UNITED STATES SECURITIESTable ANDof EXCHANGE COMMISSIONContents

~~WASHINGTON,~~UNITED ~~D.C. 20549~~STATES

~~FORM~~SECURITIES ~~10-Q~~AND EXCHANGE COMMISSION

ý	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2004.
Or
o		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: 0-14315

WASHINGTON, D.C. 20549

~~AEGIS~~FORM ~~COMMUNICATIONS~~10-Q ~~GROUP, INC.~~

~~(Exact~~x ~~name~~Quarterly ofreport ~~registrant~~pursuant asto ~~specified~~Section in13 ~~its~~or ~~charter~~15(d) of the Securities Exchange Act of 1934

DELAWARE		75-2050538
(State of Incorporation)		(I.R.S. Employer Identification No.)
8001 Bent Branch Drive, Irving, Texas 75063
(Address of principal executive offices, Zip Code)
(972) 830-1800
(Registrant’s telephone number, including area code)

For the quarterly period ended March 31, 2005.

~~Indicate~~Or 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 o No ý~~¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

~~Indicate~~For ~~by check mark whether~~ the ~~registrant~~transition isperiod ~~an accelerated filer~~from to ~~(as defined in Rule 12b-2 of the Exchange Act)~~ .

~~Yes o No ý~~Commission File Number: 0-14315

LOGO

~~Indicate~~AEGIS ~~the~~COMMUNICATIONS ~~number~~GROUP, ~~of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date~~INC.

Title of Each Class		Number of Shares Outstanding on November 30, 2004
COMMON STOCK $.01 PAR VALUE		659,577,422

(Exact name of registrant as specified in its charter)

AEGIS COMMUNICATIONS GROUP, INC.


DELAWARE		75-2050538
(State of Incorporation)		(I.R.S. Employer Identification No.)
8001 Bent Branch Drive, Irving, Texas 75063 (Address of principal executive offices, Zip Code) (972) 830-1800 (Registrant’s telephone number, including area code)

~~TABLE~~Indicate OFby ~~CONTENTS~~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.

PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets September 30, 2004 (unaudited) and December 31, 2003
		Unaudited Consolidated Statements of Operations Three and Nine Months Ended September 30, 2004 and September 30, 2003
		Unaudited Consolidated Statements of Cash Flows Nine Months Ended September 30, 2004 and September 30, 2003
		Notes to Unaudited Consolidated Financial Statements
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk
	Item 4.	Controls and Procedures
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings
Item 6.	Exhibits
SIGNATURES

Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

~~PART~~ Yes ¨ No x ~~I - FINANCIAL INFORMATION~~

~~ITEM~~Indicate ~~1. FINANCIAL~~the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable ~~STATEMENTS~~date.

Aegis Communications Group, Inc. Consolidated Balance Sheets (In thousands, except share and per share data)


Title of Each Class		Number of Shares Outstanding on April 30, 2005
COMMON STOCK $.01 PAR VALUE		660,053,022

	September 30, 2004		December 31, 2003
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	399	$	1,703
Restricted cash	9		4,629
Accounts receivable - trade, less allowance for doubtful accounts of $261 and $541, respectively	12,513		23,615
Prepaid expenses and other current assets	1,167		1,379
Assets held-for-sale	85		—
Total current assets	14,173		31,326
Property and equipment, net of accumulated depreciation of $76,880 and $78,046 respectively	10,020		18,297
Deferred financing costs, net of accumulated amortization of $3,184 and $3,067, respectively	1,031		407
Other assets	405		264
	$	25,629	$	50,294

~~The~~ Table ~~accompanying notes are an integral part~~ of ~~these~~Contents ~~financial statements.~~



PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets March 31, 2005 (unaudited) and December 31, 2004	1

		Unaudited Condensed Consolidated Statements of Operations Three Months Ended March 31, 2005 and March 31, 2004	3

		Unaudited Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2005 and March 31, 2004	4

		Notes to Unaudited Condensed Consolidated Financial Statements	5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17

	Item 4.	Controls and Procedures	17

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		19

Item 6.	Exhibits		20

SIGNATURES			25

AegisTable Communicationsof Group, Inc. Consolidated Balance Sheets (In thousands, except share and per share data)Contents

	September 30, 2004			December 31, 2003
	(unaudited)
Liabilities & Shareholders’ Deficit
Current liabilities:
Current portion of capital leases	$	429		$	1,140
Accounts payable	4,334			4,427
Accrued compensation expense and related liabilities	2,342			4,637
Accrued interest expense	28			89
Accrued worker's compensation	2,076			2,104
Other current liabilities	7,489			7,872
Current maturity of notes payable, net of discount of $271 and $892, respectively	2,073			5,108
Net current liabilities of discontinued operations	204			248
Total current liabilities	18,975			25,625
Long term notes payable, net of discount of $1,875 and $3,307, respectively	14,352			18,924
Capital lease obligations, net of current portions	570			832
Total liabilities	33,897			45,381
Commitments and contingencies
Redeemable convertible preferred stock
0 and 23,375, 9.626% cumulative Series F shares issued and outstanding in 2004 and 2003, respectively	—			31,362
Shareholders’ deficit:
Preferred stock, $.01 par value, 2,000,000 shares authorized; 29,778 convertible, $.36 cumulative Series B shares issued and outstanding in 2004 and 2003	—			—
Common stock, $.01 par value, 800,000,000 shares authorized; 660,053,022 and 85,480,587 shares issued and outstanding in 2004 and 2003	6,601			855
Additional paid-in capital	136,983			106,091
Treasury shares, at cost, 475,600 held in 2004 and 2003	(1,199		)	(1,199		)
Accumulated deficit	(150,653		)	(132,196		)
Total shareholders’ deficit	(8,268		)	(26,449		)
	$	25,629		$	50,294

PART I – FINANCIAL INFORMATION

~~The~~ITEM ~~accompanying~~1. ~~notes~~FINANCIAL ~~are an integral part of these financial statements.~~STATEMENTS

4Aegis Communications Group, Inc.

~~Aegis~~Condensed ~~Communications Group, Inc. Unaudited~~ Consolidated ~~Statements of~~Balance ~~Operations~~Sheets ~~(In thousands, except per share amounts)~~

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Revenues	$	20,426		$	32,693		$	76,291		$	109,698
Operating costs:
Cost of services	15,268			23,215			55,895			77,560
Selling, general and administrative expenses	6,842			9,978			24,716			30,100
Depreciation and amortization	1,847			2,737			6,731			8,804
Restructuring charges	255			—			4,570			—
Total operating expenses	24,212			35,930			91,912			116,464
Operating loss	(3,786		)	(3,237		)	(15,621		)	(6,766		)
Interest expense, net	131			878			532			1,810
Non-cash interest expense	246			456			2,304			1,313
Loss from continuing operations before income taxes	(4,163		)	(4,571		)	(18,457		)	(9,889		)
Income tax expense	—			238			—			238
Net loss from continuing operations	(4,163		)	(4,809		)	(18,457		)	(10,127		)
Discontinued operations:
Estimated loss on disposal of business component, net of taxes	—			(127		)	—			(127		)
Net loss from discontinued operations	(4,163		)	(4,936		)	(18,457		)	(10,254		)
Preferred stock dividends	—			2,428			—			6,988
Net loss applicable to common shareholders	(4,163		)	(7,364		)	(18,457		)	(17,242		)
Basic and diluted loss per common share:	$	(0.01	)	$	(0.14	)	$	(0.09	)	$	(0.33	)
Weighted average shares of common stock outstanding:
Basic	381,471			52,171			196,704			52,171
Diluted	381,471			52,171			196,704			52,171

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

The accompanying notes are an integral part of these financial statements.



	March 31, 2005		December 31, 2004
	(unaudited)		(audited)
Assets
Current assets:
Cash and cash equivalents	$	—	$	—
Restricted Cash		2,087		966
Accounts receivable—trade, less allowance for doubtful accounts of $87 and $87, respectively		9,739		9,783
Prepaid expenses and other assets		935		1,100

Total current assets		12,761		11,849
Property and equipment, net of accumulated depreciation of $80,128 and $78,485, respectively		7,512		9,042
Deferred financing costs, net of accumulated amortization of $3,448 and $3,344, respectively		743		846
Other assets		370		384

	$	21,386	$	22,121

5The accompanying notes are an integral part of the consolidated financial statements.

~~Aegis~~1 ~~Communications Group, Inc. Unaudited Consolidated Statements of Cash Flows (In thousands)~~

	Nine months ended September 30,
	2004			2003
OPERATING ACTIVITIES
Net Loss	$	(18,457	)	$	(10,254	)
Less: Loss on disposal of business segment	—			127
Loss from continuing operations	(18,457		)	(10,127		)
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:
Non-cash restructuring charges	3,250			—
Depreciation and amortization	6,731			8,804
Non-cash interest expense	2,304			1,313
Gain on disposal of fixed assets	(26		)	—
Changes in operating assets and liabilities:
Accounts receivable	11,102			(5,779		)
Prepaid and other current assets	213			65
Other assets	(1,096		)	(179		)
Accounts payable and other accrued liabilities	(2,360		)	484
Other current liabilities	(412		)	(571		)
Net cash provided by (used in) operating activities from continuing operations	1,249			(5,990		)
INVESTING ACTIVITIES
Capital expenditures	(1,505		)	(758		)
Proceeds from sale of fixed assets	72			—
Net decrease in Restricted cash	4,620			—
Net cash provided by (used in) investing activities from continuing operations	3,187			(758		)
FINANCING ACTIVITIES
Payments on revolving line of credit	(89,713		)	(33,500		)
Proceeds from revolving line of credit	89,713			40,300
Payments on note payables	(10,000		)	—
Payments on capital lease obligations	(973		)	(923		)
Proceeds from conversion of warrants to common stock	5,277			—
Net cash (used in) provided by financing activities from continuing operations	(5,696		)	5,877
Net cash used in continuing operations	(1,260		)	(871		)
Net cash used in discontinued operations	(44		)	(426		)
Net decrease in cash and cash equivalents	(1,304		)	(1,297		)
Cash and cash equivalents at beginning of period	1,703			1,584
Cash and cash equivalents at end of period	$	399		$	287
Supplemental information on non-cash activities:
Conversion of dividends into preferred instruments	$	—		$	6,977
Conversion of Series F preferred stock into common stock	$	31,362		$	—
Supplemental information for cash paid during the period for:
Interest	$	428		$	814
Taxes	$	109		$	348

~~The~~Aegis ~~accompanying~~Communications ~~notes~~Group, ~~are an integral part of these financial statements~~Inc.

6Condensed Consolidated Balance Sheets

~~AEGIS COMMUNICATIONS GROUP, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~ (~~Amounts~~Dollars in thousands, except share and per share ~~data and where noted~~amounts)

1. SIGNIFICANT ACCOUNTING POLICIES



	March 31, 2005			December 31, 2004
	(unaudited)			(audited)
Liabilities & Shareholders’ Deficit
Current liabilities:
Current portion of capital leases	$	270		$	324
Accounts payable		5,760			3,534
Accrued compensation expense and related liabilities		1,342			1,075
Accrued interest expense		214			76
Other current liabilities		10,197			10,477
Short-term note payable		1,250			—

Total current liabilities		19,033			15,486
Long term notes payable, net of discount of $1,599 and $1,835, respectively		18,059			17,816
Capital lease obligations, net of current portions		443			507
Other Long-Term Liabilities		356			373
Commitments and contingencies
Shareholders’ deficit:
Preferred Stock, $.01 par value, 2,000,000 shares authorized; 29,778 convertible, $.36 cumulative Series B shares issued and outstanding in 2005 and 2004		—			—
Common stock, $.01 par value, 800,000,000 shares authorized; 660,053,022 shares issued and outstanding in 2005 and 2004, respectively		6,601			6,601
Additional paid-in capital		136,973			136,973
Treasury shares; at cost, 475,600 held in 2005 and 2004		(1,199	)		(1,199	)
Accumulated deficit		(158,880	)		(154,436	)

Total shareholders’ deficit		(16,505	)		(12,061	)

	$	21,386		$	22,121

The accompanying ~~unaudited consolidated financial statements of Aegis~~notes ~~Communications~~are ~~Group,~~an ~~Inc.~~integral ~~and~~part ~~its subsidiaries (“the Company”) have been prepared in conformity with accounting principles generally accepted in the United States~~ of ~~America for interim financial information and with~~ the ~~instructions~~ to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals unless otherwise disclosed, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Significant accounting policies followed by the Company were disclosed in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, and no material changes have occurred with respect to these policies. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The consolidated results of operations for the periods reported are not necessarily indicative of the results to be experienced for the entire current year.

