------------------- | -
|                |  | Three Months EndedMarch 31, 2010 |   |  | Three Months EndedMarch 31, 2009 |  
|Dell            |  | 19                               | % |  | 18                               | %
|Hewlett Packard |  | 15                               | % |  | 16                               | %
|Sirius/XM       |  | 8                                | % |  | 11                               | %

Related
accounts receivable from these three clients were 29%, 13% and 6%, respectively, of our total accounts receivable at March 31, 2010.



15



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



Note 15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 March 31, 2010 are reflected below:

Condensed Consolidating Statement of Operations

For the three months ended March 31, 2010

(unaudited)



|                                             |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|-------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ----------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                             |  | Parent |         |   | Guarantorsubsidiaries |   |         | Non-Guarantorsubsidiaries |  |   | Elimination |   |  | Total |        
|Net revenue:                                 |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|Customers                                    |  | $      |        |   |                       | $ | 152,376 |                           |  | $ | 44,199      |   |  | $     |        |   |  | $ | 196,575 |  
|Intercompany                                 |  |        |        |   |                       |   | 24,177  |                           |  |   | 70,227      |   |  |       | (94,404 | ) |  |   |        |  
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|                                             |  |        |        |   |                       |   | 176,553 |                           |  |   | 114,426     |   |  |       | (94,404 | ) |  |   | 196,575 |  
|                                             |  |        |         |   |                      
|Direct cost of revenue                       |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|Customers                                    |  |        |        |   |                       |   | 53,188  |                           |  |   | 59,652      |   |  |       |         |   |  |   | 112,840 |  
|Intercompany                                 |  |        |        |   |                       |   | 83,474  |                           |  |   | 10,930      |   |  |       | (94,404 | ) |  |   |        |  
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|                                             |  |        |        |   |                       |   | 136,662 |                           |  |   | 70,582      |   |  |       | (94,404 | ) |  |   | 112,840 |  
|                                             |  |        |         |   |                      
|Gross Profit                                 |  |        |        |   |                       |   | 39,891  |                           |  |   | 43,844      |   |  |       |        |   |  |   | 83,735  |  
|Operating expenses:                          |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|Selling, general and administrative expenses |  |        | 1,422   |   |                       |   | 36,881  |                           |  |   | 30,961      |   |  |       |        |   |  |   | 69,264  |  
|Transaction related costs                    |  |        | 171     |   |                       |   | 739     |                           |  |   |            |   |  |       |        |   |  |   | 910     |  
|Depreciation and amortization                |  |        | 8       |   |                       |   | 9,569   |                           |  |   | 6,852       |   |  |       |        |   |  |   | 16,429  |  
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|Total operating expenses                     |  |        | 1,601   |   |                       |   | 47,189  |                           |  |   | 37,813      |   |  |       |        |   |  |   | 86,603  |  
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|Income (loss) from operations                |  |        | (1,601  | ) |                       |   | (7,298  | )                         |  |   | 6,031       |   |  |       |        |   |  |   | (2,868  | )
|Other (income) expenses, net:                |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|Foreign currency transaction loss (gain)     |  |        | (5      | ) |                       |   | (93     | )                         |  |   | (1,707      | ) |  |       |        |   |  |   | (1,805  | )
|Other (income) expense, net                  |  |        |        |   |                       |   |        |                           |  |   |            |   |  |       |        |   |  |   |        |  
|Interest (income) expense, net               |  |        | 6,279   |   |                       |   | (2,179  | )                         |  |   | 3,502       |   |  |       |        |   |  |   | 7,602   |  
|Equity in earnings of subsidiaries           |  |        | 5,256   |   |                       |   |        |                           |  |   |            |   |  |       | (5,256  | ) |  |   |        |  
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|Total other (income) expenses, net           |  |        | 11,530  |   |                       |   | (2,272  | )                         |  |   | 1,795       |   |  |       | (5,256  | ) |  |   | 5,797   |  
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|Income (loss) before income taxes            |  |        | (13,131 | ) |                       |   | (5,026  | )                         |  |   | 4,236       |   |  |       | 5,256   |   |  |   | (8,665  | )
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|Provision (benefit) for income taxes         |  |        | (2,656  | ) |                       |   | 3,534   |                           |  |   | 932         |   |  |       |        |   |  |   | 1,810   |  
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  
|Net income (loss)                            |  | $      | (10,475 | ) |                       | $ | (8,560  | )                         |  | $ | 3,304       |   |  | $     | 5,256   |   |  | $ | (10,475 | )
|                                             |  |        |         |   |                       |   |         |                           |  |   |             |   |  |       |         |   |  |   |         |  



16



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



Condensed Consolidating Statement of Operations

For the three months ended March 31, 2009

(unaudited)



