You should read the following discussion in connection with our unaudited consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. Some of the statements in the following discussion are forward looking statements. See "Forward Looking Statements." Dollar amounts within Item 2 are presented as actual dollar amounts.

Overview

We are a leading provider of outsourcing and transformation services focused on providing a competitive edge to our clients by outsourcing and transforming their business processes. Our outsourcing services provide integrated front-, middle- and back-office process outsourcing services for our principally U.S.-based and U.K.-based clients. Outsourcing services involve the transfer to us of select business operations of a client, such as claims processing, finance and accounting and customer service, after which we administer and manage the operations for our client on an ongoing basis. We also offer a number of transformation services that include decision analytics, risk and financial management and operations and process excellence services. These transformation services help our clients improve their operating environments through cost reduction, enhanced efficiency and productivity initiatives, and improve the risk and control environments within our clients' operations whether or not they are outsourced to us. A significant portion of our business relates to processes that we believe are integral to our clients' operations, and the close nature of our relationships with our clients assists us in developing strong strategic long-term relationships with them. We serve primarily the needs of Global 1000 companies in the insurance, utilities, financial services and transportation and logistics sectors.

We market our services directly through our sales and marketing and strategic account management teams, which operate out of the United States and the United Kingdom, and our business development team, which operates out of Noida, India. We currently operate ten operations centers in India and one operations center in the Philippines. On July 3, 2009, we acquired a 100% stake in Schneider Logistics Europe S.R.O. ("Schneider SRO"), which is located in Olomouc, the Czech Republic and which provides complex transaction processing services to its clients in Europe and the U.S. The acquisition provides us with multi-lingual delivery capabilities and a cost effective delivery location in Eastern Europe. We are also in the process of setting up a new operations center in Cluj, Romania.

On August 11, 2008, the Company completed the sale of all of its shares of Noida Customer Operations Private Limited ("NCOP') to Aviva Global Services Singapore Pte Ltd ("AGSS"). For all periods presented in this Quarterly Report on Form 10-Q, NCOP is reported as a discontinued operation and any discussion throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations and unaudited consolidated financial statements relates to continuing operations unless otherwise indicated.

We generate revenues principally from contracts to provide outsourcing and transformation services. For the three and nine months ended September 30, 2009, we had total revenues of $48.2 million and $131.6 million, respectively, compared to total revenues of $46.6 million and $138.0 million, respectively, for the corresponding period in 2008. The increase in revenues during the three months ended September 30, 2009 as compared to the three months ended September 30, 2008 was primarily due to higher revenues in our outsourcing services segment of $3.1 million as a result of the addition of new clients and volume increases within existing client processes, partially offset by lower revenues in our transformation services segment of $1.5 million as a result of lower client discretionary spending arising out of the continuing broad based weakness in the economy.

We anticipate that our revenues will grow as we expand our service offerings and client base, both organically and through acquisitions. We provide our clients with a range of outsourcing services, including insurance services, banking and financial services, utilities support services, finance and accounting services, and collection services. Our clients transfer the management and execution of their processes or business functions to us. As part of this transfer, we hire and train employees to work at our operations centers on the relevant outsourcing services, implement a process migration to these operations centers and then provide services either to the client or directly to the client's customers. Each client contract has different terms based on the scope, deliverables and complexity of the engagement. The outsourcing services we provide to any of our clients (particularly under our general framework agreements), and the revenues and income that we derive from those services, may decline or vary as the type and quantity of services we provide under those contracts change over time, including as a result of a shift in the mix of products and services we provide.

For outsourcing services, we enter into long-term agreements with our clients with initial terms ranging from three to seven years. Although these agreements provide us with a relatively predictable revenue base for a substantial portion of our business, the long selling cycle for our outsourcing services and the budget and approval processes of prospective clients make it difficult to predict the timing of new client acquisitions. Revenues under new client contracts also vary depending on when we complete the selling cycle and the implementation phase.

Our transformation services include various services such as decision analytics services, which are intended to facilitate more effective data-based strategic and operating decisions by our clients, risk and financial management services and operations and process excellence services.

