The following discussion and analysis should be read in conjunction with our Unaudited Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2008, and with the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2008.

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

BUSINESS DESCRIPTION AND OVERVIEW

StarTek is a provider of business process outsourcing services to the communications industry. We partner with our clients to meet their business objectives and improve customer retention, increase revenues and reduce costs through an improved customer experience. Our solutions leverage industry knowledge, best business practices, skilled agents, proven operational excellence and flexible technology. The StarTek comprehensive service suite includes customer care, sales support, complex order processing, accounts receivable management, technical support and other industry-specific processes. We operate our business within three reportable segments, based on the geographic regions in which our services are rendered: (1) the U.S., (2) Canada and (3) the Philippines ("Offshore"). As of June 30, 2009, our U.S. segment included the operations of our thirteen facilities in the U.S.; our Canada segment included the operations of our five facilities in Canada; and our Offshore segment included the operations of our facility in Makati City, Philippines. As of June 30, 2008, there were fourteen, six and zero operating centers in the U.S., Canada and Offshore, respectively. We use gross profit as our measure of profit and loss for each business segment and do not allocate selling, general and administrative expenses to our business segments.

We endeavor to achieve site optimization at all of our locations by routinely evaluating site performance. If local economic conditions, prevailing wage rates, or other factors, negatively impact the long-term financial viability of a location, management will from time to time make the decision to close a facility. As a result, we may incur impairment losses or restructuring charges in connection with the closure. Likewise, management is continually in pursuit of opportunities to open new locations in economically viable geographic markets in order to improve profitability and grow the business.

SIGNIFICANT DEVELOPMENTS DURING THE THREE AND SIX MONTHS ENDED JUNE 30, 2009

In February 2009, we closed our facility in Regina, Saskatchewan. The closure of our Regina facility was driven by market conditions, namely recruiting challenges in this location, which impacted the profitability of the site and management determined it was in our long-term interest to close the location. This closure resulted in approximately $2.9 million and $5.2 million less revenue during the three and six months ended June 30, 2009 and $0.1 million and $nil less gross profit during the three and six months ended June 30, 2009 compared to the comparable periods ended June 30, 2008. We also incurred restructuring charges of approximately $4.4 million during the six months ended June 30, 2009 related to the closure, which is discussed in further detail below.

On February 25, 2009, we entered into an agreement to sell the assets of Domain.com, our wholly owned subsidiary, to A. Emmet Stephenson, Jr., Inc. ("Mr. Stephenson") in exchange for cash of $7.075 million. The assets of Domain.com consist of domain names, trademarks and corporation names. We conducted an auction for the assets and received bids from multiple parties, including Mr. Stephenson. Mr. Stephenson presented the highest bid, which represented the selling price, of $7.075 million and the sale was completed effective February 25, 2009. Mr. Stephenson is one of our co-founders, has managed the Domain.com subsidiary since 2006 and owns approximately 20% of our common shares outstanding. Because the transaction involves a related party, the Audit Committee of our Board of Directors considered and approved the transaction.

The results of operations and cash flows of Domain.com have been reported as discontinued operations.

RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2009 AND JUNE 30, 2008

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

                               Three Months                  Three Months                 % Change Q2
                              Ended June 30,      % of      Ended June 30,      % of      2008 to Q2
                                   2009          Revenue         2008          Revenue       2009
Revenue                       $        73,290      100.0 %  $        65,467      100.0 %         11.9 %
Cost of services                       60,161       82.1 %           57,163       87.3 %          5.2 %
Gross profit                           13,129       17.9 %            8,304       12.7 %         58.1 %
Selling, general and
administrative expenses                10,889       14.9 %           10,227       15.6 %          6.5 %
Impairment losses and
restructuring charges                       -        0.0 %            5,500        8.4 %       -100.0 %
Operating income (loss)                 2,240        3.0 %           (7,423 )    -11.3 %           NM
Net interest and other
(expense) income                         (103 )     -0.1 %               90        0.1 %           NM
Income (loss) from
continuing operations
before income taxes                     2,137        2.9 %           (7,333 )    -11.2 %           NM
Income tax expense
(benefit)                                 810        1.1 %           (2,745 )     -4.2 %           NM
Net income (loss) from
continuing operations                   1,327        1.8 %           (4,588 )     -7.0 %           NM
Income from discontinued
operations, net of tax                      -        0.0 %               69        0.1 %       -100.0 %
Net income (loss)             $         1,327        1.8 %  $        (4,519 )     -6.9 %           NM