2~~. PREFERRED STOCK~~

TheTable Company is authorized to issue 2,000,000 shares of preferred stock and has issued 29,778 shares as of September 30, 2004 and December 31, 2003, through its Series B Preferred Stock.Contents

~~Series~~ Aegis BCommunications ~~Preferred~~Group, ~~Stock~~Inc.

~~At September 30,~~Unaudited ~~2004~~Condensed ~~and~~Consolidated ~~December 31,~~Statements ~~2003, 29,778 shares~~ of ~~$0.01~~Operations par value Series B Preferred Stock were issued and outstanding. Such shares are convertible into shares of Common Stock at a conversion ratio of one share of Series B Preferred Stock for two shares of Common Stock, and pay cumulative cash dividends at the annual rate of $0.36 per share. The Series B Preferred Stock has a liquidation preference of $3.60 per share. Accrued dividends payable were $188 at September 30, 2004 and December 31, 2003. Accrued dividends are classified as other accrued liabilities on the accompanying consolidated balance sheets.

~~Series~~(Dollars Din &thousands, ~~E Preferred~~except ~~Stock~~per share amounts)

At September 30, 2003, 144,493 shares of Series D Preferred Stock ($0.01 par value per share, liquidation preference equal to the $100 per share investment value of such shares, but subordinate to the liquidation preferences of the Series B and Series F Preferred Stock) were issued and outstanding. Such shares were convertible into Company Common Stock at $2.00 per share. At September 30, 2003, 82,281 shares of Series E Preferred Stock ($0.01 par value per share, liquidation preference equal to the $100 per share investment value of such shares, but subordinate to the liquidation preferences of the Series B and Series F Preferred Stock) were issued and outstanding. Such shares were convertible into Company Common Stock at $2.375 per share. Both series earned cumulative dividends (payable in kind in additional shares of the respective series of preferred stock) at the annual rate of 15%. In connection with the Deutsche Bank/Essar transaction on November 5, 2003(See Note 3 “Deutsche Bank/Essar Transaction”), all of the outstanding shares of Series D and E Preferred Stock were cancelled, and no shares of Series D and E Preferred Stock were outstanding at September 30, 2004 or December 31, 2003.


	Three Months ended March 31,
	2005			2004
Revenues	$	15,639		$	29,571
Operating costs:
Cost of services		11,547			21,198
Selling, general and administrative expenses		6,304			9,025
Depreciation and amortization		1,746			2,517
Restructuring charges		—			686

Total operating expenses		19,597			33,426

Operating loss		(3,958	)		(3,855	)

Interest expense, net		104			241
Non-cash interest expense		382			1,761

Loss from continuing operations before income taxes		(4,444	)		(5,857	)

Income taxes expense		—			—

Net loss		(4,444	)		(5,857	)

Preferred stock dividends		—			—

Net loss applicable to common shareholders	$	(4,444	)	$	(5,857	)

Basic and diluted loss per common share	$	(0.01	)	$	(0.07	)

Weighted average shares of common stock outstanding (in thousands):
Basic		659,577			85,005
Diluted		659,577			85,005

7The accompanying notes are an integral part of the consolidated financial statements.

~~Series~~3 ~~F Preferred Stock~~

AtTable December 31, 2003, 23,375 shares of Series F Preferred Stock were issued and outstanding. Holders of Series F Preferred Stock waived their rights to dividends in the November 5, 2003 Deutsche Bank/Essar transaction. The Series F Preferred Stock was convertible into shares of Common Stock based on one share of Common Stock per $1.00 of investment value, as adjusted, of the Series F Preferred Stock. In connection with the transaction, on November 5, 2003, holders of a majority of the outstanding shares of the Company’s voting stock approved, by written consent, (1) an amendment to the Company’s certificate of incorporation to increase the number of shares of Common Stock the Company is authorized to issue from 200,000,000 to 800,000,000, and (2) an amendment to the Series F Preferred Stock Certificate of Designation to, among other things, increase the number of shares of Common Stock into which each share of Series F Preferred may be converted, from 34,527,594 to 46,910,503. These amendments took effect after the circulation by the Company of an information statement to its stockholders, in accordance with Section 14(c) of the Securities Exchange Act of 1934, as amended, and Rule 14c-2 promulgated there under. This mailing took place on April 1, 2004, and the amendments became effective immediately upon expiration of the twenty-day waiting period. On April 21, 2004, the remaining 23,375 shares of Series F Preferred Stock were converted into 46,910,503 shares of Common Stock. The transaction was recorded on the accompanying consolidated balance sheet as an increase to common stock and paid-in-capital and a decrease in redeemable convertible preferred stockContents

~~In the comparable prior year period, accrued dividends totaling $2,365~~ onAegis ~~the~~Communications ~~Series D and E Preferred Stock were paid-in-kind and accrued dividends totaling $4~~Group,~~612~~ ~~on the Series F Preferred shares were added to the investment value of such shares~~Inc.

~~3. DEUTSCHE BANK/ESSAR~~Unaudited ~~TRANSACTION~~Condensed Consolidated Statements of Cash Flows

~~On November 5, 2003, the Company terminated its pending agreement to be acquired by AllServe Systems, PLC~~ (~~“AllServe”),~~Dollars in accordance with the terms and conditions of the merger agreement and signed definitive documents to effect, and did effect, an investment in the Company by Deutsche Bank AG—London (“Deutsche Bank”thousands) and Essar Global Limited (“Essar”), part of the Essar Group, a diversified industrial group out of India. After consultation with its financial advisor SunTrust Robinson Humphrey, and taking into account all legal, financial, regulatory and other aspects of the unsolicited written acquisition proposal from Deutsche Bank and Essar, the Company’s Board of Directors accepted the proposal. It was decided that the Deutsche Bank/Essar transaction was a superior proposal that would result in a more favorable outcome for the Company’s stockholders and debt holders, from a financial point of view, than the transaction with AllServe; and that its fiduciary duties required them to accept the Deutsche Bank/Essar transaction. The Deutsche Bank/Essar transaction resulted in the Company remaining a publicly traded company with at least 20 percent of the company’s equity remaining in the hands of the Company’s then existing stockholders and at least approximately four percent of the equity of the newly capitalized Company remaining in the hands of the Company’s current unaffiliated common stockholders.

The transaction resulted in Deutsche Bank and Essar providing approximately equal portions of a $28,231 investment in the Company in return for three-year secured promissory notes and warrants to purchase up to 80 percent of the Company’s common stock on a fully-diluted basis, taking into account the completed or pending, conversion or cancellation of all shares of Series D, E and F Preferred Stock that were outstanding immediately prior to the transaction. As of November 5, 2003, Deutsche Bank and Essar together had warrants to purchase approximately 34 percent of the Company’s Common Stock on a fully diluted basis. Following the amendment of the Company’s certificate of incorporation to increase the Company’s number of authorized shares, Deutsche Bank and Essar together received warrants on April 21, 2004, to purchase approximately an additional 46 percent of the Company’s Common Stock on a fully-diluted basis, or 80 percent after taking into account the warrants acquired on November 5, 2003. The Deutsche Bank/Essar notes provided for a total of 527,661,932 warrants. The warrants had an exercise price of $0.01 per warrant and expired on November 5, 2010. The warrants were valued with the Black-Scholes formula and treated as a discount on notes payable. The discount of $4,446 was being amortized over the life of the notes. On July 13, 2004, Essar exercised all 264,358,628 of their warrants in exchange for one share of common stock per warrant. The total amount of consideration given was $2,644. The funds were used to reduce outstanding debt and make capital investments. Additionally, on August 20, 2004, Deutsche Bank exercised all 263,303,304 of their warrants in exchange for one share of common stock per warrant. The total amount of consideration given was $2,633. The funds were used to reduce outstanding debt and make capital investments.


	Three Month Ended March 31,
	2005			2004
OPERATING ACTIVITIES
Net loss	$	(4,444	)	$	(5,857	)
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:
Depreciation and amortization		1,746			2,517
Non-cash interest expense		8			1,761
Amortization of Note Payable discount		235			—
Changes in operating assets and liabilities:
Accounts receivable		44			2,714
Prepaid and other current assets		165			(212	)
Other assets		14			(886	)
Accounts payable and other accrued liabilities		2631			499
Other liabilities		(297	)		(1,108	)

Net cash provided by (used in) operating activities from continuing operations		102			(572	)
INVESTING ACTIVITIES
Capital expenditures		(113	)		(603	)
Restricted cash		(1,121	)		3,759

Net cash (used in) provided by investing activities from continuing operations		(1,234	)		3,156
FINANCING ACTIVITIES
Payments on revolving line of credit		(15,612	)		(18,655	)
Proceeds from revolving line of credit		15,612			24,729
Payments on capital lease obligations		(118	)		(318	)
Payments on notes payable—Deutsche Bank/Essar		—			(10,000	)
Proceeds from Notes Payable—Essar		1,250			—

Net cash provided by (used in) financing activities from continuing operations		1,132			(4,244	)

Net cash provided by (used in) continuing operations		—			(1,660	)

Net increase (decrease) in cash and cash equivalents		—			(1,660	)
Cash and cash equivalents at beginning of period		—			1,703

Cash and cash equivalents at end of period	$	—		$	43

Supplemental information on non-cash activities:

Supplemental information for cash paid during the period for:
Interest	$	100		$	128
Taxes	$	—		$	—

8The accompanying notes are an integral part of the consolidated financial statements.

In4 accordance with the terms of its then-existing senior and subordinated loans, as well as the terms of its agreement with Deutsche Bank and Essar, the Company was required to repay or otherwise retire its obligations to various lenders from the proceeds of the November 5, 2003 transaction (and, to the extent the subordinated debt was not paid off, the holders of the subordinated debt discharged the debt and released the Company from any further liability under their promissory notes). In addition to the repayment of senior and subordinated debt, the other uses of the proceeds of the November 5, 2003 transaction included collateralizing the letters of credit that remained outstanding under the Company’s former credit facility, payment of investment banking, legal and accounting fees, payment of management retention bonuses, and amounts to be reserved for the holders of the Company’s Series B Preferred Stock and for the possible payment of all or a portion of a $1,100 break-up fee that may be owed to AllServe in connection with the termination of the Company’s agreement to be acquired by AllServe. If the $1,100 break-up fee is not owed to AllServe, it will be owed to the subordinated debt holders. If certain fees are paid to Allserve, this will reduce the amount paid to the subordinated debtholders, up to $1,100. The Company reserved this fee as part of the gain on early extinguishment of debt for the year ending December 31, 2003. The Company was also responsible, under the terms of the November 5, 2003 agreement, for the costs of the transaction including the expenses of Deutsche Bank and Essar, and paid these costs and expenses after the completion of the transactions.

TheTable three-year promissory notes purchased from the Company by Deutsche Bank and Essar in the transaction in the aggregated principal amount of $28,231 have a floating interest rate equal to the three-month London Interbank Borrowing Offered Rate plus 0.50% per annum. Interest under the notes is payable quarterly in cash or the Company may, at its option cause such interest to be capitalized and added to the principal amount of the notes. The principal amount of each note is payable in two installments. The first installment of $12,344 was due on the earlier of February 5, 2004 or the date on which the Company had availability under a new credit facility. On January 28, 2004, $8,000 of the first required installment of $12,344 was paid as a result of entering into a new credit facility. On that same date, the original promissory notes to Deutsche Bank and Essar (the “Notes”) were amended. The principal amount of the amended notes in the aggregate was $20,231, with each note still payable in two installments. The first installment of $4,344 was due as the cash collateralized letters of credit were replaced under the new credit facility and the funds released to the Company. The second installment of $15,887 was due on April 26, 2007. On March 3, 2004 and March 8, 2004, the Company made payments totaling $2,000 to Deutsche Bank and Essar as a result of the cash collateralized letters of credit being replaced and the funds released to the Company. The remaining $2,344 was extended to January 3, 2005, on March 30, 2004. The second installment of $15,887 along with capitalized interest of $340 through September 30, 2004, is still due on April 26, 2007. The notes are guaranteed by all of the Company’s subsidiaries.Contents

~~During the first quarter of 2004, the Company failed to meet covenants~~ ~~regarding~~AEGIS ~~earnings~~COMMUNICATIONS ~~before interest~~GROUP, taxes, depreciation and amortization (“EBITDA”) that are common to the Wells Fargo Foothill (“Foothill”) Loan and Security Agreement (the “Loan Agreement”) and the Amended and Restated Secured Promissory Notes, dated January 28, 2004, held by Deutsche Bank and Essar in the principal amounts of $10,087 and $10,144, respectivelyINC. As such, it represented a default under these agreements and additionally, a cross default under the Loan Agreement. Additionally, while the Company made payments of $10,000 of the required $12,344 due in 2004, a portion of the amounts coming due were not paid as prescribed thus resulting in a default under the Notes and the Loan Agreement.