|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|----------------------------------------------------- |  | ------ | ------ | - | --------------------- | - | ------- | ------------------------- |  | ----------- | ------ |  | ----- | ------- | - |  | - | ------- | -
|                                                      |  | Parent |        |   | Guarantorsubsidiaries |   |         | Non-Guarantorsubsidiaries |  | Elimination |        |  | Total |        
|Net revenue:                                          |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Customers                                             |  | $      |       |   |                       | $ | 129,654 |                           |  | $           | 5,960  |  | $     |        |   |  | $ | 135,614 |  
|Intercompany                                          |  |        |       |   |                       |   | 6,425   |                           |  |             | 56,683 |  |       | (63,108 | ) |  |   |        |  
|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|                                                      |  |        |       |   |                       |   | 136,079 |                           |  |             | 62,643 |  |       | (63,108 | ) |  |   | 135,614 |  
|                                                      |  |        |        |   |                      
|Direct cost of revenue                                |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Customers                                             |  |        |       |   |                       |   | 42,441  |                           |  |             | 36,172 |  |       |        |   |  |   | 78,613  |  
|Intercompany                                          |  |        |       |   |                       |   | 56,249  |                           |  |             | 6,859  |  |       | (63,108 | ) |  |   |        |  
|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|                                                      |  |        |       |   |                       |   | 98,690  |                           |  |             | 43,031 |  |       | (63,108 | ) |  |   | 78,613  |  
|Gross Profit                                          |  |        |       |   |                       |   | 37,389  |                           |  |             | 19,612 |  |       |        |   |  |   | 57,001  |  
|Operating expenses:                                   |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Selling, general and administrative expenses          |  |        | 366    |   |                       |   | 28,383  |                           |  |             | 14,753 |  |       |        |   |  |   | 43,502  |  
|Transaction related costs                             |  |        |       |   |                       |   |        |                           |  |             |       |  |       |        |   |  |   |        |  
|Depreciation and amortization                         |  |        | 11     |   |                       |   | 4,889   |                           |  |             | 1,765  |  |       |        |   |  |   | 6,665   |  
|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Total operating expenses                              |  |        | 377    |   |                       |   | 33,272  |                           |  |             | 16,518 |  |       |        |   |  |   | 50,167  |  
|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Income (loss) from operations                         |  |        | (377   | ) |                       |   | 4,117   |                           |  |             | 3,094  |  |       |        |   |  |   | 6,834   |  
|Other (income) expenses, net:                         |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Foreign currency transaction loss (gain)              |  |        |       |   |                       |   | (935    | )                         |  |             | 83     |  |       |        |   |  |   | (852    | )
|Other (income) expense, net                           |  |        |       |   |                       |   | 7       |                           |  |             |       |  |       |        |   |  |   | 7       |  
|Interest (income) expense, net                        |  |        | (559   | ) |                       |   | 3,260   |                           |  |             | 194    |  |       |        |   |  |   | 2,895   |  
|Equity in Earnings of Subsidiaries                    |  |        | (1,516 | ) |                       |   |        |                           |  |             |       |  |       | 1,516   |   |  |   |        |  
|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Total other (income) expenses, net                    |  |        | (2,075 | ) |                       |   | 2,332   |                           |  |             | 277    |  |       | 1,516   |   |  |   | 2,050   |  
|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Income (loss) before income taxes                     |  |        | 1,698  |   |                       |   | 1,785   |                           |  |             | 2,817  |  |       | (1,516  | ) |  |   | 4,784   |  
|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Provision (benefit) for income taxes                  |  |        |       |   |                       |   | 2,184   |                           |  |             | 902    |  |       |        |   |  |   | 3,086   |  
|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Net income (loss)                                     |  |        | 1,698  |   |                       |   | (399    | )                         |  |             | 1,915  |  |       | (1,516  | ) |  |   | 1,698   |  
|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Cumulative convertible Preferred Stock dividends      |  |        | 1,293  |   |                       |   |        |                           |  |             |       |  |       |        |   |  |   | 1,293   |  
|Preferred Stock accretion                             |  |        | 225    |   |                       |   |        |                           |  |             |       |  |       |        |   |  |   | 225     |  
|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  
|Net income (loss) attributable to common stockholders |  | $      | 180    |   |                       | $ | (399    | )                         |  | $           | 1,915  |  | $     | (1,516  | ) |  | $ | 180     |  
|                                                      |  |        |        |   |                       |   |         |                           |  |             |        |  |       |         |   |  |   |         |  



17



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



Condensed Consolidating Balance Sheet

As of March 31, 2010

(unaudited)