Our transformation services can be, and in the three and nine months ended September 30, 2009, were, significantly affected by variations in business cycles. In addition, our transformation services consist primarily of specific projects with contract terms generally not exceeding one year and may not produce ongoing or recurring business for us once the project is completed. These contracts also usually contain provisions permitting termination of the contract after a short notice period. The short-term nature and specificity of these projects could lead to further material fluctuations and uncertainties in the revenues generated from these businesses.

We serve clients mainly in the United States and the United Kingdom, with these two regions generating approximately 64.6% and 32.2%, respectively, of our total revenues for the three months ended September 30, 2009, and approximately 56.0% and 43.5%, respectively, of our total revenues for the three months ended September 30, 2008. For the nine months ended September 30, 2009, these two regions generated approximately 64.9% and 33.5%, respectively, of our total revenues and approximately 54.4% and 45.2%, respectively, of our total revenues for the nine months ended September 30, 2008.

In both the United States and the United Kingdom, there has been recent negative publicity and proposed legislation with regard to outsourcing. If these trends continue and result in the enactment of additional legislation for which we are unable to protect ourselves, contractually or otherwise, our revenues could be materially affected. With the ongoing global economic downturn and resulting increases in unemployment in both of these countries, we expect these publicity and legislative trends to continue and possibly intensify. Our management actively monitors legislative activities in the United States and United Kingdom, both directly and through industry organizations. However, if legislation were enacted in the United Kingdom or the United States that has the effect of severely curtailing our activities in such countries, it is unlikely that we would be able to quickly replace such lost revenues.

We derive a significant portion of our revenues from a limited number of large clients. In the three months ended September 30, 2009 and 2008, our total revenues from our three largest clients were $21.9 million and $20.5 million, respectively, accounting for 45.5% and 44.1% of our total revenues, respectively, during these periods. In the nine months ended September 30, 2009 and 2008, our total revenues from our three largest clients were $58.5 million and $61.0 million, respectively, accounting for 44.5% and 44.2% of our total revenues, respectively, during these periods.

We provide services to Centrica, which represented $10.6 million, or 21.9%, and $29.2 million, or 22.2%, of our total revenues, for the three and nine months ended September 30, 2009, respectively, and $10.5 million, or 22.6%, and $34.5 million, or 25.0%, of our total revenues, for the three and nine months ended September 30, 2008, respectively, under an agreement that is scheduled to expire in April 2012.

We derived revenues from five and four new clients during the three months ended September 30, 2009 and 2008, respectively. We derived revenues from ten and fourteen new clients for our services, including transformation services, in the nine months ended September 30, 2009 and 2008, respectively. Although we are increasing and diversifying our customer base, we expect in the near future that a significant portion of our revenues will continue to be contributed by a limited number of large clients.

We recognize revenues from services provided under our client contracts on a cost-plus, time-and-materials, fixed price, contingent fee or unit-price basis. Revenues are recognized on cost-plus contracts on the basis of contractually agreed direct and indirect cost elements incurred on a client contract plus an agreed upon profit mark-up. Revenues are recognized on time-and-material contracts primarily on the basis of full time equivalent employees, including direct and indirect costs, incurred on a client contract. Revenues are recognized on fixed-price contracts using the proportional performance method. Revenues are recognized on contingent fee based contracts when the related contingency has been met to the client's satisfaction. Revenues are recognized on unit-price based contracts based on the number of specified units of work (such as the number of e-mail responses) delivered to a client.

Revenues also include amounts representing reimbursable expenses that are billed to and reimbursed by our clients and typically include telecommunication and travel-related costs. The amount of reimbursable expenses that we incur, and any resulting revenues, can vary significantly from period to period depending on each client's situation and on the type of services provided. For the three months ended September 30, 2009 and 2008, $2.6 million, or 5.3%, and $2.7 million, or 5.9%, respectively, of our revenues represent reimbursement of such expenses. For the nine months ended September 30, 2009 and 2008, $6.6 million, or 5.0%, and $9.3 million, or 6.7%, respectively, of our revenues represent reimbursement of such expenses.

To the extent our client contracts do not contain provisions to the contrary, we bear the risk of inflation and fluctuations in currency exchange rates with respect to our contracts. We hedge a substantial portion of our Indian rupee/U.S. dollar and U.K. pound sterling/U.S. dollar foreign currency exposure.