OnNOTES ~~March 30,~~TO ~~2004~~UNAUDITED ~~the~~CONSOLIDATED ~~Company~~FINANCIAL ~~executed~~STATEMENTS amended agreements with revised covenants and received waivers from the lenders for all defaults in the Loan Agreement and Notes. In addition, the amended Notes included an extension of the due date for the balance of initial installment payments of $2,344 to January 3, 2005. The principal amounts of the amended Notes were increased to include capitalized interest of $166 through March 30, 2004.

9(Amounts in thousands, except share and per share data and where noted)

~~The~~March ~~Company was not in compliance with the amended EBITDA covenants common to the Loan Agreement and amended Notes for the periods ending April 30, May~~ 31, ~~and~~2005 June 30, 2004. As such, it represented a default under these agreements and additionally, a cross default under the Loan Agreement. On August 23, 2004, the Company executed amended agreements with revised EBITDA and capital expenditure covenants and received waivers from Foothill, Deutsche Bank and Essar for all defaults in the Loan Agreement and amended Notes. Without the waivers and amended agreements dated August 23, 2004, the Company would not have been in compliance with the revised EBITDA and capital expenditure covenants for the Loan Agreement and the Notes at July 31, 2004. With the waivers and amended agreements dated August 23, 2004, the Company was in compliance with all covenants.

~~The Company was not in compliance with the August 23, 2004 EBITDA covenants common to the Loan Agreement and amended Notes for the periods ending September 30, 2004~~1. As ~~such, it represented a~~SIGNIFICANT ~~default~~ACCOUNTING ~~under~~POLICIES these agreements and additionally, a cross default under the Loan Agreement. On November 22, 2004, the Company executed amended agreements with revised EBITDA covenants and received waivers from Foothill, Deutsche Bank and Essar for all defaults in the Loan Agreement and amended Notes. Without the waivers and amended agreements dated November 22, 2004, the Company would not have been in compliance with the EBITDA covenants for the Loan Agreement and the Notes at September 30, 2004. With the waivers and amended agreements dated November 22, 2004, the Company was in compliance with all covenants.

The ~~Company~~accompanying ~~accounted~~unaudited consolidated ~~for~~financial ~~the~~statements ~~warrants~~of ~~and~~Aegis ~~notes~~Communications ~~payable~~Group, ~~in accordance with APB No~~Inc. ~~14, “Accounting for Convertible Debt~~ and ~~Debt~~its ~~Issued~~subsidiaries ~~with Stock Purchase Warrants”~~ (“~~APB~~the 14Company”)~~. Deutsche Bank~~ ~~and~~have ~~Essar had~~ been ~~issued~~prepared ~~initial~~in ~~and~~conformity ~~subsequent~~with ~~warrants~~accounting toprinciples ~~purchase 527,661,932~~generally ~~shares~~accepted ofin ~~common stock. APB 14 requires a portion of~~ the ~~proceeds~~United ~~from~~States ~~the issuance~~ of ~~debt~~America ~~securities~~for ~~with~~interim financial ~~detachable~~information ~~stock~~and ~~warrants~~the instructions to beForm ~~allocated~~10-Q toand ~~the~~Article ~~warrants~~10 ~~and~~of ~~treated~~Regulation ~~as paid~~S-~~in capital~~X. ~~Any~~ ~~resulting~~Accordingly, ~~discount or~~they ~~premium~~do onnot ~~the~~include ~~notes~~all ~~payable~~of ~~should~~the beinformation ~~recorded~~ and ~~amortized~~footnotes ~~over~~required ~~the~~by ~~life of~~accounting ~~the~~principles ~~notes. The~~generally ~~Company~~accepted ~~used~~in the ~~Black-Scholes~~ ~~model~~United toStates ~~determine the value~~ of ~~the~~America ~~warrants~~for ~~issued to Deutsche~~complete ~~Bank~~financial ~~and Essar~~statements. ~~Under~~ ~~the~~In ~~Black-Scholes model,~~ the ~~value~~opinion of ~~the~~management, ~~warrants~~these ~~are~~financial ~~determined~~statements bycontain ~~taking~~all ~~the~~adjustments, ~~difference between~~consisting ~~acquiring the stock outright and the present value~~ of ~~paying~~normal ~~the exercise~~recurring ~~price~~accruals onunless ~~the~~otherwise ~~expiration day. As a result~~disclosed, ~~the~~necessary ~~Company~~to ~~valued~~present fairly the ~~initial~~financial ~~warrants at $4~~position,~~446. This~~ ~~amount~~results ~~was~~of ~~recorded~~operations ~~as paid-in capital~~ and cash ~~the~~flows ~~resulting~~for ~~discount on~~ the ~~notes~~periods ~~payable~~indicated. ~~was~~Significant ~~recorded~~accounting ~~and~~policies isfollowed ~~being amortized~~by ~~using~~ the ~~interest~~Company ~~method~~were ~~over~~disclosed ~~the~~in ~~life of~~ the notes. Asto ~~a result of making $10,000 in principal payments on~~ the ~~Notes~~consolidated ~~during~~financial ~~the~~statements ~~first~~included ~~quarter~~in ~~of 2004,~~ the Company’s ~~recognized~~Annual ~~$1,460~~Report inon ~~accelerated~~Form ~~amortization~~10-K offor the ~~discount on~~year ~~notes~~ended ~~payable during the period. On~~December ~~July 13~~31, 2004, ~~Essar~~and ~~exercised~~no ~~all~~material ~~264,358,628~~changes ofhave ~~their~~occurred ~~warrants~~with inrespect ~~exchange for~~to ~~one~~these ~~share~~policies. ofThe ~~common~~year-end ~~stock~~consolidated ~~per~~balance ~~warrant. The~~sheet ~~total~~data ~~amount~~was ofderived ~~consideration~~from ~~given~~audited ~~was~~financial $2statements,~~644. These~~ ~~funds~~but ~~were~~does ~~used~~not toinclude ~~reduce~~all ~~outstanding debt~~disclosures ~~under~~required ~~the~~by ~~new~~accounting ~~line~~principles generally ofaccepted ~~credit~~in ~~and~~the ~~make~~United ~~capital investments~~States. On ~~August~~The ~~20,~~consolidated ~~2004,~~results ~~Deutsche Bank exercised all 263,303,304~~ of ~~their~~operations ~~warrants in exchange~~ for ~~one~~the ~~share~~periods ofreported ~~common~~are ~~stock~~not ~~per warrant.~~necessarily ~~The~~indicative ~~total amount~~ of ~~consideration~~the ~~given~~results ~~was $2,633. These funds were used~~ to ~~reduce~~be ~~outstanding debt~~experienced ~~and~~for ~~make~~the ~~capital~~entire ~~investments~~current year.

~~The November 5, 2003 deal expenses of $553 were treated as debt issuance costs in accordance with APB No~~2. ~~21,~~ ~~“Interest~~PREFERRED onSTOCK Receivables and Payables” and are being amortized over the life of the notes. All other expenses associated with the deal were expensed and recorded in selling, general and administrative expenses.

4The Company is authorized to issue 2,000,000 shares of preferred stock and has issued and outstanding 29,778 shares as of March 31, 2005 and December 31, 2004, through its Series B Preferred Stock. ~~ACCOUNTING~~ Such shares are convertible into shares of Common Stock at a conversion ratio of one share of Series B Preferred Stock for two shares of Common Stock, and pay cumulative ~~FOR~~cash ~~STOCK~~dividends ~~BASED~~at ~~COMPENSATION~~the annual rate of $0.36 per share. The Series B Preferred Stock has a liquidation preference of $3.60 per share. Accrued dividends payable were $198 at March 31, 2005 and December 31, 2004. Accrued dividends are classified as other accrued liabilities on the accompanying consolidated balance sheet.

~~The Company has in the past provided stock options and other stock-based awards to certain employees and directors and may do so in the future~~3. ~~The~~ ~~Company~~ACCOUNTING ~~accounted~~FOR ~~for~~STOCK ~~these awards~~BASED ~~using~~COMPENSATION the intrinsic method pursuant to Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations. In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”), which amended SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). The new standard provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Additionally, the statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in the annual and interim financial statements for fiscal years ending after December 15, 2002. In compliance with SFAS 148, the Company elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation arrangement as defined by APB 25. Effective as of August 21, 2003, in connection with the anticipated AllServe transaction, all outstanding options to purchase capital stock of the Company or its subsidiaries were terminated and released by their holders, with an aggregate cost to the Company for obtaining those releases of $53. Effective as of November 5, 2003, all warrants to purchase capital stock of the Company that were outstanding prior to the transaction with Deutsche Bank and Essar were terminated and released by their holders. See Note 3 “Deutsche Bank/Essar Transaction”.

10The Company has in the past provided stock options and other stock-based awards to certain employees and directors and may do so in the future. The Company accounted for these awards using the intrinsic method pursuant to APB 25, and related interpretations. In December 2002, the FASB issued SFAS 148, which amended SFAS 123. The new standard provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock- based employee compensation. Additionally, the statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in the annual and interim financial statements for fiscal years ending after December 15, 2002. In compliance with SFAS 148, the Company elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation arrangement as defined by APB 25.

54. ~~EARNINGS~~ LOSS PER COMMON SHARE

~~Basic~~Common ~~loss~~stock ~~per~~equivalents ~~share~~consist isof ~~computed by dividing net loss applicable to~~ common ~~shareholders (that is, after preferred~~ stock ~~dividends)~~issuable byunder the ~~weighted average~~assumed ~~number~~exercise of ~~common~~stock ~~shares~~options ~~outstanding~~and ~~for~~warrants, ~~the~~computed ~~period. Diluted~~based ~~loss~~on ~~per~~the ~~share~~treasury ~~is computed giving~~stock ~~effect~~method, toand ~~all~~the ~~dilutive~~assumed ~~potential~~conversion ~~common~~of ~~shares,~~the ~~including~~Company’s ~~options,~~issued ~~warrants, convertible debt,~~ and ~~convertible~~outstanding preferred stock~~. Options,~~ ~~warrants,~~and convertible ~~debt~~subordinated ~~and convertible~~indebtedness. ~~preferred~~Common stock ~~were~~equivalents are not included in ~~the computation of~~ diluted ~~loss~~ ~~per~~EPS ~~share~~calculations ~~for~~to the ~~three~~extent ~~months and nine months ended September 30, 2003, because the effect of~~ their inclusion would behave an ~~antidilutive~~anti-dilutive effect.

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
Basic and Diluted (in thousands)
Weighted average common shares issued	381,947		52,647		197,180		52,647
Weighted average treasury shares	(476	)	(476	)	(476	)	(476	)
Shares used in loss per share calculation	381,471		52,171		196,704		52,171
Antidilutive securities excluded from the computation of diluted loss per share for the periods indicated are as follows:
Shares issuable under warrant agreements	—		2,756		—		2,756
Shares issuable upon conversion of preferred stock	60		79,214		60		79,214
Shares issuable upon conversion of convertible debt	—		8,460		—		8,460

Basic and diluted weighted average shares outstanding were computed as follows:

6. RESTRUCTURING CHARGES


	Three months ended March 31,
	2005		2004
Basic and Diluted (in thousands)
Weighted average common shares outstanding	660,053		85,481
Weighted average treasury shares	(476	)	(476	)

Shares used in EPS calculation	659,577		85,005

~~During~~Basic ~~the~~and ~~quarter~~diluted ~~ended~~EPS are ~~March 31~~computed ~~2004,~~by ~~the~~dividing ~~Company~~net ~~approved~~loss ~~a plan~~applicable to ~~restructure~~common shareholders by the ~~management~~weighted ~~team. The~~average ~~restructuring~~number ~~plan~~of ~~was~~shares ~~designed~~of tocommon ~~bring~~stock and common stock equivalents outstanding during the ~~Company’s~~period. ~~management~~Basic EPS excludes the effect of potentially dilutive securities ~~structure~~while ~~in-line~~diluted ~~with~~EPS reflects the ~~then~~potential ~~current~~dilution ~~volume~~that ~~and~~would ~~business~~occur ~~environment. Related~~if securities or other contracts to ~~these~~issue ~~actions~~common stock were exercised, converted into or resulted in the ~~Company~~issuance of common stock. Common stock equivalents consist of common stock ~~recorded~~issuable ~~$686~~under inthe ~~severance~~assumed ~~costs~~exercise ~~during~~of stock options and warrants, computed based on the ~~first~~treasury ~~quarter~~stock method, the assumed conversion of ~~2004~~the Company’s issued and anoutstanding preferred stock, and convertible subordinated indebtedness. Common ~~additional~~stock ~~$325~~equivalents are not included in ~~severance~~diluted ~~costs~~EPS ~~during~~calculations to the ~~quarter~~extent ~~ending~~their ~~June~~inclusion ~~30,~~would ~~2004~~be anti-dilutive.