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

                             For the Three Months Ended June 30,
                              2009                         2008
                    (in 000s)    (% of Total)    (in 000s)    (% of Total)
United States:
Revenue            $    52,033           71.0 % $    41,767           63.8 %
Cost of services        41,948           69.7 %      35,528           62.2 %
Gross profit       $    10,085           76.8 % $     6,239           75.1 %
Gross profit %            19.4 %                       14.9 %

Canada:
Revenue            $    19,232           26.2 % $    23,700           36.2 %
Cost of services        15,964           26.5 %      21,635           37.8 %
Gross profit       $     3,268           24.9 % $     2,065           24.9 %
Gross profit %            17.0 %                        8.7 %

Offshore:
Revenue            $     2,025            2.8 % $         -            0.0 %
Cost of services         2,249            3.7 %           -            0.0 %
Gross profit       $      (224 )         -1.7 % $         -            0.0 %
Gross profit %           -11.1 %

Revenue

Revenue increased by $7.8 million, or 11.9%, from $65.5 million in the second quarter of 2008 to $73.3 million in the second quarter of 2009. The increase was driven by a $10.3 million increase in revenue in our U.S. segment. Of this increase, $9.9 million was from two new sites that were opened in mid-2008 (Mansfield, OH and Jonesboro, AK). This was partially offset by $3.9 million less revenue from site closures in Big Spring, TX and Petersburg, VA in August 2008 and December 2008, respectively. The remainder of the change was driven by increases in the number of average full-time equivalent agents and utilization at other U.S. locations. In the second quarter of 2009, average full-time equivalent agents increased by 15.7% from the second quarter of 2008. This was due in large part to the full ramp of a site which transitioned to a new customer and contributed approximately $1.8 million of additional revenue in the second quarter of 2009. Revenues in our Canadian segment declined by $4.5 million in the second quarter of 2009 compared to the same period in 2008. Of this decrease, $2.9 million was due to the site closure in Regina, Saskatchewan. The remainder was due to a decline of 11.3% in average full-time equivalent agents at our other Canadian locations. Revenue from our Offshore segment increased from $0 in the second quarter of 2008 to $2.0 million in the second quarter of 2009 because our site in Makati City, Philippines opened in September 2008.

Cost of Services and Gross Profit

Cost of services increased by $3.0 million, or 5.2%, from $57.2 million in the second quarter of 2008 to $60.2 million in the second quarter of 2009. Cost of services in the U.S. increased by approximately $6.4 million, of which $3.0 million was related to the net addition of new sites, less closures, year over year, as discussed above. Gross profit as a percentage of revenue in the U.S. increased from 14.9% in the second quarter of 2008 to 19.4% in the second quarter of 2009. This increase was driven by higher utilization, which we define as average full-time equivalent agents divided by available seat capacity, which increased from 63% in the second quarter of 2008 to 82% in the second quarter of 2009. Cost of services in Canada declined by $5.7 million in the second quarter of 2009 from the second quarter of 2008, of which $3.1 million was due to the closure of the facility in Regina, Saskatchewan and $2.0 million was due to improvements in the Canadian to U.S. dollar exchange rate. The remaining decrease in the Canadian segment was due to fewer agents, as described above. Cost of services for our Offshore segment increased by approximately $2.2 million due to the opening of our Makati City, Philippines location.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $0.7 million, or 6.5%, from $10.2 million in the second quarter of 2008 to $10.9 million in the second quarter of 2009. The increase was due to an increase of $0.6 million in payroll expenses, driven by a $0.4 million increase in bonuses and $0.2 million higher stock based compensation expense. In addition, selling, general and administrative expenses increased by $0.6 million due to an accrual for the settlement of our shareholder lawsuit which we entered into a Stipulation of Settlement for on July 20, 2009. These increases were partially offset by decreases of $0.3 million and $0.2 million in depreciation expense and employee training expense, respectively.