Our management has observed in recent periods a shift in industry pricing models toward transaction-based pricing. We believe this trend will continue and we have begun to use transaction-based pricing models with some of our current clients and are seeking to move certain other clients from a billing rate model to a transaction-based pricing model. Transaction-based pricing places the focus on operating efficiency in order to maintain our operating margins.

In addition, we have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs. Although we have recently had certain clients consolidate their operations within a single service provider, this was done after a period in which the client maintained relationships with multiple vendors and we believe the trend toward multi-vendor relationships will continue. A multi-vendor relationship allows a client to seek more client-friendly pricing and other contract terms from each vendor, which can result in significantly reduced operating margins from the provision of services to such client for each vendor. To the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors, our operating margins and revenues may be reduced with regard to such clients to the extent we are required to modify the terms of our relationship with such clients.

Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, refer our Annual Report on Form 10-K for the year ended December 31, 2008.

Results of Operations

The following table summarizes our results of operations:



                                                    Three months ended             Nine months ended
                                                       September 30,                 September 30,
(In millions)                                       2009            2008           2009          2008
Revenues(1)                                       $    48.2        $ 46.6       $    131.6      $ 138.0
Cost of revenues (exclusive of depreciation
and amortization)(2)                                   28.8          28.1             79.0         86.9

Gross profit                                           19.4          18.5             52.6         51.1

Operating expenses:
General and administrative expenses(3)                  7.8           7.3             22.1         24.2
Selling and marketing expenses(3)                       3.5           3.1             10.1          8.3
Depreciation and amortization(4)                        2.9           2.8              8.1          8.3

Total operating expenses                               14.2          13.2             40.3         40.8

Income from operations                                  5.2           5.3             12.3         10.3
Other income/(expense):
Foreign exchange gain/(loss)                           (2.0 )        (6.6 )           (5.0 )       (5.9 )
Interest and other income, net                          0.3           1.1              0.8          2.3

Income/(loss) from continuing operations
before income taxes                                     3.5          (0.2 )            8.1          6.7
Income tax provision/(benefit)                         (0.5 )        (0.6 )           (0.1 )       (1.0 )

Income from continuing operations                       4.0           0.4              8.2          7.7
Income/(loss) from discontinued operations,
net of taxes                                             -           (1.5 )           (0.1 )        3.3

Net income/(loss) to common stockholders          $     4.0        $ (1.1 )     $      8.1      $  11.0

(1) In accordance with GAAP, we include the amount of telecommunications and travel-related costs that are billed to and reimbursed by our clients in our revenues. Revenues include reimbursable expenses of $2.6 million and $2.7 million for the three months ended September 30, 2009 and 2008, respectively, and $6.6 million and $9.3 million for the nine months ended September 30, 2009 and 2008, respectively.

(2) Cost of revenues includes $0.3 million and $0.4 million for the three months ended September 30, 2009 and 2008, respectively, and $1.1 million and $1.0 million for the nine months ended September 30, 2009 and 2008, respectively, as non-cash amortization of stock compensation expense relating to the issuance of equity awards to employees directly involved in providing services to our clients as described in Note 13 on Stock-Based Compensation in the Notes to Unaudited Consolidated Financial Statements contained herein. Cost of revenues excludes depreciation and amortization related to fixed assets and intangibles.

(3) General and administrative expenses and selling and marketing expenses includes $1.5 million and $1.2 million for the three months ended September 30, 2009 and 2008, respectively, and $4.3 million and $3.4 million for the nine months ended September 30, 2009 and 2008, respectively, as non-cash amortization of stock compensation expense relating to the issuance of equity awards to our non-operations staff as described in Note 13 on Stock-Based Compensation in the Notes to Unaudited Consolidated Financial Statements contained herein.

(4) Depreciation and amortization includes $0.1 million each for the three months ended September 30, 2009 and 2008 and $0.1 million and $0.5 million for the nine months ended September 30, 2009 and 2008, respectively, of amortization of intangibles.