During the quarter ended June 30, 2004, the Company evaluated its workstation infrastructure capacity available in its twelve existing client service centers relative to its existing level of business and determined it appropriate to reduce its inventory of workstations5. ~~Accordingly,~~ ~~the~~DEBT Company recorded $3,303 in severance and impairment charges as part of a site closure plan which entailed the closing of four client service centers. An impairment charge of $3,250 was recorded for the amount by which the carrying amount of the property and equipment at these client service centers exceeded fair value. Severance associated with the closing of the service centers in the amount of $54 was accrued and $38 paid during the quarter ended June 30, 2004 as a result of the site closures. During the quarter ending September 30, 2004, the Company recorded an additional $255 in costs associated with the closing of the four client service centers. The Company entered into agreements with third parties to sell certain assets associated with the closed client service centers. These assets have been classified as held-for-sale in the accompanying consolidated balance sheet and have a balance of $85 at September 30, 2004.

~~Restructuring~~Essar ~~activity~~Short ~~during~~Term Loan: On March 21, 2005, the ~~three~~Company ~~months~~executed ~~ended~~a ~~September~~promissory ~~30,~~note ~~2004 is~~in ~~summarized~~favor asof ~~follows:~~Essar Global

	Accrual at June 30, 2004		Restructuring Charge		Severance		Cash Payments		Non-Cash Items expensed Immediately		Accrual at Sept 30, 2004
March 2004 management restructuring	$	821	$	—	$	—	$	241	$	—	$	580
June 2004 site closures	16		177		78		271		—		—
	$	837	$	177	$	78	$	512	$	—	$	580

11Table of Contents

AtLimited, ~~September~~an ~~30,~~entity ~~2004,~~controlled ~~the~~by ~~remaining~~a ~~accrual~~significant stockholder of ~~$580~~the isCompany. ~~related~~The ~~to severance~~promissory ~~agreements~~note ~~associated~~was ~~with~~in the ~~restructuring~~principal amount of ~~the~~$1,250 ~~management team. This~~in ~~amount~~favor isof ~~included~~Essar inGlobal ~~accrued compensation~~Limited. ~~expense~~The inpromissory ~~the~~note ~~accompanying~~was ~~consolidated~~unsecured ~~balance~~and ~~sheet~~bore interest at ~~September~~ ~~30,~~a ~~2004~~simple rate of 0. In50% ~~addition~~over toLIBOR ~~the amounts~~per ~~accrued~~annum, ~~ongoing~~with ~~lease~~interest ~~payments~~payable ~~of $50~~in ~~per~~arrears ~~month~~in onfifteen-day ~~one~~periods ofbeginning from the ~~four~~date ~~centers~~of ~~are~~execution. Periodic ~~still~~interest ~~due~~payments ~~and~~were payable ~~until a~~in ~~settlement~~cash, ~~agreement~~unless ~~can~~Essar agreed that such interest should be ~~reached~~capitalized ~~with~~and added to the ~~landlord~~principle amount of the promissory note. ~~All~~ ~~obligations~~The ~~relative~~promissory tonote ~~the~~was ~~other~~paid ~~three~~in full with accrued interest in April 2005, without ~~closed~~any ~~centers~~penalty ~~have~~under ~~been~~the ~~settled~~terms ~~with~~of nothe ~~further~~promissory ~~obligation~~note.

Rockland Finance Commitment: On April 4, 2005, the Company executed a new financing arrangement with Rockland Credit Finance LLC. The agreement provides for a $7,500 facility based on factored receivables. ~~LONG~~ Cost related to the finance is Wall Street Journal published prime rate plus 2% on funds employed. Management fees are based on 0.75% of the face value of every invoice purchased for each 30-~~TERM~~day period up to 60 days. Thereafter, the fee is 0.45% each 15-day period for an additional 30 days for a ~~DEBT~~total 90-day period. The Company may be required to purchase back outstanding invoices that are older than 90 days.

AsEssar ~~part~~Credit ofGuarantee ~~the Deutsche~~& ~~Bank/Essar~~Written ~~transaction~~Commitment on ~~November~~Deferment 5,of ~~2003,~~Short ~~Deutsche~~Term ~~Bank~~Borrowings ~~and~~to Long-Term Debt: Essar ~~purchased~~ ~~three-year~~has ~~promissory~~provided ~~notes~~its incredit extension to the Company ~~aggregate~~by ~~principal~~arranging ~~amount~~for two stand-by letters of ~~$28,231~~ ~~from~~credit to be posted on the Company~~. These~~’s ~~notes have~~behalf afor ~~floating~~the ~~interest~~purpose ~~rate~~of ~~equal~~covering tocertain of the ~~three-month~~Company’s ~~London~~bonding ~~Interbank Borrowing~~requirements. ~~Offered~~Essar ~~Rate~~is ~~plus~~also ~~0.50%. Interest~~currently ~~under~~working ~~the~~to ~~notes~~set isup ~~payable~~letter ~~quarterly~~of incredit ~~cash~~to orcover the ~~Company~~ ~~may,~~Company’s atworkers ~~its~~compensation ~~option,~~contingent ~~cause~~liabilities. ~~such~~Essar ~~interest~~and toDeutsche beBank ~~capitalized~~have ~~and~~collectively ~~added~~agreed to extend the ~~principal~~ ~~amount~~due date of ~~the~~their ~~notes. On January~~short-term ~~28,~~debt ~~2004,~~maturities of $83,~~000~~126 ofdue in the ~~first~~second ~~required~~quarter ~~installment~~ of ~~$12,344~~2005 ~~was paid. On~~to ~~March~~various 3maturities commencing April 30, ~~2004~~2006 ~~and~~through ~~March~~August 830, ~~2004,~~ ~~the~~2006. ~~Company~~Essar ~~made~~has ~~payments~~provided ~~totaling~~to ~~$2,000~~the ~~dollars~~Company toa ~~Deutsche~~written ~~Bank~~commitment ~~and~~to ~~Essar. The~~convert ~~remaining~~its ~~$2,344~~funded ~~was~~debt ~~amended on~~of ~~March~~approximately 30$17,800 ~~2004~~into ~~and~~common ~~extended~~stock toof ~~January~~the ~~3, 2005~~Company. ~~The~~ ~~second~~We ~~installment~~believe ~~of $15~~Essar,~~887,~~ ~~along~~as ~~with capitalized~~demonstrated ~~interest~~in ofthe ~~$340~~past through ~~September30,~~two ~~2004~~short-term bridge transactions, is ~~due~~willing onto ~~April~~make ~~26, 2007. The~~available ~~notes~~additional ~~are~~funding ~~guaranteed~~up byto ~~all~~a maximum of $3,000 to ~~the~~cover ~~Company’s~~short-term ~~subsidiaries~~gaps, as necessary.

~~On January 26, 2004, the Company entered into the Loan Agreement with Foothill that will allow the Company to borrow up to $25,000, with a maturity date of January 26, 2007~~6. ~~Interest~~ ~~rates~~COMMITMENTS ~~under~~AND ~~the agreement are variable and are tied to the~~CONTINGENCIES London Interbank Borrowing Offered Rate and the Wells Fargo prime rate. The Loan Agreement contains restrictions and covenants limiting among other things, the amount of indebtedness incurred by the Company and its subsidiaries, certain financial targets and capital expenditures. As a result of the agreement, Foothill has been granted a continuing security interest in substantially all of the Company’s assets.

~~During~~The ~~the~~Company ~~first~~has ~~quarter~~agreements ~~2004,~~with ~~the~~certain ~~Company~~telephone ~~failed~~long distance tocarriers ~~meet~~which ~~covenants regarding~~currently ~~earnings~~range ~~before~~from ~~interest,~~5 ~~taxes,~~months ~~depreciation~~to 30 months, and ~~amortization~~which ~~that are~~provide ~~common~~for toannual ~~the~~minimum ~~Loan~~usage ~~Agreement~~requirements. ~~and~~During the ~~Notes,~~second ~~dated~~quarter ~~January 28,~~of ~~2004~~2002, ~~held~~ bythe ~~Deutsche~~Company ~~Bank~~completed ~~and~~negotiations ~~Essar~~with inone ~~the~~of ~~principal~~its ~~amounts~~carriers ofto ~~$10,087~~cancel ~~and~~the then-remaining ~~$10,144. As~~minimum ~~such,~~usage itrequirements ~~represented~~under ~~a default~~the ~~under~~agreement ~~these~~in ~~agreements~~exchange ~~and~~for ~~additionally,~~entering into a ~~cross~~new ~~default~~reduced ~~under~~usage commitment with the ~~Loan Agreement. Additionally,~~carrier ~~while~~under which the Company ~~made~~is ~~payments~~committed to usage of $102,~~000~~200 ofover ~~the~~a ~~required~~36-month ~~$12,344~~period. ~~due~~During inthe ~~2004,~~fourth aquarter ~~portion~~ of 2004, the Company ~~amounts~~reached ~~coming~~agreement ~~due~~with ~~were~~its ~~not~~largest ~~paid~~carrier asto ~~prescribed~~cancel ~~thus~~the ~~resulting~~remaining minimum usage commitment under the then-existing agreement in exchange for entering into a ~~default~~ reduced usage commitment effective October 1, 2000, under ~~the~~which ~~Notes~~it ~~and~~is ~~the~~committed ~~Loan~~to usage ~~Agreement~~of $7,400 annually for seven years.

OnAt ~~March 30,~~December 31, 2004, the Company ~~executed~~accrued ~~amended~~$290 ~~agreements~~related ~~with revised~~to ~~covenants~~unused and ~~received~~under ~~waivers~~accrual ~~from~~usage for the ~~lenders~~current year’s commitment of $7,400. The contract provides for ~~all~~a ~~defaults~~“Business Downturn / Network Optimization” clause which in the event of a business ~~Loan~~downturn ~~Agreement~~beyond our control and ~~Notes. In~~other ~~addition~~issues related to our business, ~~the~~ ~~amended~~which ~~Notes~~significantly ~~included~~reduces anthe ~~extension~~volume of ~~the~~services ~~due~~we ~~date~~required, ~~for~~with the ~~balance~~result ~~of initial~~that ~~installment~~we ~~payments~~will ofbe ~~$2,344~~unable to ~~January 3,~~meet ~~2005. The~~our ~~principal~~revenue ~~amounts~~and ofor volume commitments, we and the ~~amended~~vendor ~~Notes~~service ~~were~~provider ~~increased~~will cooperate to ~~include~~develop ~~capitalized~~a ~~interest~~mutually agreeable alternative agreement, and amend or replace the affected metrics of ~~$166~~the ~~through~~contract ~~March 30, 2004~~currently in place. At ~~March 31,~~In ~~2004~~January 2005, we initiated the downturn clause and will be working with the vendor ~~Company~~provider ~~was~~to inamend ~~compliance~~the contract effective on October 1, 2004, the beginning of the revised ~~covenants~~contract ~~for~~year, which runs consecutively to September 30, 2007. The contingency could be in the ~~Loan~~range ~~Agreement~~from $0 to $600, and Management’s best estimate is ~~the~~$290, ~~Amended~~which ~~and~~has ~~Restated~~been ~~Secured~~accrued ~~Promissory~~for ~~Notes~~at December 31, 2004 and March 31, 2005.