Impairment Losses and Restructuring Charges

Impairment losses and restructuring charges declined from $5.5 million in the second quarter of 2008 to $0 in the second quarter of 2009. In the second quarter of 2008, we recorded $4.1 million in impairment losses due to impairment of certain long-lived assets ($2.3 million in the U.S. segment and $1.8 million in the Canadian segment) and $1.4 million in restructuring charges associated with the closure of our site in Hawkesbury, Ontario, Canada. We did not incur any impairment losses or restructuring charges during the second quarter of 2009.

Operating Income (Loss)

We had operating income of $2.2 million during the three months ended June 30, 2009 and an operating loss of $7.4 million during the three months ended June 30, 2008. Operating income (loss) as a percentage of revenue was 3.0% for the three months ended June 30, 2009 compared to (11.3%) for the three months ended June 30, 2008. The increase was a result of lower impairment and restructuring charges and higher revenue, partially offset by an increase in cost of services and selling, general and administrative expenses, as discussed previously.

Net Interest and Other (Expense) Income

Net interest and other expense was approximately $0.1 million during the second quarter of 2009, compared to net interest and other income of approximately $0.1 million in the second quarter of 2008. The decrease was due primarily to $0.3 million less interest and investment income in the second quarter of 2009, compared to the second quarter of 2008 due to lower cash and investments during

the period. This decrease to interest income was offset by a $0.1 million decrease in interest expense due to less interest expense related to our equipment loans and line of credit, partially offset by a pre-payment penalty on the equipment loans.

Income Tax

The quarterly effective tax rate for continuing operations remained consistent, increasing slightly from 37.4% during the three months ended June 30, 2008 to 37.9% during the three months ended June 30, 2009.

Net Income (Loss)

Net income was $1.3 million for the second quarter of 2009 and we had a net loss of approximately $4.5 million during the second quarter of 2008. The increase in net income was primarily due to higher revenue and the absence of impairment and restructuring charges, partially offset by higher cost of services and selling, general and administrative expenses, as discussed previously.

RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2009 AND JUNE 30, 2008



                               Six Months                Six Months                 % Change
                                  Ended                     Ended                   YTD June
                                June 30,       % of       June 30,       % of      30, 2008 to
                                  2009        Revenue       2008        Revenue       2009
Revenue                        $   144,001      100.0 %  $   130,050      100.0 %         10.7 %
Cost of services                   120,149       83.4 %      112,279       86.3 %          7.0 %
Gross profit                        23,852       16.6 %       17,771       13.7 %         34.2 %
Selling, general and
administrative expenses             20,581       14.3 %       20,317       15.6 %          1.3 %
Impairment losses and
restructuring charges                6,437        4.5 %        5,608        4.4 %         14.8 %
Operating loss                      (3,166 )     -2.2 %       (8,154 )     -6.3 %           NM
Net interest and other
(expense) income                      (178 )     -0.1 %          400        0.3 %           NM
Loss from continuing
operations before income
taxes                               (3,344 )     -2.3 %       (7,754 )     -6.0 %           NM
Income tax benefit                    (683 )     -0.5 %       (2,763 )     -2.2 %           NM
Net loss from continuing
operations                          (2,661 )     -1.8 %       (4,991 )     -3.8 %           NM
Income from discontinued
operations, net of tax               4,640        3.2 %          141        0.1 %           NM
Net income (loss)              $     1,979        1.4 %  $    (4,850 )     -3.7 %           NM

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

                             For the Six Months Ended June 30,
                             2009                         2008
                   (in 000s)    (% of Total)    (in 000s)    (% of Total)
United States:
Revenue            $  101,397           70.4 % $    81,725           62.8 %
Cost of services       82,515           68.7 %      67,480           60.1 %
Gross profit       $   18,882           79.2 % $    14,245           80.2 %
Gross profit %           18.6 %                       17.4 %

Canada:
Revenue            $   38,413           26.7 % $    48,325           37.2 %
Cost of services       33,399           27.8 %      44,799           39.9 %
Gross profit       $    5,014           21.0 % $     3,526           19.8 %
Gross profit %           13.1 %                        7.3 %