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

Revenues. Revenues increased 3.5% from $46.6 million for the three months ended September 30, 2008 to $48.2 million for the three months ended September 30, 2009. Revenues from outsourcing services increased by $3.1 million during the three months ended September 30, 2009 compared to the three months ended September 30, 2008 as a result of revenues from new clients, volume increases within existing processes and the addition of 32 new processes aggregating to $5.2 million, partially offset by a $2.1 million reduction due to the appreciation of the U.S. dollar against the U.K. pound sterling. Revenues from new clients for outsourcing services were $1.7 million and $0 million during the three months ended September 30, 2009 and 2008, respectively.

Revenues from transformation services decreased by $1.5 million during the three months ended September 30, 2009 compared to the three months ended September 30, 2008 as a result of a $0.3 million reduction due to the appreciation of the U.S. dollar against the U.K. pound sterling and lower revenues due to reduced client spending on discretionary projects. Revenues from new clients for transformation services were $0.1 million and $0.5 million during the three months ended September 30, 2009 and 2008, respectively.

Cost of Revenues. Cost of revenues increased 2.7% from $28.0 million for the three months ended September 30, 2008 to $28.8 million for the three months ended September 30, 2009. Salaries and personnel expenses decreased from $20.0 million for the three months ended September 30, 2008 to $19.7 million for the three months ended September 30, 2009, primarily due to the depreciation of the Indian rupee against the U.S. dollar, resulting in a decrease in compensation expenses of $1.2 million and a decrease in transportation costs of $0.5 million, partially offset by an increase in salaries and personnel expenses of $1.4 million, primarily as a result of our new operations center in Olomouc, the Czech Republic. Other operating costs increased from $8.0 million for the three months ended September 30, 2008 to $9.1 million for the three months ended September 30, 2009, primarily due to an increase in reimbursable expenses of $0.9 million. As a percentage of revenues, cost of revenues decreased from 60.2% for the three months ended September 30, 2008 to 59.8% for the three months ended September 30, 2009.

Gross Profit. Gross profit increased 4.6% from $18.5 million for the three months ended September 30, 2008 to $19.4 million for the three months ended September 30, 2009. The increase in gross profit was primarily due to an increase in revenues of $1.6 million, offset by an increase in cost of revenues of $0.8 million. Gross profit as a percentage of revenues remained unchanged during the three months ended September 30, 2008 and 2009.

SG&A Expenses.SG&A expenses increased 8.2% from $10.4 million for the three months ended September 30, 2008 to $11.3 million for the three months ended September 30, 2009. The increase in SG&A expenses is primarily due to an increase in salaries and personnel expenses of $0.8 million, pre-acquisition related costs of $0.3 million, partially offset by the depreciation of the Indian rupee against the U.S. dollar, resulting in a decrease in costs of $0.2 million. As a percentage of revenues, SG&A increased from 22.4% for the three months ended September 30, 2008 to 23.4% for the three months ended September 30, 2009.

Depreciation and Amortization. Depreciation and amortization increased 3.0% from $2.8 million for the three months ended September 30, 2008 to $2.9 million for the three months ended September 30, 2009, primarily due to depreciation related to our new operations center in Olomouc, the Czech Republic, of $0.1 million. As we add more operations centers, we expect that depreciation expense will increase to reflect the additional investment in equipment and operations centers necessary to meet our service requirements.

Income from Operations. Income from operations decreased 1.6% from $5.3 million for the three months ended September 30, 2008 to $5.2 million for the three months ended September 30, 2009. As a percentage of revenues, income from operations decreased from 11.3% for the three months ended September 30, 2008 to 10.7% for the three months ended September 30, 2009. The decrease in income from operations was primarily due to an increase in operating expenses of $0.9 million, offset by an increase in gross profit of $0.8 million.

Other Income/(expense). Other income/(expense) is comprised of foreign exchange gains and losses, interest income, interest expense and other. Other expenses decreased from $5.5 million for the three months ended September 30, 2008 to $1.7 million for the three months ended September 30, 2009 as a result of a decrease in net foreign exchange losses by $4.6 million attributable to movement of the Indian rupee against the U.S. dollar and the U.K. pound sterling relative to our foreign exchange hedged position, partially offset by lower interest income of $0.9 million.