The Company ~~was~~has ~~not~~an inemployment ~~compliance~~agreement with ~~the~~Kannan ~~amended~~Ramasamy, ~~EBITDA~~Chief ~~covenants common~~Executive toOfficer, ~~the~~which ~~Loan~~provides ~~Agreement and amended Notes~~ for ~~the~~a ~~periods~~grant ~~ending~~of ~~April~~options ~~30, May~~to ~~31,~~purchase ~~and June 30~~3, ~~2004. As such~~450,000 ~~it represented~~shares aof ~~default~~Common ~~under~~Stock ~~these~~of ~~agreements and additionally, a cross default under~~ the ~~Loan~~Company ~~Agreement. On August 23,~~upon ~~2004,~~ the Company’s ~~executed amended agreements with revised~~adoption ~~EBITDA~~of ~~and~~a ~~capital~~new ~~expenditure~~stock ~~covenants~~option ~~and~~plan. ~~received~~The ~~waivers~~exercise ~~from~~price ~~Foothill, Deutsche~~of ~~Bank and Essar for all defaults in~~ the ~~Loan~~options ~~Agreement~~will ~~and~~be ~~amended Notes. Without~~ the ~~waivers~~closing ~~and~~market ~~amended agreements~~price ~~dated~~of ~~August 23, 2004,~~ the Company’s ~~would~~Common ~~not~~Stock ~~have~~on ~~been in compliance with~~ the ~~revised~~date ~~EBITDA~~of ~~and~~grant. ~~capital~~When ~~expenditure covenants for the Loan Agreement and the Notes at July 31~~granted, ~~2004~~Mr. ~~With~~ ~~the~~Ramasamy’s ~~waivers~~options ~~and~~will ~~amended~~vest ~~agreements~~in ~~dated~~three ~~August~~annual ~~23,~~installments ~~2004,~~and ~~the~~terminate ~~Company~~ten ~~was~~years infrom ~~compliance~~the ~~with~~date ~~all~~of ~~covenants~~grant.

The Company ~~was~~is ~~not~~also ina ~~compliance~~party to a Transition Agreement with ~~the~~Richard ~~August~~N. 23Ferry, ~~2004~~the ~~EBITDA covenants~~Company’s ~~common~~former toChief ~~the~~Executive ~~Loan~~Officer, ~~Agreement~~who ~~and~~will ~~amended~~be ~~Notes~~providing ~~for~~consulting services to the ~~periods~~Company ~~ending September~~through 30October 31, ~~2004~~2005. As ~~such,~~The ~~it represented~~Transition aagreement ~~default~~partially ~~under~~amends ~~these~~a ~~agreements~~former ~~and~~employment Agreement ~~additionally,~~between aMr. ~~cross~~Ferry ~~default under~~and ~~the~~The ~~Loan Agreement~~Company. ~~On November 22,~~ ~~2004,~~Under the ~~Company~~Transition ~~executed~~Agreement ~~amended~~Mr. ~~agreements~~Ferry ~~with~~will ~~revised EBITDA~~receive ~~covenants~~a ~~and~~grant ~~received~~of ~~waivers~~options ~~from~~to ~~Foothill~~purchase 2,277,000 ~~Deutsche~~shares ~~Bank~~of ~~and~~Common ~~Essar for~~Stock ~~all~~of ~~defaults~~the inCompany upon the ~~Loan~~earlier ~~Agreement~~of ~~and~~the ~~amended~~Company’s ~~Notes. Without~~adoption ~~the~~of ~~waivers~~a ~~and~~new ~~amended~~stock ~~agreements~~option ~~dated~~plan ~~November~~or ~~22,~~October ~~2004~~31, ~~the~~2005. ~~Company~~The ~~would~~exercise ~~not~~price ~~have~~of ~~been~~the inoptions ~~compliance~~will ~~with~~be the ~~EBITDA~~ ~~covenants~~closing ~~for~~market price of the ~~Loan~~Company’s ~~Agreement~~Common ~~and~~Stock on the ~~Notes~~date atof ~~September~~grant. 30When granted, ~~2004~~ Mr. ~~With~~ ~~the~~Ferry’s ~~waivers~~stock ~~and~~options ~~amended agreements~~will ~~dated~~vest ~~November~~immediately ~~22,~~and ~~2004,~~terminate ~~the~~five ~~Company~~years ~~was~~from the indate ~~compliance~~of ~~with all covenants~~grant.

12We are party to certain legal proceedings incidental to our business. Certain claims arising in the ordinary course of business have been filed or are pending against us. Management believes that the ultimate resolution of such contingencies will not have a material adverse effect on the consolidated financial position or consolidated results of operations of Aegis.

~~8. COMMITMENTS AND~~6 ~~CONTINGENCIES~~

TheTable Company has agreements with certain telephone long distance carriers, which have original terms of three and seven years and currently have remaining terms of 11 months and 36 months, respectively. The contracts provide for annual minimum usage requirements, whereby the Company is committed to usage of $2,160 over a 36-month period under one agreement and to usage of $7,400 annually under the other. The Company has met the minimum usage requirements of both agreements for all measurement periods up to and including, the periods ending September 30, 2004. The Company’s ability to continue to meet the minimum usage levels demanded by these contracts is dependent upon several factors the most significant of which is the level of business it is providing its clients. Not achieving the minimum usage levels could negatively impact the Company’s financial performance as paying for the minimum usage but not actually utilizing such. This would increase telecom costs, as a percentage, relative to revenue.Contents

OnAdditionally, ~~September 30~~on November 12, ~~2004~~2003, ~~the~~AllServe ~~Company~~and ~~had~~its ~~two~~wholly-owned ~~outstanding~~subsidiary ~~irrevocable~~AllServe Systems, Inc. filed ~~letters~~suit against us in the Court of ~~credit~~Chancery of the State of Delaware. Based on the complaint, the plaintiffs are apparently seeking an injunction to prevent us from closing the transaction with aDeutsche ~~total~~Bank ~~amount~~and Essar, which in our view has already been closed. The complaint also seeks to specifically enforce our merger agreement with AllServe. Alternatively, the complaint seeks payment of the $21,~~880~~137 break-up fee as well as other monetary damages that, according to AllServe, exceed $50. ~~These~~ ~~letters~~We deny that AllServe is entitled to any injunctive relief, payment of ~~credit~~the ~~expire~~break-up ~~between February~~fee 6or any other damages or payments. The $1,137 ~~2005~~was ~~and~~accrued ~~July~~at 13December 31, ~~2005~~2004 to the subordinated debt-holders. ~~The~~ Payment to the sub-debt holders is contingent upon ~~letters~~the outcome of ~~credit~~the Allserve litigation and may be net of certain expenses. If certain fees are ~~being~~paid ~~maintained~~to asAllserve, ~~security~~that ~~for~~will reduce the ~~Company’s self~~amount paid to the subordinated debt-~~insured~~holders, ~~portion~~up ofto ~~its~~$1,137. ~~workers~~At ~~compensation~~this ~~insurance~~time ~~program~~it ~~and~~is not possible to accurately predict ~~support~~the ~~licensing~~outcome ~~requirements~~of ~~related~~this tolawsuit. ~~certain~~We ~~contractual~~intend ~~obligations entered~~to ~~into~~contest bythis ~~the~~lawsuit ~~Company~~vigorously.

On July 18 22, ~~2003~~2004, ~~two~~the Company ~~public~~signed ~~stockholders,~~an ~~John~~agreement ~~Beggi~~with ~~and Steven~~the ~~Stremke,~~New ~~filed~~York ~~complaints~~State inUrban ~~the~~Development ~~District~~Corporation ~~Court~~giving ofto ~~Dallas~~us ~~County,~~a ~~Texas against~~financial ~~the~~grant ~~Company~~of ~~and~~$884 ~~the~~initial ~~individual~~disbursement ~~members~~after execution of ~~its~~a ~~Board~~lease offor ~~Directors. The~~80 ~~complaints~~Broad ~~alleged,~~Street ~~among~~to expire ~~other~~no ~~things~~earlier than April 1, ~~that~~ ~~the~~2011. ~~then-proposed~~We ~~acquisition~~must ofemploy ~~the~~at ~~Company~~least by260 ~~AllServe~~full-time ~~was~~permanent ~~unfair~~employees toat the ~~public~~ ~~stockholders~~project oflocation ~~the~~by ~~Company~~December ~~and~~31, ~~that~~2005 ~~the~~or ~~defendants~~repay ~~breached~~the ~~their fiduciary~~Grant. ~~duties~~As towe had the ~~Company’s~~New ~~public~~York ~~stockholders~~office in ~~connection~~operation ~~with~~for ~~the then-proposed~~a ~~acquisition. The plaintiffs~~time ~~are~~during ~~seeking~~2004 awe ~~class~~could ~~action~~be inheld accountable ~~each~~at ~~complaint~~December ~~and~~31, ~~are~~2005 ~~seeking~~for approximately 75% or up to ~~enjoin~~ ~~the~~100% ~~transaction~~(based ~~with~~on ~~AllServe. The~~special ~~two~~recapture ~~separate~~terms) ~~complaints~~of ~~were~~the ~~consolidated~~Grant ~~into~~repayment ~~one~~if ~~lawsuit~~we indon’t ~~late 2003. At~~have ~~this~~at least 260 full-time, itpermanent isemployees ~~not~~in ~~possible to~~place. ~~predict~~Accordingly ~~accurately~~in 2004, the ~~outcome~~Company ofhas ~~this~~accrued ~~lawsuit~~an expense asof itapproximately is$884 ~~not~~for ~~yet~~potential ~~clear~~repayment ~~what effect~~of the ~~subsequent~~grant ~~termination~~to of the ~~merger~~New ~~agreement~~York ~~with~~State ~~AllServe~~Urban ~~and completion~~Development ofCorporation. The Company credits the ~~transaction~~amortization ~~with~~to ~~Deutsche~~rent ~~Bank~~expense ~~and~~for ~~Essar~~the ~~may~~credit ~~have~~received onin ~~this stockholder~~the ~~litigation. The~~quarter ~~Company continues~~for tothe ~~contest~~New ~~this~~York ~~lawsuit~~State ~~vigorously~~incentive.

~~On November 12, 2003, AllServe and its wholly owned subsidiary AllServe Systems, Inc~~7. ~~filed~~INCOME ~~suit~~TAXES against the Company in the Court of Chancery of the State of Delaware. Based on the complaint, the plaintiffs are apparently seeking an injunction to prevent the Company from closing the transaction with Deutsche Bank and Essar, which in the Company’s view has already been closed. The complaint also seeks to specifically enforce the Company’s merger agreement with AllServe. Alternatively, the complaint seeks payment of the $1,100 break-up fee as well as other monetary damages that, according to AllServe, exceed $50,000. The Company denies that AllServe is entitled to any injunctive relief, payment of the break-up fee or any other damages or payments. The $1,100 was accrued at December 31, 2003 and September 30, 2004 as a reserve for the benefit of the subordinated debt holders. Payment to the subdebt holders is contingent upon the outcome of the AllServe litigation. If certain fees are paid to AllServe, this will reduce the amount paid to the subordinated debt holders up to $1,100. At this time, it is not possible to accurately predict the outcome of this lawsuit. The Company continues to contest this lawsuit.

The Company ishas ~~party~~historically togenerated ~~certain~~net ~~legal~~operating ~~proceedings~~losses ~~incidental~~as tomeasured ~~its~~for ~~business~~income tax purposes. ~~Certain~~ ~~claims~~In ~~arising~~the inpast, the ~~ordinary~~ ~~course~~Company ofrecognized ~~business~~a ~~have~~deferred ~~been~~tax ~~filed~~asset orreflecting ~~are~~the ~~pending~~future ~~against~~benefits itof the resultant net operating loss carry-forward. ~~Management~~ ~~believes~~These ~~that~~future ~~the~~tax ~~ultimate resolution~~benefits ofexpire ~~such~~through ~~contingencies~~2022. ~~will~~Management ~~not~~has ~~have~~established a ~~material~~valuation allowance ~~adverse~~for ~~effect~~deferred ontaxes ~~the consolidated~~where ~~financial~~Management ~~position~~believes orit ~~consolidated~~is ~~results~~more oflikely ~~operations~~than ofnot ~~Aegis Communications~~that ~~Group,~~the ~~Inc~~deferred tax asset will not be realized.