|                                                  |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        
|------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | ----------- | ------- |  | ----- | -------- | - |  | - | -------
|                                                  |  | Parent |         |   | Guarantorsubsidiaries |   |         | Non-Guarantorsubsidiaries |  | Elimination |         |  | Total
|Assets                                            |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        
|Current assets:                                   |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        
|Cash and cash equivalents                         |  | $      | 11      |   |                       | $ | 2,968   |                           |  | $           | 18,620  |  | $     |         |   |  | $ | 21,599 
|Accounts receivable, net                          |  |        |        |   |                       |   | 126,836 |                           |  |             | 33,526  |  |       |         |   |  |   | 160,362
|Income taxes receivable                           |  |        |        |   |                       |   | 2,403   |                           |  |             | 735     |  |       |         |   |  |   | 3,138  
|Deferred income taxes                             |  |        |        |   |                       |   | 17,794  |                           |  |             | 854     |  |       |         |   |  |   | 18,648 
|Prepaid expenses and other current assets         |  |        | 2,155   |   |                       |   | 7,019   |                           |  |             | 11,772  |  |       |         |   |  |   | 20,946 
|                                                  |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        
|Total current assets                              |  |        | 2,166   |   |                       |   | 157,020 |                           |  |             | 65,507  |  |       |         |   |  |   | 224,693
|Equipment and fixtures, net                       |  |        | 36      |   |                       |   | 43,490  |                           |  |             | 45,803  |  |       |         |   |  |   | 89,329 
|Deferred income taxes                             |  |        |        |   |                       |   | (1,934  | )                         |  |             | 3,334   |  |       |         |   |  |   | 1,400  
|Investment in Subsidiary                          |  |        | 497,476 |   |                       |   | 69,463  |                           |  |             | 27      |  |       | (566,966 | ) |  |   |       
|Goodwill                                          |  |        |        |   |                       |   | 119,906 |                           |  |             | 106,121 |  |       |         |   |  |   | 226,027
|Intangible assets, net                            |  |        |        |   |                       |   | 81,167  |                           |  |             | 18,459  |  |       |         |   |  |   | 99,626 
|Other assets                                      |  |        | 8,149   |   |                       |   | 1,353   |                           |  |             | 9,938   |  |       |         |   |  |   | 19,440 
|                                                  |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        
|Total assets                                      |  | $      | 507,827 |   |                       | $ | 470,465 |                           |  | $           | 249,189 |  | $     | (566,966 | ) |  | $ | 660,515
|                                                  |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        
|Liabilities and Stockholders Equity              |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        
|Current liabilities:                              |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        
|Accounts payable                                  |  | $      |        |   |                       | $ | 7,177   |                           |  | $           | 6,369   |  | $     |         |   |  | $ | 13,546 
|Accrued employee compensation and benefits        |  |        |        |   |                       |   | 18,991  |                           |  |             | 32,744  |  |       |         |   |  |   | 51,735 
|Other accrued expenses                            |  |        | 11,694  |   |                       |   | 9,453   |                           |  |             | 12,121  |  |       |         |   |  |   | 33,268 
|Income taxes payable                              |  |        | (4,463  | ) |                       |   | 4,290   |                           |  |             | 720     |  |       |         |   |  |   | 547    
|Current portion of long-term debt                 |  |        |        |   |                       |   | 91      |                           |  |             |        |  |       |         |   |  |   | 91     
|Intercompany Payable (Receivable)                 |  |        | (22,290 | ) |                       |   | (68,410 | )                         |  |             | 90,700  |  |       |         |   |  |   |       
|Current portion of capital lease obligations      |  |        |        |   |                       |   | 4,374   |                           |  |             | 2,547   |  |       |         |   |  |   | 6,921  
|Other liabilities                                 |  |        |        |   |                       |   | 4,484   |                           |  |             | 2,861   |  |       |         |   |  |   | 7,345  
|                                                  |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        
|Total current liabilities                         |  |        | (15,059 | ) |                       |   | (19,550 | )                         |  |             | 148,062 |  |       |         |   |  |   | 113,453
|Long-term debt, net of current portion            |  |        | 198,520 |   |                       |   | 124     |                           |  |             |        |  |       |         |   |  |   | 198,644
|Capital lease obligations, net of current portion |  |        |        |   |                       |   | 4,676   |                           |  |             | 6,383   |  |       |         |   |  |   | 11,059 
|Deferred income taxes                             |  |        |        |   |                       |   | 19,342  |                           |  |             | 1,031   |  |       |         |   |  |   | 20,373 
|Other long-term liabilities                       |  |        |        |   |                       |   | 15,152  |                           |  |             | 7,491   |  |       |         |   |  |   | 22,643 
|                                                  |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        
|Total liabilities                                 |  |        | 183,461 |   |                       |   | 19,744  |                           |  |             | 162,967 |  |       |         |   |  |   | 366,172
|Total shareholders equity (deficit)              |  |        | 324,366 |   |                       |   | 450,721 |                           |  |             | 86,222  |  |       | (566,966 | ) |  |   | 294,343
|                                                  |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        
|Total liabilities and stockholders equity        |  | $      | 507,827 |   |                       | $ | 470,465 |                           |  | $           | 249,189 |  | $     | (566,966 | ) |  | $ | 660,515
|                                                  |  |        |         |   |                       |   |         |                           |  |             |         |  |       |          |   |  |   |        