Provision for Income Taxes. Provision for income taxes decreased from a benefit of $0.6 million for the three months ended September 30, 2008 to a benefit of $0.5 million for the three months ended September 30, 2009. The effective rate of taxes has decreased significantly from a benefit of 274.1% for the three months ended September 30, 2008 to a benefit of 15.7% for the three months ended September 30, 2009. See Note 12 on Income Taxes to Notes to Unaudited Consolidated Financial Statements contained herein for further details.

Income/(loss) from Continuing Operations. Income from continuing operations increased from $0.4 million for the three months ended September 30, 2008 to $4.0 million for the three months ended September 30, 2009, primarily due to a decrease in other expenses. As a percentage of revenues, income from continuing operations increased from 0.8% for the three months ended September 30, 2008 to 8.3% for the three months ended September 30, 2009.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

Revenues. Revenues decreased 4.7% from $138.0 million for the nine months ended September 30, 2008 to $131.6 million for the nine months ended September 30, 2009. Revenues from outsourcing services increased during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 as a result of revenues from new clients, volume increases within existing processes and the addition of 67 new processes aggregating to $9.2 million, fully offset by a $9.2 million reduction due to the appreciation of the U.S. dollar against the U.K. pound sterling. Revenues from new clients for outsourcing services were $2.1 million and $0.3 million for the nine months ended September 30, 2009 and 2008, respectively.

Revenues from transformation services decreased by $6.4 million during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 as a result of a $1.4 million reduction due to the appreciation of the U.S. dollar against the U.K. pound sterling and lower revenues due to reduced client spending on discretionary projects. Revenues from new clients for transformation services were $1.0 million and $2.4 million during the nine months ended September 30, 2009 and 2008, respectively.

Cost of Revenues. Cost of revenues decreased 9.1% from $86.9 million for the nine months ended September 30, 2008 to $79.0 million for the nine months ended September 30, 2009. Salaries and personnel expenses decreased from $61.4 million for the nine months ended September 30, 2008 to $55.0 million for the nine months ended September 30, 2009, primarily due to the depreciation of the Indian rupee against the U.S. dollar, resulting in a decrease in compensation expenses of $7.1 million, partially offset by an increase in cost of $1.1 million related to our new operations center in Olomouc, the Czech Republic. Other operating costs decreased from $25.5 million for the nine months ended September 30, 2008 to $24.0 million for the nine months ended September 30, 2009, primarily due to depreciation of the Indian rupee against the U.S. dollar. As a percentage of revenues, cost of revenues decreased from 63.0% for the nine months ended September 30, 2008 to 60.0% for the nine months ended September 30, 2009.

Gross Profit. Gross profit increased 2.8% from $51.1 million for the nine months ended September 30, 2008 to $52.6 million for the nine months ended September 30, 2009. The increase in gross profit was primarily due to a decrease in cost of revenues of $7.9 million, offset by a decrease in revenues of $6.5 million. Gross profit as a percentage of revenues increased from 37.0% for the nine months ended September 30, 2008 to 40.0% for the nine months ended September 30, 2009, primarily due to an improvement of 270 basis points as a result of a reduction in our salaries and personnel expenses as described above.

SG&A Expenses. SG&A expenses decreased 1.2% from $32.6 million for the nine months ended September 30, 2008 to $32.2 million for the nine months ended September 30, 2009. The decrease in SG&A expenses is primarily due to the depreciation of the Indian rupee against the U.S. dollar, resulting in a decrease in costs of $1.6 million and a decrease in other operating expenses and professional fees expenses of $1.0 million, offset by an increase in salaries and personnel expenses of $2.1 million. As a percentage of revenues, SG&A expenses increased from 23.6% for the nine months ended September 30, 2008 to 24.5% for the nine months ended September 30, 2009.

Depreciation and Amortization. Depreciation and amortization decreased 2.0% from $8.3 million for the nine months ended September 30, 2008 to $8.1 million for the nine months ended September 30, 2009, primarily due to the depreciation of the Indian rupee against the U.S. dollar resulting in a decrease in costs of $1.1 million, partially offset by an increase in costs due to accelerated depreciation in one of our operations center of $0.3 million and expansion of our infrastructure including our new facilities in Pasay City, Philippines, Olomouc, the Czech Republic and Pune, India of $0.6 million. As we add more operations centers, we expect that depreciation expense will increase to reflect . . .