98. ~~INCOME TAXES~~ SUBSEQUENT EVENTS

~~The~~On April 8, 2005, the Company ~~has~~announced ~~historically~~that ~~generated~~on ~~net~~April ~~operating~~4, ~~losses~~2005, asthe ~~measured for~~Company ~~income~~terminated ~~tax~~its ~~purposes~~revolving credit facility with Wells Fargo Foothill. The revolving credit facility allowed the Company ~~has not~~to ~~provided~~borrow against an ~~income~~available ~~tax~~borrowing ~~benefit~~base, ~~for~~up to a maximum amount of $25,000,000. As a result of the ~~operating~~Company ~~losses~~terminating ~~incurred~~the ~~during~~Wells Fargo Foothill Credit Facility, there is an unamortized debt service ~~2003~~cost orwrite-off of approximately $500, which will be recorded in the ~~three~~second ~~and~~quarter ~~nine~~2005. ~~months~~Also ~~ended~~on ~~September~~April 308, ~~2004~~2005, asthe ~~such~~Company ~~benefit~~announced that on April 4, 2005, the Company entered into an agreement for credit financing with Rockland Credit Finance, LLC ~~would~~(Rockland). ~~exceed~~By its terms, that credit financing agreement allows the Company to select, sell and assign certain of its accounts receivable to Rockland from time to time, subject in each case to Rockland’s prior review and acceptance of those selected accounts. The agreement prohibits the Company from entering into alternative credit financing arrangements without Rockland’s prior written consent, unless Rockland rejects the Company’s selection of any ~~projected~~particular ~~realizable~~account ~~deferred~~for sale ~~tax~~and ~~asset~~assignment, in which case that rejected account may be sold and assigned or pledged without restriction.

13On April 27, 2005, the Company delivered an executed Seventh Amended and Restated Secured Promissory Note in favor of Deutsche Bank. The amendment changes a scheduled initial principal payment under the Sixth Amended and Restated Secured Promissory Note, dated January 3, 2005, in the amount of $231,897.80 that would have been due on June 3, 2005. Under the amended promissory note, that initial principal payment of $231,897.80 is now due on April 16, 2006. Additionally, the accrued interest under the Sixth Amended and Restated Promissory Note has been calculated beginning on January 3, 2005 up to April 20, 2005 and added to the original principal amount of $1,863,471.32, resulting in a face amount for the Seventh Amended and Restated Promissory Note of $1,884,500.54.

10On May 6, 2005, the Company announced that Richard N. ~~SUBSEQUENT~~ Ferry resigned from his positions as President and Chief Executive Officer of the Company and from ~~EVENTS~~all other officer positions held with the Company’s subsidiaries effective as of April 30, 2005. Mr. Ferry will continue to serve as a director of the Registrant’s Board of Directors, in addition to providing consulting services to the Company through October 31, 2005. On May 6, 2005, the Company announced that Kannan Ramasamy was elected President and Chief Executive Officer and as a director on the Board of Directors of the Company effective as of May 1, 2005.

On7 October 5, 2004, the Company announced the hiring of Richard Ferry as the new Chief Executive Officer and director. On that same date, Kannan Ramasamy joined the management team as Chief Operating Officer.

OnTable October 21, 2004, the Company executed a promissory note in favor of Essar (the “Lender”) in the amount of $1,800. The promissory note is unsecured and bears interest at a simple rate of 0.50% over LIBOR per annum, with interest payable in arrears in fifteen day periods beginning from the date of execution. Periodic interest payments are payable in cash, unless the Lender agrees that such interest shall be capitalized and added to the principal amount of the promissory note. The initial principal payment of $800 was made on or before October 29, 2004 as per the rate agreement. The remaining principal of $1,000 is to be repaid in five monthly installments of $200, beginning in January of 2005. These funds were used for operating purposes.Contents

On ~~October~~May 283, ~~2004~~2005, the ~~Company~~Audit ~~announced~~Committee ~~that~~of ~~Scot~~the ~~Brunke~~Board of Directors of Aegis Communications Group, ~~the~~Inc. dismissed BDO Seidman, LLP (“BDO”) as the Company’s ~~Chief~~independent ~~Financial~~auditor. ~~Officer,~~BDO ~~had~~served ~~left~~as the Company’s ~~effective~~independent ~~October~~auditor ~~22,~~ for fiscal years 2003 and 2004. The ~~Company~~reports ~~also~~of ~~announced~~BDO ~~that~~for those fiscal years did not contain an adverse opinion Mror disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. ~~Brunke~~During ~~resigned~~those ~~from~~fiscal years and for fiscal year 2005 through May 2, 2005 there were (A) no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the ~~board~~satisfaction of ~~director~~BDO, would have caused BDO to make reference to such disagreements in its reports provided to the Company; and (B) on ~~November~~March 1223, ~~2004~~2005, BDO reported to the Audit Committee of Aegis the existence of certain weaknesses in its internal controls over financial reporting, which we believe are “reportable events” within the meaning of Item 304(a)(1)(v) of Regulation S-K. Those weaknesses, after discussion with and by the Company’s Audit Committee, were subsequently disclosed in the Company’s Form 10-K, Item 9A, filed on ~~that~~April 15, 2005. The Company has ~~same~~authorized ~~day~~BDO ~~Kamalnayan~~to ~~Agarwal~~fully ~~was~~respond ~~appointed~~to asany inquiries of its successor independent auditor regarding those weaknesses. The Company has provided BDO with a ~~director~~copy of the disclosures regarding its change in independent auditors and has requested that BDO provide the Company with a letter addressed to the ~~board~~Securities and Exchange Commission stating whether or not BDO agrees with those statements.

InEffective ~~November~~May ~~2004~~3, as2005, ~~part~~the Company’s Audit Committee engaged Russell, Bedford, Stefanou & Mirchandani, LLP (“Russell Bedford”) to audit the Company’s financial statements for the fiscal year ending on December 31, 2005. Prior to the engagement of ~~its~~Russell ~~ongoing~~Bedford, ~~evaluation~~neither the Company nor anyone on behalf of ~~its~~the ~~workstation~~Company had consulted with Russell Bedford during the Company’s ~~capacity~~two ~~needs~~most recent fiscal years and for fiscal year 2005 through May 2, ~~management~~2005 ~~determined~~in ~~that~~any ~~capacity~~matter ~~needed~~regarding either: (A) the application of accounting principles to bea ~~further consolidated. In~~specified ~~effecting~~transaction, ~~this~~either completed or proposed, ~~two~~or the type of audit opinion that might ~~additional~~be ~~client~~rendered ~~service~~on ~~centers~~the ~~were~~Company’s ~~closed~~financial statements, ~~with~~and neither was a written report nor oral advice provided to the ~~CRM~~Company ~~services~~that ~~being performed~~Russell ~~and~~Bedford ~~then~~concluded ~~relocated~~was an important factor considered by the Company in reaching a decision as to ~~other~~the accounting, ~~existing~~auditing ~~centers~~or financial reporting issued; or (B) any matter which was the subject of either a disagreement or a reportable event, as each are defined in Items 304(a)(1)(iv) and (v) of Regulation S-K, respectively.

148

ITEMTable 2. MANAGEMENT’S DISCUSSIONof AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSContents

~~The accompanying~~ITEM ~~unaudited~~2. ~~consolidated financial statements, in the opinion of the Company~~MANAGEMENT’sS ~~management,~~DISCUSSION ~~contain~~AND ~~all~~ANALYSIS ~~material,~~OF ~~normal~~FINANCIAL ~~and~~CONDITION ~~recurring~~AND ~~adjustments necessary~~RESULTS toOF present accurately the consolidated financial condition of the Company and the consolidated results of its operations for the periods indicated. The consolidated results of operations for the periods reported are not necessarily indicative of the results to be experienced for the entire current year.OPERATIONS

~~RESULTS~~The OFaccompanying ~~OPERATIONS~~unaudited consolidated financial statements, in the opinion of the Company’s management, contain all material, normal and recurring adjustments necessary to present accurately the consolidated financial condition of the Company and the consolidated results of its operations for the periods indicated. The consolidated results of operations for the periods reported are not necessarily indicative of the results to be experienced for the entire current year.

~~The~~RESULTS ~~following~~OF ~~table~~OPERATIONS ~~sets forth certain unaudited statements of operations data as a percentage of revenues for the periods indicated:~~

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Operating costs:
Cost of services	74.7	%	71.0	%	73.3	%	70.7	%
Selling, general and administrative expenses	33.5	%	30.5	%	32.4	%	27.4	%
Depreciation and amortization	9.0	%	8.4	%	8.8	%	8.0	%
Restructuring charges	1.2	%	—		6.0	%	—
Total operating expenses	118.4	%	109.9	%	120.5	%	106.1	%
Operating loss	(18.4	)%	(9.9	)%	(20.5	)%	(6.1	)%
Interest expense, net	0.6	%	2.7	%	0.7	%	1.7	%
Non-cash interest expense	1.2	%	1.4	%	3.0	%	1.2	%
Loss from continuing operations before income taxes	(20.2	)%	(14.0	)%	(24.2	)%	(9.0	)%
Income tax expense	—		0.7	%	—		0.2	%
Net loss from continuing operations	(20.2	)%	(14.7	)%	(24.2	)%	(9.2	)%
Discontinued operations:
Estimated loss on disposal of business component, net of taxes	—		0.4	%	—		(0.1	)%
Net loss from discontinued operations			(15.1	)%			(9.3	)%
Preferred stock dividends	—		7.4	%	—		6.4	%
Net loss applicable to common shareholders	(20.2	)%	(22.5	)%	(24.2	)%	(15.7	)%

The following table sets forth certain unaudited statements of operations data as a percentage of revenues for the periods indicated:

We experienced a net loss applicable to common shareholders of $4.2 million, or 20.2% of revenues, for the quarter ended September 30, 2004. During the prior year comparable quarter, we incurred a net loss applicable to common shareholders of approximately $7.4 million, or 22.5% of revenues. For the nine months ended September 30, 2004, we incurred a net loss applicable to common shareholders of $18.5 million as compared to $17.2 million for the nine months ended September 30, 2003. The increase in net loss for the nine months ended September 30, 2004 versus the period ended September 30, 2003 is due to the decline in revenues experienced during the period, charges recorded in association with the restructuring of the Company’s management team, the impairment of long-lived assets related to the closing of four client service centers and the increase in non-cash interest expense due to the additional amortization of the discount on notes payable.


	Three Months Ended March 31,
	2005		2004
Revenues	100.0	%	100.0	%
Operating Costs:
Cost of services	73.8	%	71.7	%
Selling, general and administrative expenses	40.3	%	30.5	%
Depreciation and amortization	11.2	%	8.5	%
Restructuring charges	—		2.3	%

Total operating expenses	125.3	%	113.0	%

Operating (loss) income	-25.3	%	-13.0	%
Interest expense, net	0.7	%	0.8	%
Non-cash interest expense	2.4	%	6.0	%

Loss before income taxes	-28.4	%	-19.8	%
Income tax expense	—		—

Net loss	-28.4	%	-19.8	%

Preferred stock dividends	—		—

Net loss applicable to common shareholders	-28.4	%	-19.8	%

15Background

The Company ~~has~~ ~~continued~~faced totwo ~~experience~~significant ~~net~~categories ~~losses~~of ~~and~~challenges ~~declining~~that ~~revenues and anticipates~~materially ~~the~~affected ~~continuing~~our offinancial ~~this~~results ~~trend~~ for the ~~fourth~~year ~~quarter~~ended ofDecember 31, 2004 and ~~for sometime into~~ the ~~foreseeable~~quarter ~~future. While management~~ended ~~intends~~March to31, ~~continue~~2005. toOne ~~explore~~of ~~ways~~these towas ~~reduce~~“strategic ~~expenses~~direction,” ~~increase efficiencies~~ and ~~increase~~the ~~revenues,~~other ~~there~~was ~~can~~“revenue bedecline.” noManagement ~~assurances~~believes that ~~such efforts~~in ~~will be successful. In~~ the ~~near~~course of ~~term,~~addressing inthese ~~its effort to reduce costs~~challenges, ~~management~~we ~~will~~are ~~continue~~in ~~its~~the ~~evaluation~~process of ~~its~~ ~~workstation~~refocusing ~~capacity~~the ~~needs~~Company and ~~take~~executing ~~action~~on toa ~~consolidate~~turnaround ~~facilities~~strategy ~~and close~~designed ~~others~~to ~~where~~make ~~doing~~the soCompany ~~makes~~profitable ~~sense on a short term~~ and ~~potentially permanent~~build ~~basis~~stockholder value.