Offshore:
Revenue            $    4,191            2.9 % $         -            0.0 %
Cost of services        4,235            3.5 %           -            0.0 %
Gross profit       $      (44 )         -0.2 % $         -            0.0 %
Gross profit %           -1.0 %

Revenue

Revenue increased by $14.0 million, or 10.7%, from $130.0 million in the six months ended June 30, 2008 to $144.0 million in the six months ended June 30, 2009. The increase was driven by the U.S. segment and the Offshore segment which increased by $19.7 million and $4.2 million, respectively. The increase in U.S. revenue was due to three new U.S. facilities added in 2008, partially offset by the closure of two U.S. facilities. The net impact of these openings and closures was $11.9 million in additional revenue. U.S. revenue also increased due to the full ramp of a site which transitioned to a new customer and contributed $3.4 million of additional revenue in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The remaining increase of $4.4 million at the remaining U.S. facilities was driven by an increase in the number of average full-time equivalent agents, which increased approximately 7.9% from the six months ended June 30, 2008 to the six months ended June 30, 2009. The offshore facility in Makati City, Philippines opened in September 2008, and as such did not contribute revenue during the first half of 2008 and contributed $4.2 million in the first half of 2009. Revenue from Canada decreased by $9.9 million in the first half of 2009 compared to the same period in 2008 due primarily to the closure of our Regina, Saskatchewan facility in February 2009 which had approximately $5.2 million less revenue in the six months of 2009 compared to the same period in 2008. In addition, revenue decreased by approximately $0.6 million due to changes in the foreign exchange rate between the U.S. dollar and Canadian dollar. The remainder of the decrease in the Canadian segment was due to a decrease in the number of average full-time equivalent agents, which decreased by approximately 13.3% in the first half of 2009 from the first half of 2008.

Cost of Services and Gross Profit

Cost of services increased by $7.9 million, or 7.0%, from $112.3 million in the six months ended June 30, 2008 to $120.1 million in the six months ended June 30, 2009. Cost of services in the U.S. increased by approximately $15.0 million, of which $8.0 million related to the net addition of new sites year over year, as discussed above. Cost of services at our other U.S. facilities also increased during the first half of 2009 compared to the first half of 2008 due to a greater number of agents, as described above. In addition, cost of services increased by approximately $4.2 million due to the opening of the Makati City, Philippines location. These increases to cost of services were offset by lower cost of services in Canada due in part to the closure of the Regina location, which accounted for $5.3 million of the decrease. Additionally, cost of services decreased by $4.2 million in the first half of 2009 compared to the first half of 2008 due to a stronger U.S. to Canadian dollar exchange rate. The remaining decrease in the Canadian segment was due to fewer agents, as described above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $0.3 million, or 1.3%, from $20.3 million in the first six months of 2008 to $20.6 million in the first six months of 2009. The increase was primarily due to $0.6 million in expense associated with the settlement of our shareholder lawsuit, $0.6 million increase in payroll expense, $0.2 million increase in other legal expense and $0.2 million increase in relocation expenses. These increases were partially offset by declines in depreciation expense of $0.5 million, hiring expense of $0.2 million, consulting fees of $0.1 million, maintenance contract expenses of $0.1 million and telephone expenses of $0.1 million.

Impairment Losses and Restructuring Charges

Impairment losses and restructuring charges were $6.4 million and $5.6 million for the six months ended June 30, 2009 and 2008, respectively. Restructuring charges were $4.7 million during the six months ended June 30, 2009, related primarily to the closure of our Regina, Saskatchewan facility in February 2009 for which we incurred approximately $4.4 million of charges. The costs relate primarily to the building lease costs through the remainder of the lease term, or July 2013. Accrued restructuring costs were valued using a discounted cash flow model and the cash flows consist of the future lease payment obligations required under the lease agreements and property taxes through the remainder of the lease term. We assumed that we would not sublease the vacant facilities for the remainder of the lease term. In the future, if we are able to sublease the facilities, we may be required to record a gain in the Condensed Consolidated Statements of Operations. The remainder of the restructuring charges during the first half of 2009 were due to adjustments in our estimated liability for our other restructuring plans. We recorded $1.5 million in restructuring charges in the first half of 2008 related to the closure of our Hawkesbury, Ontario facility in 2007.