18



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



Condensed Consolidating Balance Sheet

As of December 31, 2009



|                                                  |  |        |          |   |                       |   |                           |  |             |         |  |       |          |   |  |   |        
|------------------------------------------------- |  | ------ | -------- | - | --------------------- | - | ------------------------- |  | ----------- | ------- |  | ----- | -------- | - |  | - | -------
|                                                  |  | Parent |          |   | Guarantorsubsidiaries |   | Non-Guarantorsubsidiaries |  | Elimination |         |  | Total
|Assets                                            |  |        |          |   |                       |   |                           |  |             |         |  |       |          |   |  |   |        
|Current assets:                                   |  |        |          |   |                       |   |                           |  |             |         |  |       |          |   |  |   |        
|Cash and cash equivalents                         |  | $      | 126      |   |                       | $ | 3,195                     |  | $           | 11,607  |  | $     |         |   |  | $ | 14,928 
|Accounts receivable, net                          |  |        |         |   |                       |   | 139,025                   |  |             | 36,532  |  |       |         |   |  |   | 175,557
|Income taxes receivable                           |  |        |         |   |                       |   | 2,473                     |  |             | 515     |  |       |         |   |  |   | 2,988  
|Deferred income taxes                             |  |        |         |   |                       |   | 15,241                    |  |             | 629     |  |       |         |   |  |   | 15,870 
|Prepaid expenses and other current assets         |  |        | 2,083    |   |                       |   | 5,726                     |  |             | 10,234  |  |       |         |   |  |   | 18,043 
|                                                  |  |        |          |   |                       |   |                           |  |             |         |  |       |          |   |  |   |        
|Total current assets                              |  |        | 2,209    |   |                       |   | 165,660                   |  |             | 59,517  |  |       |         |   |  |   | 227,386
|Equipment and fixtures, net                       |  |        | 44       |   |                       |   | 45,678                    |  |             | 51,094  |  |       |         |   |  |   | 96,816 
|Deferred income taxes                             |  |        |         |   |                       |   | 1,902                     |  |             | 3,404   |  |       |         |   |  |   | 5,306  
|Investment in Subsidiary                          |  |        | 390,971  |   |                       |   | 160,798                   |  |             | 27      |  |       | (551,796 | ) |  |   |       
|Goodwill                                          |  |        |         |   |                       |   | 119,906                   |  |             | 106,121 |  |       |         |   |  |   | 226,027
|Intangible assets, net                            |  |        |         |   |                       |   | 85,035                    |  |             | 19,799  |  |       |         |   |  |   | 104,834
|Other assets                                      |  |        | 8,618    |   |                       |   | 1,886                     |  |             | 9,950   |  |       |         |   |  |   | 20,454 
|                                                  |  |        |          |   |                       |   |                           |  |             |         |  |       |          |   |  |   |        
|Total assets                                      |  | $      | 401,842  |   |                       | $ | 580,865                   |  | $           | 249,912 |  | $     | (551,796 | ) |  | $ | 680,823
|                                                  |  |        |          |   |                       |   |                           |  |             |         |  |       |          |   |  |   |        
|Liabilities and Stockholders Equity              |  |        |          |   |                       |   |                           |  |             |         |  |       |          |   |  |   |        
|Current liabilities:                              |  |        |          |   |                       |   |                           |  |             |         |  |       |          |   |  |   |        
|Accounts payable                                  |  | $      |         |   |                       | $ | 6,521                     |  | $           | 7,011   |  | $     |         |   |  | $ | 13,532 
|Accrued employee compensation and benefits        |  |        |         |   |                       |   | 23,414                    |  |             | 34,061  |  |       |         |   |  |   | 57,475 
|Other accrued expenses                            |  |        | 6,936    |   |                       |   | 10,334                    |  |             | 11,229  |  |       |         |   |  |   | 28,499 
|Income taxes payable                              |  |        | (1,736   | ) |                       |   | 3,907                     |  |             | 28      |  |       |         |   |  |   | 2,199  
|Current portion of long-term debt                 |  |        |         |   |                       |   | 90                        |  |             |        |  |       |         |   |  |   | 90     
|Intercompany Payable (Receivable)                 |  |        | (137,232 | ) |                       |   | 44,407                    |  |             | 92,825  |  |       |         |   |  |   |       
|Current portion of capital lease obligations      |  |        |         |   |                       |   | 3,181                     |  |             | 2,348   |  |       |         |   |  |   | 5,529  
|Other liabilities                                 |  |        |         |   |                       |   | 4,630                     |  |             | 3,383   |  |       |         |   |  |   | 8,013  
|                                                  |  |        |          |   |                       |   |                           |  |             |         |  |       |          |   |  |   |        
|Total current liabilities                         |  |        | (132,032 | ) |                       |   | 96,484                    |  |             | 150,885 |  |       |         |   |  |   | 115,337
|Long-term debt, net of current portion            |  |        | 206,733  |   |                       |   | 147                       |  |             |        |  |       |         |   |  |   | 206,880
|Capital lease obligations, net of current portion |  |        |         |   |                       |   | 4,132                     |  |             | 7,147   |  |       |         |   |  |   | 11,279 
|Deferred income taxes                             |  |        |         |   |                       |   | 20,002                    |  |             | 1,048   |  |       |         |   |  |   | 21,050 
|Other long-term liabilities                       |  |        |         |   |                       |   | 16,381                    |  |             | 6,485   |  |       |         |   |  |   | 22,866 
|                                                  |  |        |          |   |                       |   |                           |  |             |         |  |       |          |   |  |   |        
|Total liabilities                                 |  |        | 74,701   |   |                       |   | 137,146                   |  |             | 165,565 |  |       |         |   |  |   | 377,412
|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
|                                                  |  |        |          |   |                       |   |                           |  |             |         |  |       |          |   |  |   |        



19



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



Condensed Statements of Cash Flows

For the three months ended March 31, 2010

(unaudited)



|                                                                                            |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|------------------------------------------------------------------------------------------- |  | ------ | -------- | - | --------------------- | - | -------- | ------------------------- |  | - | ----------- | - |  | ----- | ------ | - |  | - | ------- | -
|                                                                                            |  | Parent |          |   | Guarantorsubsidiaries |   |          | Non-Guarantorsubsidiaries |  |   | Elimination |   |  | Total |       
|Cash Flows from operating activities:                                                       |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net income                                                                                  |  | $      | (10,475  | ) |                       | $ | (8,561   | )                         |  | $ | 3,304       |   |  | $     | 5,257  |   |  | $ | (10,475 | )
|Undistributed equity in earnings of subsidiaries                                            |  |        | 5,257    |   |                       |   |         |                           |  |   |            |   |  |       | (5,257 | ) |  |   |        |  
|Adjustments to reconcile net income to cash provided by (used in) operating activities, net |  |        | 4,100    |   |                       |   | 15,936   |                           |  |   | 7,756       |   |  |       |       |   |  |   | 27,792  |  
|                                                                                            |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net cash provided by (used in) operating activities                                         |  |        | (1,118   | ) |                       |   | 7,375    |                           |  |   | 11,060      |   |  |       |       |   |  |   | 17,317  |  
|                                                                                            |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Cash Flows from investing activities:                                                       |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Investment in Subsidiary                                                                    |  |        | (106,505 | ) |                       |   | 106,505  |                           |  |   |            |   |  |       |        |   |  |   |        |  
|Additions to equipment and fixtures, net                                                    |  |        |         |   |                       |   | (2,593   | )                         |  |   | (183        | ) |  |       |       |   |  |   | (2,776  | )
|                                                                                            |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net cash provided by (used in) investing activities                                         |  |        | (106,505 | ) |                       |   | 103,912  |                           |  |   | (183        | ) |  |       |       |   |  |   | (2,776  | )
|                                                                                            |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Cash Flows from financing activities:                                                       |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net borrowings (repayments) on line of credit                                               |  |        | (8,548   | ) |                       |   |         |                           |  |   |            |   |  |       |       |   |  |   | (8,548  | )
|Net borrowings (repayments) on long term debt                                               |  |        |         |   |                       |   | (21      | )                         |  |   |            |   |  |       |       |   |  |   | (21     | )
|Net borrowings (repayments) on capital leases                                               |  |        |         |   |                       |   | 775      |                           |  |   | (803        | ) |  |       |       |   |  |   | (28     | )
|Net Intercompany                                                                            |  |        | 114,943  |   |                       |   | (112,830 | )                         |  |   | (2,113      | ) |  |       |       |   |  |   |        |  
|Proceeds from exercise of warrants                                                          |  |        | 1,001    |   |                       |   |         |                           |  |   |            |   |  |       |       |   |  |   | 1,001   |  
|Proceeds from issuance of common stock related to pre-emptive rights and stock options      |  |        | 112      |   |                       |   |         |                           |  |   |            |   |  |       |       |   |  |   | 112     |  
|                                                                                            |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net cash provided by (used in) financing activities                                         |  |        | 107,508  |   |                       |   | (112,076 | )                         |  |   | (2,916      | ) |  |       |       |   |  |   | (7,484  | )
|                                                                                            |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Effect of exchange rates on cash and cash equivalents                                       |  |        |         |   |                       |   | 562      |                           |  |   | (948        | ) |  |       |       |   |  |   | (386    | )
|                                                                                            |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                        |  |        | (115     | ) |                       |   | (227     | )                         |  |   | 7,013       |   |  |       |       |   |  |   | 6,671   |  
|                                                                                            |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Cash and cash equivalents, beginning of period                                              |  |        | 126      |   |                       |   | 3,195    |                           |  |   | 11,607      |   |  |       |       |   |  |   | 14,928  |  
|                                                                                            |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Cash and cash equivalents, end of period                                                    |  | $      | 11       |   |                       | $ | 2,968    |                           |  | $ | 18,620      |   |  | $     |       |   |  | $ | 21,599  |  
|                                                                                            |  |        |          |   |                       |   |          |                           |  |   |             |   |  |       |        |   |  |   |         |  