~~Revenues. Revenues~~Strategic ~~generated during the quarter ended September 30, 2004 decreased to $20~~Direction.4 ~~million~~Our ~~from~~challenges ~~$32.7~~in ~~million during~~ the ~~third~~ ~~quarter~~area of ~~2003,~~strategic adirection ~~decrease~~had ofroots ~~37.5%. For~~in the ~~nine~~Deutsche ~~months~~Bank/Essar transaction ~~ended~~that ~~September~~closed ~~30,~~on ~~2004,~~November ~~revenues were $76.3 million~~5, 302003.5% ~~lower~~As ~~than~~a ~~the~~result ~~$109.7 million~~ of ~~revenues~~that ~~generated~~transaction, bywhich ~~the Company~~included ina ~~the~~Stockholders ~~prior~~Agreement ~~year~~executed ~~comparable~~by ~~period. The~~our ~~decline~~majority instockholders, ~~revenues~~control ~~for~~of the ~~three~~Company’s ~~and~~Board ~~nine~~of ~~months~~Directors ~~ended~~shifted ~~September 30,~~to ~~2004~~Deutsche ~~versus~~Bank ~~the~~and ~~prior~~Essar. ~~year~~Within five ~~same~~months ~~period~~of isthe ~~attributable~~Deutsche toBank/ aEssar ~~number of factors. First~~transaction, anthe ~~inbound~~Company ~~contract~~experienced ~~with a~~significant ~~cable~~turnover ~~services provider that expired~~ in the ~~fourth~~ranks ~~quarter~~ of ~~2003~~senior ~~was~~management, ~~not renewed~~and byoperated ~~the~~for ~~client~~several asmonths ~~they~~with ~~made~~transitional amanagement. ~~decision~~Deutsche toBank ~~consolidate~~and ~~their~~Essar ~~customer service~~reached ~~into~~an ~~their~~agreement ~~available~~ in~~-house~~ ~~capacity.~~ August ~~This~~of ~~expired~~2004, ~~inbound~~in ~~contract~~which ~~accounted~~Essar ~~for~~agreed ~~approximately~~to ~~18%~~purchase ofa ~~our total~~substantial ~~decrease~~portion ~~quarter~~of ~~over~~Deutsche ~~quarter~~Bank’s equity and ~~36%~~debt ofpositions ~~the~~in ~~total decrease for~~ the ~~nine months~~Company, ~~ended~~in ~~September~~addition ~~30. Secondly,~~to ~~the decision~~assuming ateffective ~~the~~control ~~end~~ of ~~June~~our ~~2004~~Board. byThe ~~AT&T~~Company’s toBoard ~~discontinue~~and its ~~outbound acquisition~~senior ~~services~~management ~~accounted~~were aligned ~~for~~in ~~approximately~~October ~~43%~~ of ~~the~~2004 ~~total~~with ~~revenue decrease versus~~ the ~~prior~~election ~~year~~of ~~quarter~~new ~~ending~~directors ~~September 30~~ and ~~10%~~executive ~~for the nine months ended September 30. Additionally~~officers, ~~one~~ ~~of our telecommunications clients (~~who isbegan ~~one~~moving ofaggressively ~~our~~to ~~five~~provide ~~largest~~the ~~clients) reduced~~Company ~~transaction~~with ~~volumes~~new ~~and~~strategic afocus. ~~client~~Because in the ~~membership~~Company’s ~~services~~renewed ~~industry ramped~~strategic ~~down~~focus acame ~~campaign~~late in the ~~first~~2004 ~~quarter~~fiscal year, ofour ~~2004. Revenues~~financial performance for the ~~third quarter of~~ 2004 ~~were also~~fiscal ~~negatively~~year ~~impacted~~was impaired by ~~the~~insufficient ~~hurricanes~~direction ~~experienced~~throughout inmuch ~~the southeastern part~~ of the ~~country~~reporting period.

~~Revenue~~9 Mix. Together, inbound customer relationship management (“CRM”) and non-voice & other revenues represented 84.3% of our revenues in the third quarter of 2004 versus 70.4% in the third quarter of 2003. Outbound CRM revenues accounted for 15.7% of total revenues for the three months ended September 30, 2004 as compared to 29.6% in the comparable prior year period. The decrease in outbound CRM revenues for the three and nine months ended September 2004 versus 2003 is due mainly to a decision by AT&T to discontinue its outbound acquisition services. For the three and nine months ended September 30, 2004 and 2003, the mix of revenues was as follows:

	Three months ended September 30,								Nine months ended September 30,
	2004		%		2003		%		2004		%		2003		%
Inbound CRM	$	15.0	73.5	%	$	19.2	58.9	%	$	47.1	61.7	%	$	70.2	64.0	%
Outbound CRM	3.2		15.7	%	9.7		29.6	%	21.5		28.2	%	27.3		24.9	%
Non-Voice & Other	2.2		10.8	%	3.8		11.5	%	7.7		10.1	%	12.2		11.1	%
Total revenues	$	20.4	100.0	%	$	32.7	100.0	%	$	76.3	100.0	%	$	109.7	100.0	%

~~Revenue~~Turnaround ~~Concentration~~Challenges. We ~~are~~Our ~~dependent~~financial onperformance ~~several~~in ~~large~~the ~~clients~~2004 ~~for a~~fiscal ~~significant~~year ~~portion~~and the first quarter of 2005 ~~our~~was significantly affected by declining revenues, with those declines attributed generally to reduced demand for the Company’s services from a handful of key customers. ~~The~~ ~~loss~~Some of ~~one~~the orreduced ~~more~~demand may be attributable to the failure of ~~these~~the Company’s ~~clients~~customers to see clear strategic direction, orbut amore ~~significant~~importantly, ~~decline~~we believe that the circumstances leading to the most dramatic reductions in ~~business~~ ~~with~~revenue ~~any~~in ofthe ~~these~~2004 ~~clients~~fiscal ~~individually~~year orwere asfunctions aof ~~group~~the industries we serve, orand ~~our~~specific ~~inability~~ to particular ~~collect~~clients ~~amounts~~in ~~owed~~those toindustries. usWhen bycoupled ~~such~~with ~~clients~~our transitory management situation, ~~could~~our ~~have~~sharp adecline ~~material~~in ~~adverse effect~~revenues put significant pressure on ~~our~~us ~~business. An~~to ~~example~~efficiently ~~of this~~manage isa ~~the~~proportionate ~~decision~~reduction byin ~~AT&T~~variable atoverhead expenses while maintaining the ~~end~~quality of ~~June~~client ~~2004~~service. toBy ~~discontinue~~way ~~its outbound~~of ~~acquisition~~background, ~~services. For~~beginning with the ~~three~~ ~~months~~realignment ~~ended~~of ~~September 30,~~our Board and new senior management team in October 2004, the Company took aggressive steps to stabilize our ~~five~~revenue ~~largest~~position ~~clients~~by ~~accounted~~immediately ~~for~~communicating ~~70.0%~~to ofour clients our ~~total~~new ~~revenues~~leadership asfocus ~~compared~~and toby ~~69.3%~~addressing ~~for~~client concerns in the ~~prior~~areas ~~year comparable~~of ~~period~~service quality. ~~For~~ ~~the~~Towards ~~nine~~this ~~months ended~~end, ~~September~~in ~~30,~~the fourth quarter of 2004 and ~~September~~through ~~30,~~the ~~2003~~first ~~these~~quarter ~~same~~2005, ~~customers~~our ~~accounted for~~senior ~~71.6%~~management, ~~and~~as ~~67.5%~~well as several members of the our ~~revenues~~Board, ~~respectively. Individual~~have ~~revenue~~met ~~concentrations~~with ~~for~~our ~~these~~ largest customers to reassure those clients that the Company has new strategic direction and is ~~shown~~committed ~~below:~~to continue to provide customer service of the highest quality.

		Three months ended September 30,								Nine months ended September 30,
Client	Industry Segment	2004		%		2003		%		2004		%		2003		%
Client A	Telecommunications	$	3.8	18.8	%	$	9.3	28.5	%	$	22.3	29.2	%	$	27.1	24.7	%
Client B	Telecommunications	3.4		16.8	%	4.5		13.9	%	11.2		14.6	%	15.8		14.4	%
Client C	Telecommunications	2.4		11.8	%	1.6		4.9	%	6.5		8.5	%	6.6		6.0	%
Client D	Membership Services	2.3		11.3	%	4.7		14.5	%	7.7		10.1	%	17.3		15.7	%
Client E	Financial Services	2.3		11.3	%	2.5		7.5	%	7.0		9.2	%	7.4		6.7	%
		$	14.2	70.0	%	$	22.6	69.3	%	$	54.7	71.6	%	$	74.2	67.5	%

In addition to the effort in stabilizing its existing client portfolio, Management has been aggressively pursuing new business to improve the Company’s revenue situation. In the course of meeting with our key customers, Management concluded that the Aegis brand is well-regarded in the markets in which we compete, and that our brand provides a platform from which to rebuild our client portfolio. Management believes that a recent string of successes in developing new business and expanding current client engagements is attributed in part to the Company’s strong brand and reputation for exceptional client service. During 2004 and the first quarter 2005, the Company has successfully entered into services contracts with five new customers in the utility, telecommunications and financial services industries. In pursuing these new accounts, Management is mindful of the risks in concentrating too many client accounts in one industry, and has accordingly sought to diversify the industry sectors of the Company’s new engagements to the greatest extent possible.

16As part of our cost-rationalization effort, we closed six call centers in 2004. Management reviewed and took appropriate actions to mitigate and contain risks in certain outbound programs priced on a pay for performance basis, where our revenue is tied directly to commission-type sales received by our customers. Unprofitable programs were canceled and closed, while profitable programs were consolidated into three centers to provide enhanced management attention to detail and operational scale. We believe that our cost-rationalization efforts, begun in 2004 and continuing in 2005, will position the Company to achieve a positive cash flow by June 2005.

~~Our~~Also ~~revenues are~~by ~~also~~way ~~concentrated~~of ~~within~~background, the ~~telecommunications~~Company’s ~~industry~~sharp ~~segment~~decline in revenues during 2004 caused serious difficulties in financing ongoing operations. In ~~total~~Under our credit facility with Wells Fargo Foothill (“Foothill”), ~~for~~the Company’s borrowing base was determined by the ~~three~~lesser ~~months~~of ~~ended~~(i) the sum of a percentage of eligible billed accounts and a percentage of the amount of eligible unbilled accounts ~~September 30,~~or ~~2004~~(ii) an amount equal to the collections on accounts receivable for the past 60 days, ~~approximately~~less ~~50.6%~~the sum of ~~our~~certain reserves established by Foothill. As the Company’s revenues ~~were~~declined, ~~derived~~so ~~from customers~~too indid the ~~telecommunications~~Company’s ~~market~~accounts receivable, resulting in an ~~industry~~acute ~~that~~contraction ~~was~~in credit financing availability under ~~significant~~ ~~economic~~the ~~pressures~~Foothill ~~throughout~~credit ~~2003~~facility. ~~and~~Furthermore, ~~continues~~the toCompany’s bedeclining revenue situation resulted in ~~2004. This~~ ~~concentration~~its ~~creates~~failure anto meet covenants regarding earnings before interest, taxes, ~~additional~~depreciation ~~level~~and ofamortization, ~~risk~~or EBITDA, that are common to the ~~Company~~Wells inFargo ~~terms~~Foothill ofLoan ~~the~~and ~~continuity~~Security ofAgreement ~~this revenue~~ and the ~~ultimate~~Amended ~~collectibility~~and ofRestated ~~related~~Promissory ~~accounts~~Notes ~~receivable~~held by Deutsche Bank and Essar. At The Company failed to meet these EBITDA covenants in the months beginning in February 2004 through September ~~30,~~ 2004, ~~$4.9~~resulting ~~million,~~in ordefaults ~~42.4% of~~under ~~our~~each ~~net~~of ~~trade~~these ~~accounts~~agreements. ~~receivable~~Although ~~balance~~the Company was ~~concentrated~~able into execute waivers and amendments of these agreements for the first, second and third quarters of 2004 and ~~telecommunications~~cure ~~industry~~all outstanding defaults for each interval, asthe ~~compared~~Company’s inability to ~~$10.0~~meet ~~million~~its EBITDA covenant requirements under those agreements underscores the Company’s tight credit situation during the 2004 fiscal year, orcontinuing ~~41.30%~~into atthe ~~December 31,~~first ~~2003~~quarter of 2005.