We recorded approximately $1.7 million in impairment losses during the first half of 2009 due to the impairment of certain long-lived assets for which the carrying value of those assets is not recoverable. These assets are located in a facility for which we are uncertain about our ability to generate future cash flows to support the carrying value of these assets. The long-lived assets include computer and telephone equipment, furniture and fixtures, leasehold improvements and software. We recorded $4.1 million in impairment losses in the first half of 2008 due to impairment of certain long-lived assets ($2.3 million in the U.S. segment and $1.8 million in the Canadian segment).

Operating Loss

We incurred operating losses of approximately $3.2 million and $8.2 million for the six months ended June 30, 2009 and 2008, respectively. Operating loss as a percentage of revenue was (2.2%) for the six months ended June 30, 2009 compared to (6.3%) for the six months ended June 30, 2008. The decline in the loss was driven by an increase in revenue, partially offset by higher impairment and restructuring charges, cost of services and selling, general and administrative costs, as discussed previously.

Net Interest and Other (Expense) Income

Net interest and other expense was approximately $0.2 million during the first half of 2009, compared to net interest and other income of approximately $0.4 million in the first half of 2008. The change was due primarily to a decrease in interest and investment income of approximately $0.7 million in the first half of 2009 compared to the first half of 2008 due to a decline in our investment balance during these periods, partially offset by less interest expense, which declined by approximately $0.1 million in the first half of 2009 compared to the first half of 2008.

Income Tax

The year-to-date effective tax rate for continuing operations decreased from 35.6% during the six months ended June 30, 2008 to 20.4% during the six months ended June 30, 2009. The primary difference between the periods is an increase in work opportunity credits and a larger impact from the change in the Canadian statutory tax rates in 2009 compared to 2008.

Income from Discontinued Operations

Income from discontinued operations was approximately $4.6 million during the six months ended June 30, 2009 and approximately $0.1 million during the six months ended June 30, 2008. In February 2009, we sold Domain.com, a wholly owned subsidiary, for cash of approximately $7.1 million. We had a gain on the sale of approximately $6.9 million, less taxes of approximately $2.3 million.

Net Income (Loss)

Net income was $2.0 million during the six months ended June 30, 2009 and net loss was approximately $4.9 million during the six months ended June 30, 2008. The increase in net income was primarily due to higher revenue and income from discontinued operations, partially offset by higher cost of services, selling, general and administrative expenses and impairment and restructuring charges, as discussed previously.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2009, working capital totaled $56.8 million and our current ratio was 3.21:1, compared to working capital of $47.6 million and a current ratio of 2.58:1 at December 31, 2008. We have historically financed our operations, liquidity requirements, capital expenditures, and capacity expansion primarily through cash flows from operations, and to a lesser degree, through various forms of debt and leasing arrangements. In addition to funding basic operations, our primary uses of cash typically relate to capital expenditures to upgrade our existing information technologies and service offerings, investments in our facilities. We believe that cash flows from operations and cash provided by short-term borrowings, when necessary, will adequately meet our ongoing operating requirements. Any significant future expansion of our business may require us to secure additional cash resources. Our liquidity could be significantly impacted by large cash requirements to expand our business or a decrease in demand for our services, particularly from any of our principal clients, which could arise from a number of factors, including, but not limited to, competitive pressures, adverse trends in the business process outsourcing market, industry consolidation, adverse circumstances with respect to the industries we service, and any of the other factors we describe more fully in the "Risk Factors" section in our Annual Report on Form 10-K for the year ended December 31, 2008.

                                              Six Months Ended June 30,
                                                2009             2008
                                                    (in thousands)
Net cash provided by (used in):
Operating activities                        $       6,524    $       9,593
Investing activities                               10,064          (14,163 )
Financing activities                               (6,842 )         (2,204 )
Effect of foreign exchange rates on cash              501             (570 )
Net increase in cash and cash equivalents   $      10,247    $      (7,344 )

Our balance of cash and cash equivalents was $19.8 million at June 30, 2009, compared to a balance of $9.6 million at December 31, 2008.

. . .