20



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##### Table of Contents

STREAM GLOBAL SERVICES, INC.

Notes to Consolidated Condensed Financial Statements(Continued)

March 31, 2010

(Unaudited)

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



Condensed Statements of Cash Flows

For the three months ended March 31, 2009

(unaudited)



|                                                                                            |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|------------------------------------------------------------------------------------------- |  | ------ | ------ | - | --------------------- | - | ------- | ------------------------- |  | - | ----------- | - |  | ----- | ------ | - |  | - | ------- | -
|                                                                                            |  | Parent |        |   | Guarantorsubsidiaries |   |         | Non-Guarantorsubsidiaries |  |   | Elimination |   |  | Total |       
|Cash Flows from operating activities:                                                       |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net income                                                                                  |  | $      | 1,698  |   |                       | $ | (399    | )                         |  | $ | 1,915       |   |  | $     | (1,516 | ) |  | $ | 1,698   |  
|Undistributed equity in earnings of subsidiaries                                            |  |        | (1,516 | ) |                       |   |        |                           |  |   |            |   |  |       | 1,516  |   |  |   |        |  
|Adjustments to reconcile net income to cash provided by (used in) operating activities, net |  |        | 3,266  |   |                       |   | (4,789  | )                         |  |   | 733         |   |  |       |       |   |  |   | (790    | )
|                                                                                            |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net cash provided by (used in) operating activities                                         |  |        | 3,448  |   |                       |   | (5,188  | )                         |  |   | 2,648       |   |  |       |       |   |  |   | 908     |  
|                                                                                            |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Cash Flows from investing activities:                                                       |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Additions to equipment and fixtures, net                                                    |  |        |       |   |                       |   | (1,944  | )                         |  |   | (2,108      | ) |  |       |       |   |  |   | (4,052  | )
|                                                                                            |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net cash provided by (used in) investing activities                                         |  |        |       |   |                       |   | (1,944  | )                         |  |   | (2,108      | ) |  |       |       |   |  |   | (4,052  | )
|                                                                                            |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Cash Flows from financing activities:                                                       |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net borrowings (repayments) on line of credit                                               |  |        |       |   |                       |   | (15,823 | )                         |  |   |            |   |  |       |       |   |  |   | (15,823 | )
|Net borrowings (repayments) on long term debt                                               |  |        |       |   |                       |   | 22,451  |                           |  |   |            |   |  |       |       |   |  |   | 22,451  |  
|Net borrowings (repayments) on capital leases                                               |  |        |       |   |                       |   | (488    | )                         |  |   | (32         | ) |  |       |       |   |  |   | (520    | )
|Net Intercompany                                                                            |  |        | (4,344 | ) |                       |   | 2,826   |                           |  |   | 1,518       |   |  |       |       |   |  |   |        |  
|                                                                                            |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net cash provided by (used in) financing activities                                         |  |        | (4,344 | ) |                       |   | 8,966   |                           |  |   | 1,486       |   |  |       |       |   |  |   | 6,108   |  
|                                                                                            |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Effect of exchange rates on cash and cash equivalents                                       |  |        |       |   |                       |   | 1,200   |                           |  |   | (1,451      | ) |  |       |       |   |  |   | (251    | )
|                                                                                            |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                        |  |        | (896   | ) |                       |   | 3,034   |                           |  |   | 575         |   |  |       |       |   |  |   | 2,713   |  
|                                                                                            |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Cash and cash equivalents, beginning of period                                              |  |        | 3,090  |   |                       |   | 2,676   |                           |  |   | 4,894       |   |  |       |       |   |  |   | 10,660  |  
|                                                                                            |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  
|Cash and cash equivalents, end of period                                                    |  | $      | 2,194  |   |                       | $ | 5,710   |                           |  | $ | 5,469       |   |  | $     |       |   |  | $ | 13,373  |  
|                                                                                            |  |        |        |   |                       |   |         |                           |  |   |             |   |  |       |        |   |  |   |         |  



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

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. 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, those described in our Annual Report on Form 10k for the year ended December 31, 2009 and other SEC filings.

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.

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) all of which was held by Ares were converted into 35,085,134 shares of our common stock. In addition, we purchased
from Ares a warrant to purchase 7,500,000 shares of our common stock that it held in 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
(WFF), 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.

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 PNC Agreement, 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 revenue, improve operational efficiencies and drive brand loyalty for our clients. As of March 31, 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 providers, which may interrupt or decrease our results of operations as we seek to shift personnel and
other resources to the CRM and other BPO services provided to our higher margin clients.



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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.

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.

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. 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.

Goodwill and Other Intangible Assets

In accordance with authoritative guidance, goodwill is 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. Impairment 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 adjustments related to facility leases 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 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 R. Scott Murray, our founder, Chairman and Chief Executive Officer that were valued using a Monte Carlo simulation and assumes the



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performance goals will be achieved. If such goals are not met, no compensation cost is recognized and any previously recognized cost is reversed. Stock compensation expense is 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 March 31, 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 various 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 on arrangements that include software elements, tangible products that
have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue
recognition guidance. Additionally, the FASB issued guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence
or third party evidence for 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.



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The following are unaudited results of operations for the three months ended March 31,
2010 and 2009:

STREAM GLOBAL SERVICES, INC.

Consolidated Statements of Operations

(Unaudited)

(in thousands)



|                                                |  |                                 |         |   |                                 |   |         |  
|----------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------- | - | ------- | -
|                                                |  | Three monthsended March 31,2010 |         |   | Three monthsended March 31,2009 |  
|Revenue                                         |  | $                               | 196,575 |   |                                 | $ | 135,614 |  
|Direct cost of revenue                          |  |                                 | 112,840 |   |                                 |   | 78,613  |  
|                                                |  |                                 |         |   |                                 |   |         |  
|Gross profit                                    |  |                                 | 83,735  |   |                                 |   | 57,001  |  
|                                                |  |                                 |         |   |                                 |   |         |  
|Operating expenses:                             |  |                                 |         |   |                                 |   |         |  
|Selling, general and administrative expenses    |  |                                 | 67,935  |   |                                 |   | 43,298  |  
|Stock based compensation expense                |  |                                 | 1,329   |   |                                 |   | 204     |  
|Transaction related expenses                    |  |                                 | 910     |   |                                 |   |        |  
|Depreciation and amortization expense           |  |                                 | 16,429  |   |                                 |   | 6,665   |  
|                                                |  |                                 |         |   |                                 |   |         |  
|Total operating expenses                        |  |                                 | 86,603  |   |                                 |   | 50,167  |  
|                                                |  |                                 |         |   |                                 |   |         |  
|Income (loss) from operations                   |  |                                 | (2,868  | ) |                                 |   | 6,834   |  
|                                                |  |                                 |         |   |                                 |   |         |  
|Other (income) expenses, net:                   |  |                                 |         |   |                                 |   |         |  
|Foreign currency transaction loss (gain)        |  |                                 | (1,805  | ) |                                 |   | (852    | )
|Other (income) expense, net                     |  |                                 |        |   |                                 |   | 7       |  
|Interest expense, net                           |  |                                 | 7,602   |   |                                 |   | 2,895   |  
|                                                |  |                                 |         |   |                                 |   |         |  
|Total other (income) expenses, net              |  |                                 | 5,797   |   |                                 |   | 2,050   |  
|                                                |  |                                 |         |   |                                 |   |         |  
|Income (loss) before provision for income taxes |  |                                 | (8,665  | ) |                                 |   | 4,784   |  
|Provision for Income taxes                      |  |                                 | 1,810   |   |                                 |   | 3,086   |  
|                                                |  |                                 |         |   |                                 |   |         |  
|Net income (loss)                               |  | $                               | (10,475 | ) |                                 | $ | 1,698   |  
|                                                |  |                                 |         |   |                                 |   |         |  



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Amounts as a percentage of revenue



|                                                |  |                                 |    |  |                                 |  
|----------------------------------------------- |  | ------------------------------- | -- |  | ------------------------------- | -
|                                                |  | Three monthsended March 31,2010 |    |  | Three monthsended March 31,2009 |  
|Revenue                                         |  | 100.0                           | %  |  | 100.0                           | %
|Direct cost of revenue                          |  | 57.4                            |    |  | 58.0                            |  
|                                                |  |                                 |    |  |                                 |  
|Gross profit                                    |  | 42.6                            |    |  | 42.0                            |  
|                                                |  |                                 |    |  |                                 |  
|Operating expenses:                             |  |                                 |    |  |                                 |  
|Selling, general and administrative expenses    |  | 34.6                            |    |  | 31.9                            |  
|Stock-based compensation expense                |  | 0.7                             |    |  | 0.2                             |  
|Transaction related expenses                    |  | 0.5                             |    |  | 0.0                             |  
|Depreciation and amortization expense           |  | 8.4                             |    |  | 4.9                             |  
|                                                |  |                                 |    |  |                                 |  
|Total operating expenses                        |  | 44.1                            |    |  | 37.0                            |  
|                                                |  |                                 |    |  |                                 |  
|Income (loss) from operations                   |  | (1.5                            | )  |  | 5.0                             |  
|                                                |  |                                 |    |  |                                 |  
|Other (income) expenses, net:                   |  |                                 |    |  |                                 |  
|Foreign currency transaction loss (gain)        |  | (0.9                            | )  |  | (0.6                            | )
|Other (income) expense, net                     |  | 0.0                             |    |  | 0.0                             |  
|Interest expense, net                           |  | 3.9                             |    |  | 2.1                             |  
|                                                |  |                                 |    |  |                                 |  
|Total other (income) expenses, net              |  | 2.9                             |    |  | 1.5                             |  
|                                                |  |                                 |    |  |                                 |  
|Income (loss) before provision for income taxes |  | (4.4                            | )  |  | 3.5                             |  
|Provision for Income taxes                      |  | 0.9                             |    |  | 2.3                             |  
|                                                |  |                                 |    |  |                                 |  
|Net income (loss)                               |  | (5.3                            | )% |  | 1.3                             | %
|                                                |  |                                 |    |  |                                 |  



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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 pay
penalties on a monthly basis based upon performance.

Direct Cost of Revenue

We record the costs specifically associated with client programs as direct cost of revenues. These costs include direct labor wages and
benefits of service professionals 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.

Operating Expenses

Our operating 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 and depreciation and amortization. Also included in operating
expenses are transaction costs related to acquisitions.

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 report our operating results using the average actual exchange rates in effect during the accounting period.

Results of Operations

Three months ended March 31, 2010 compared with three months ended March 31, 2009

Revenues. Revenues increased $61.0 million, or 45.0%, to $196.6 million for the three months ended March 31, 2010, compared to
$135.6 million for the three months ended March 31, 2009. The increase is primarily attributable to the acquisition of EGS on October 1, 2009 and the inclusion of the EGS business prior to its acquisition by Stream (Legacy EGS)
in the first quarter of 2010. The foreign currency translation impact of revenue generated in EMEA in Euros positively increased reported revenue during the three-month period ended March 31, 2010 because the average Euro/U.S. Dollar exchange
rate was 1.39 for the quarter versus 1.31 for the prior year quarter. However, during the three-month period ended March 31, 2010, the Euro/U.S. Dollar exchange rate began to weaken (the rate is approximately 1.31/32 as of the date of this
filing). Accordingly, we believe the foreign currency translation impact in the second quarter will result in our recording less revenue for our EMEA operations when translated into U.S. Dollars. We expect our sales organization to generate new
customer revenue and also new revenue from existing customers under new programs, which will help to offset such impact.

Revenues for services performed in our United States and Canadian service centers increased $17.7 million, or 30.8%, for the three months
ended March 31, 2010, compared to the three months ended March 31, 2009, as a result of the acquisition of EGS on October 1, 2009 and the inclusion of the Legacy EGS results in the first quarter of 2010. Revenues for services
performed in European service centers decreased $10.1 million, or 20.8%, for the three months ended March 31, 2010, compared to the three months ended March 31, 2009. This decrease is attributable to decreased volumes from existing clients
and increased offshore business in Tunisia and Cairo. Revenues for services performed in offshore service centers in the Philippines, India, El Salvador, Costa Rica, the Dominican Republic, Tunisia and Cairo increased $49.5 million, or 166.9%, for
the three months ended March 31, 2010, compared to the three months ended March 31, 2009 due to the acquisition of EGS on October 1, 2009 and the inclusion of the Legacy EGS results in the first quarter of 2010. Revenues in our
offshore service centers represented 42.2% of consolidated revenues for the three months ended March 31, 2010, compared to 21.9% in the same period in 2009.

Direct Cost of Revenue. Direct cost of revenue (exclusive of depreciation and amortization) increased $34.2 million, or 43.5%, to
$112.8 million for the three months ended March 31, 2010, compared to $78.6 million for the three months ended March 31, 2009. The increase is primarily attributable to the acquisition of EGS on October 1, 2009 and the inclusion of
the Legacy EGS results in the first quarter of 2010.

Gross Profit. Gross profit increased $26.7 million, or 46.9%, to
$83.7 million for the three months ended March 31, 2010 from $57.0 million for the three months ended March 31, 2009. Gross profit as a percentage of revenue increased from 42.0% to 42.6% for the three months ended March 31, 2010,
compared to the three months ended March 31, 2009. The increase is primarily attributable



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to the acquisition of EGS on October 1, 2009 and the inclusion of the Legacy EGS results in the first quarter of 2010. Gross profit percentage increased primarily due to increased revenue in
offshore locations and stronger management of our costs in connection with services performed by focusing on key operating metrics such as average handle time, utilization, productivity and attrition of our service professionals.

Operating Expenses. Operating expenses increased $36.4 million, or 72.6%, to $86.6 million for the three months ended
March 31, 2010, compared to $50.2 million for the three months ended March 31, 2009. The increase is primarily attributable to the acquisition of EGS on October 1, 2009 and the inclusion of the Legacy EGS results in the first quarter
of 2010. Selling, general and administrative expense grew from $43.3 million to $67.9 million, or 56.9%. Depreciation and amortization increased $9.8 million as a result of the inclusion of the Legacy EGS results in the first quarter of 2010, and
increased amortization associated with the intangibles acquired in the EGS acquisition. Operating expenses as a percentage of revenues increased to 44.1% for the three months ended March 31, 2010 compared to 37.0% for the three months ended
March 31, 2009.

Other (Income) Expenses, Net. Other (income) expenses, net increased $3.7 million, or 182.8%, to
$5.8 million for the three months ended March 31, 2010, compared to $2.1 million for the three months ended March 31, 2009. This increase is primarily due to increased interest expense on our borrowings of $4.7 million due to increased
borrowings and increased interest rates.

Provision for Income Taxes. Income taxes decreased $1.3 million, or 41.3%, to
$1.8 million for the three months ended March 31, 2010, compared to $3.1 million for the three months ended March 31, 2009. Foreign tax expense comprised $1.9 million and $2.9 million for the three months ended March 31, 2010 and
2009, respectively, and the effective foreign tax rate decreased from 32.8% to 19.4%, respectively. For the three months ended March 31, 2010, our reported income tax expense represents taxes incurred for our operations in foreign
jurisdictions; for our U.S. tax jurisdiction, we recorded no income tax expense or benefit. 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 in the first quarter of 2010 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.

Net Income (Loss). Net loss for the three months ended March 31, 2010 was $10.5 million as compared to net income for the
three months ended March 31, 2009 of $1.7 million. This increase is primarily due to increased depreciation and amortization and interest related expenses arising from amortizable intangible assets acquired and borrowings associated with the
eTelecare acquisition which closed on October 1, 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 timely collection of accounts receivables.

We made capital expenditures of $3.9 million in the three months ended March 31, 2010 as compared to $4.1 million for the three
months ended March 31, 2009. We continue to make capital expenditures to build new service centers, meet new contract requirements and maintain and upgrade our technology. We expect to continue to expand into new facilities in 2010 that might
include places such as the Philippines, Egypt, Tunisia, China and South and Central America. We also expect to invest in technology initiatives such as unified communications and enabling technology, business continuity and data security, web-based
solutions and applications and distributed collaboration networking. The convergence of voice and data as well as the demand for real time diagnostics and analytics by our clients are requiring us to make substantial future investments in technology
and solutions that will require additional capital investments.

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.



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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., eTelecare Global
Solutions-US, Inc., eTelecare 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 Credit 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 Credit Facility has a maturity of four years.

In the three months ended
March 31, 2010 the Company received approximately $1.0 million from the exercise of our publicly held warrants and approximately $0.1 million from proceeds from issuance of common stock related to pre-emptive rights and stock options.

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 March 31, 2010, we had approximately $8.7 million of these letters of credit in place under our ABL Credit Facility.

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 March 31, 2010, we had outstanding borrowings under variable debt agreements that totaled approximately $7.0 million. A hypothetical 1.0% increase in the interest rate would have increased interest expense by
approximately $0.1 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 March 31, 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  primarily the U.S. Dollar and Euro. 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 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.



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



|                                    |  |                                 |    |  |                                 |  
|----------------------------------- |  | ------------------------------- | -- |  | ------------------------------- | -
|                                    |  | Three monthsended March 31,2010 |    |  | Three monthsended March 31,2009 |  
|U.S. Dollar vs. Canadian Dollar     |  | (3.0                            | )% |  | 2.5                             | %
|U.S. Dollar vs. Euro                |  | 6.4                             | %  |  | 5.9                             | %
|U.S. Dollar vs. Indian Rupee        |  | (4.0                            | )% |  | 4.6                             | %
|U.S. Dollar vs. Philippine Peso     |  | (2.9                            | )% |  | 1.4                             | %
|U.S. Dollar vs. S. African Rand     |  | (0.1                            | )% |  | 3.5                             | %
|U.S. Dollar vs. U.K. Pound Sterling |  | 6.6                             | %  |  | 2.0                             | %

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 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 and Indian rupees to minimize the impact of currency fluctuations. As of March 31, 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 |  | 4,442          |  | $              | 92.4  |              | 50.49  |             | 45.38 
|Canadian Dollar |  | 44             |  |                | 42.3  |              | 1.0706 |             | 1.0102
|Indian Rupee    |  | 351            |  |                | 7.7   |              | 45.86  |             | 45.50 
|Euro            |  | 9              |  |                | 12.1  |              | 1.3469 |             | 1.3469
|                |  |                |  |                |       |              |        |             |       
|                |  |                |  | $              | 154.5 |              |        |             |       

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 March 31, 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 March 31, 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 March 31, 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, 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. The following risk factor updates the risk factors that are included in our Annual Report on Form 10-K. 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.

Our financial results may be
impacted by significant fluctuations in foreign currency exchange rates.

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. If the U.S. Dollar drops in
value relative to other currencies, our cost of providing services outside the United States will increase accordingly when measured in U.S. Dollars. In addition, a substantial amount of our revenue is denominated in foreign currencies. If the
U.S. Dollar increases in value relative to other currencies, the value of those revenues will decrease accordingly when measured in U.S. Dollars. Any continued significant fluctuations in the currency exchange rates between the
U.S. Dollar, Canadian dollar, Euro and U.K. pounds sterling and the currencies of countries in which we operate may affect our business, results of operations, financial condition and cash flows.

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 those expenses when measured in U.S. Dollars. In addition, a significant amount of our revenue is denominated in Euro. Therefore, we are exposed to the
risk of an increase in the value of the U.S. Dollar relative to the Euro, which would decrease the value of those revenues accordingly when measured in U.S. Dollars.

Although we engage in hedging relating to the Canadian dollar, the Indian rupee and the Philippine peso, our hedging strategy may not
sufficiently protect us from further strengthening of these currencies against the U.S. Dollar. As a result, our expenses could increase and harm our operating results. In the converse, if the U.S. Dollar strengthens against the Canadian
dollar, the Indian rupee or the Philippine peso, our hedging strategy could reduce the potential benefits we would otherwise expect from a strengthening U.S. Dollar. We are also doing business in Latin America but do not yet hedge currencies from
these countries.



|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.
|            |  |                             
|May 6, 2010 |  | By:                          |  | /S/    R. SCOTT
MURRAY                                                                                        
|            |  |                              |  | R. Scott Murray
Chairman, Chief Executive Officer and President
(principal executive officer)                 
|            |  |                             
|May 6, 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*+      |  | 2010 Management Incentive Plan (MIP)  Vice Presidents and Above effective January 1, 2010.                                                                                                         
|            | 
|10.2*+      |  | 2010 Executive Sales Incentive Plan (SIP)  Executive Vice President, Global Sales and Marketing effective January 1, 2010.                                                                         
|            | 
|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.
|-- | -------------------

|+ | Portions of this exhibit have been omitted pursuant to our request for confidential treatment. We have filed omitted portions separately with the SEC.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------



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