~~The~~To address the Company’s credit ~~seeks~~financing tochallenges ~~secure~~and ~~recurring~~related ~~revenues~~impact ~~from~~on ~~long-term~~liquidity, ~~relationships~~the ~~with~~Company’s ~~companies that~~management ~~utilize~~has ~~customer~~aggressively ~~contact~~managed ~~strategies~~its asreceivables ~~integral~~cycle time. Additionally, ~~ongoing~~on ~~elements~~April in4, ~~their CRM~~2005, ~~programs. In~~the ~~addition~~Company tosuccessfully ~~providing services~~replaced onthe anFoothill ~~outsourcing~~credit ~~basis,~~facility inwith ~~which~~a wecredit financing ~~provide~~arrangement ~~all~~through orRockland aCredit ~~substantial portion~~Finance ofLLC a(“Rockland”) ~~client’s~~(See ~~CRM~~“Subsequent ~~needs,~~Events” wein ~~also~~Note ~~continue~~8 to ~~perform~~Unaudited ~~project-based services~~Consolidated ~~for~~Financial ~~certain clients~~Statements). ~~Project-based~~ ~~services,~~In ~~however~~an effort to improve our balance sheet, we are ~~frequently~~in ~~short-term~~discussions ~~and~~with Essar ~~there~~regarding ~~can be~~a noproposed ~~assurance~~transaction ~~that~~in ~~these~~which ~~clients~~the Company will ~~continue~~sell ~~existing~~additional ~~projects~~shares orof ~~provide new~~Common ~~ones.~~Stock Onto ~~June 30,~~Essar ~~2004,~~in exchange for Essar’s cancellation of all of the Company’s ~~announced~~current ~~that~~indebtedness itto ~~had~~Essar, ~~been~~totaling ~~notified~~approximately by$17.8 Million ~~AT&T~~dollars. ~~that~~The ~~it was~~Company ~~suspending~~has ~~its~~formed ~~outbound~~a ~~acquisition~~special ~~activities~~committee ascomprised of ~~August~~independent 1,members ~~2004. Revenues~~of ~~earned~~the ~~from~~Board ~~providing~~of ~~this~~Directors ~~service~~ to ~~AT&T~~consider ~~accounted~~this ~~for~~transaction, ~~approximately~~negotiate ~~16%~~with ofEssar, and potentially approve the ~~Company’s~~transaction ~~revenues~~on ~~for~~terms that are in the best ~~first~~interests ~~nine~~of ~~months~~the ofCompany ~~2004~~and its Stockholders.

In10 looking to meet the growing demand in the industry for lower cost, offshore-based operations, the Company has begun partnering with an entity in India to offer this alternative to clients for its CRM needs. Offshore capacity provides clients with a highly educated workforce, lower costs and 24-hour coverage. The growth of such offshore-based CRM has outpaced domestic growth in recent years. The Company is attempting to become competitive for this segment of the industry as part of its strategy to increase revenues. However, there can be no assurance that the Company will be successful in competing for this segment of business.

CostTable of Services. Costs of services generally vary in relation to changes in revenue. For the quarter ended September 30, 2004, cost of services decreased by approximately $7.9 million, to $15.3 million versus the quarter ended September 30, 2003. Cost of services as a percentage of revenue for the quarter ended September 30, 2004 increased to 74.7%, from 71.0% for the prior year comparable period. For the nine months ended September 30, 2004, cost of services decreased $21.7 million to $55.9 million compared to the first nine months of 2003. As a percentage of revenue cost of services rose over the same period, from 70.7% to 73.3%. The total decrease in cost of sales experienced during the three and nine months ended September 30,2004 is due to the reduction in revenue for the comparable periods. The increase of cost of services as a percentage of revenue in both periods is a result of revenue declines occurring in advance of, or without, a corresponding equal reduction of variable costs.Contents

~~Selling,~~Refocus ~~General~~of ~~and~~the ~~Administrative~~Company. ~~Selling,~~ ~~general~~After ~~and~~its ~~administrative~~installation ~~expenses~~in October 2004, the Company’s new senior ~~which~~management ~~include~~team ~~certain~~conducted ~~payroll~~a ~~costs,~~thorough ~~employee~~review ~~benefits,~~of ~~rent~~the ~~expense~~Company and ~~maintenance~~ ~~charges,~~our ~~among~~competitive ~~other~~position ~~expenses~~and determined, ~~were~~with ~~reduced~~the tosupport ~~$6.8~~of ~~million~~the inCompany’s ~~the quarter~~Board ~~ended~~of ~~September 30~~Directors, ~~2004~~that ~~versus~~the ~~$10.0~~Company ~~million~~should ~~the~~be ~~prior~~refocused ~~year~~by adjusting our core service offerings and ~~quarter~~supporting operations. As Accordingly, the Company will gradually be refocused from a ~~percentage~~predominantly domestic provider of ~~revenue~~call services, ~~selling,~~ ~~general~~customer relationship analytics and ~~administrative~~database ~~expenses~~management ~~for~~to ~~the~~a ~~quarter~~provider ~~ended September 30~~of business process outsourcing, ~~2004~~including capabilities ~~were~~in ~~33.5%~~call asservices, ~~compared~~customer torelationship 30analytics and database management.5% ~~for~~In the ~~prior~~course ~~year period. For~~of its strategic refocusing, the ~~nine~~Company ~~months~~will ~~ended September~~leverage ~~30,~~its ~~2004,~~brand ~~selling,~~and ~~general~~expertise in inbound and ~~administrative~~outbound ~~expenses~~call ~~were~~management ~~$24.7~~to expand into outsourcing ~~million~~business orprocesses ~~32.4%~~in ofindustries ~~revenues~~including ~~versus~~utilities, ~~$30.1~~telecommunications, ~~million~~logistics, orutilities, ~~27.4%~~automotive ofand ~~revenues~~financial ~~for~~services. ~~the nine~~To ~~months~~support ~~ended~~its ~~September~~expansion ~~30,~~into ~~2003. The~~the ~~reduction~~business inprocess ~~selling~~outsourcing arena, ~~general~~the ~~and~~Company ~~administrative~~intends ~~expenses~~to ~~over~~adjust ~~the~~its core ~~three~~operations ~~and~~by ~~nine~~establishing ~~months~~significant ~~ended~~offshore ~~September 30,~~capabilities ~~2004~~in isIndia ~~primarily attributable~~ to ~~the~~take ~~elimination~~advantage of ~~overhead~~lower labor costs ~~due~~in that country, in addition to ~~the~~making ~~reduction~~capital ofinvestments ~~headcount,~~in ~~the closing~~a ofnew ~~client~~state ~~service~~of ~~centers~~the asart ~~well~~information astechnology ~~improved~~platform ~~management~~designed offor ~~our~~maximum ~~self-insured~~scalability ~~workers~~and ~~compensation~~less ~~plan~~customization. ~~when~~These ~~compared~~plans toare ~~the~~still ~~same~~largely ~~periods~~ in process, although the ~~prior~~ ~~year~~Company has taken some affirmative steps forward. ~~The~~ ~~increases~~For asexample, on February 14, 2005, the Company reached an agreement with Aegis BPO Services Limited, a ~~percentage~~wholly owned subsidiary of ~~revenue~~Essar, ~~are~~for ~~primarily~~the ~~due~~provision toof ~~the~~call ~~decreases~~center inand ~~revenue~~business ~~periods over~~process ~~periods~~outsourcing services to be provided in India.

~~Restructuring~~In ~~Charges. During~~addition to its plans to enter into the ~~quarter ended~~business ~~March 31~~process ~~2004~~outsourcing industry, the Company ~~approved~~has adeveloped ~~plan~~and begun to ~~restructure~~implement ~~the~~plans to compete in ~~management~~Spanish-speaking ~~team~~markets. ~~The~~ ~~restructuring~~In ~~plan was~~the ~~designed~~fourth toquarter ~~bring~~of 2004, the Company’s ~~infrastructure~~executed ~~in-line~~an agreement with ~~the~~Hispanic ~~current volume~~Global ~~and~~to ~~business~~provide ~~environment~~call services capabilities from Argentina. ~~Related to~~ ~~these~~Management ~~actions~~believes that by adding Spanish call services capabilities, the Company can ~~recorded~~immediately ~~$686~~begin to compete in ~~severance~~Spanish-speaking ~~costs~~markets ~~during~~in ~~the~~its ~~first quarter~~core ofin-bound ~~2004~~and out-bound call service businesses and aneventually ~~additional~~leverage ~~$325~~those incapabilities ~~severance~~to ~~costs~~provide ~~during~~business ~~the~~process ~~quarter ending~~outsourcing ~~June~~in ~~30,~~those ~~2004~~markets.

~~During~~Revenues. For the quarter ended ~~June~~March 3031, ~~2004~~2005, ~~the~~revenues ~~Company recorded $3,303 in~~from ~~severance~~continuing ~~and~~operations ~~impairment~~were ~~charges as part of a plan to close four client service centers~~$15. ~~The~~6 ~~impairment~~million ~~charge~~versus of $~~3,250 was~~29.6 ~~recorded~~million ~~for~~in the ~~amount~~first byquarter ~~which~~2004, ~~the~~a ~~carrying~~decrease ~~amount~~ of ~~the~~$14 ~~property~~million, ~~and equipment~~or at47.3%. ~~these~~This ~~client~~decrease ~~service~~in ~~centers~~revenues ~~exceeded~~resulted ~~fair~~from ~~value. Severance~~a ~~associated~~number ~~with~~of ~~the~~factors. ~~closing~~First, of the ~~service~~ ~~centers~~decision inat the ~~amount~~end of ~~$54~~June ~~was~~2004 ~~accrued~~by ~~and~~AT&T ~~$38 paid during the~~to ~~quarter~~discontinue asits aoutbound ~~result~~acquisition ofservices ~~the~~accounted ~~restructuring~~for ~~plan. During~~58% ~~the~~of ~~quarter ending September 30, 2004~~ the ~~Company~~net ~~recorded~~decrease ~~an additional $255~~ in ~~costs~~revenues. ~~associated~~Additionally, ~~with~~one ~~the closing~~ of ~~the~~our ~~client~~financial ~~service centers. The~~services ~~Company~~companies ~~entered~~reduced ~~into agreements~~call ~~with~~volume, ~~third~~which ~~parties~~decision toaccounts ~~sell~~for ~~certain~~16% ~~assets~~of ~~associated with~~ the ~~closed client~~net ~~service~~decrease ~~centers. These assets have been have been classified as held-for-sale~~ in ~~the accompanying consolidated balance sheet~~revenues.

17Revenue Mix. Inbound CRM and non-voice services continued to be responsible for the majority of our revenue in the first quarter 2005. Together those two service areas accounted for approximately 92.7% of our revenues, as compared to 66.9% in first quarter 2004. Outbound CRM revenue for first quarter 2005 accounted for approximately 7.3% as compared to 33.1% in the first quarter 2004. Reduced volume for existing client programs accounts for the decrease in outbound CRM revenues for the first quarter 2005, as compared with first quarter 2004.

Depreciation and Amortization. Depreciation and amortization expenses decreased $0.9 million, in the quarter ended September 30, 2004 as compared to the quarter ended September 30, 2003. As a percentage of revenue, depreciation and amortization expenses were 9.0% in the quarter ended September 30, 2004 versus 8.4% in the quarter ended September 30, 2003, primarily due to the decrease in revenue. For the nine months ended September 30, 2004 and September 30, 2003 depreciation and amortization expenses were $6.7 million or 8.8% of revenues and $8.8 million or 8.0% of revenues, respectively. The reduction in depreciation expense is due to the effects of assets becoming fully depreciated and the write-off of assets associated with the closing of client service centers.


	Three Months Ended March 31,
	2005		%		2004		%
	(Dollars in millions)
Inbound CRM	$	12.9	82.2	%	$	16.9	57.0	%
Outbound CRM		1.1	7.3	%		9.8	33.1	%
Non-Voice & Other		1.6	10.5	%		2.9	9.9	%

Total revenues	$	15.6	100.0	%	$	29.6	100.0	%

~~Interest~~Revenue Concentration. ~~Expense,~~We ~~net. Net~~are ~~interest~~dependent ~~expense~~on ~~decreased~~several tolarge $0clients for a significant portion of our revenues.~~1 million~~ inThe ~~the~~loss ~~third~~of ~~quarter~~one or more of ~~2004~~these ~~versus~~clients ~~$0.9~~or ~~million~~a ~~for~~significant ~~the~~decline ~~three-months ended~~in ~~September 30,~~business ~~2003. Net interest~~with ~~expense~~any ~~for~~of ~~the~~these ~~nine~~clients ~~months~~individually ~~ended~~or ~~September~~as 30a group, ~~2004~~or ~~decreased 70.1%~~our inability to ~~$0.5~~collect ~~million~~amounts asowed ~~compared~~ to ~~the~~us ~~nine~~by ~~months~~such ~~ended~~clients, ~~September~~could 30have, ~~2003. The~~and ~~decrease~~have inhad ~~net~~a ~~interest~~material ~~expense~~adverse ~~for~~effect ~~the three~~on ~~and~~our ~~nine~~business. ~~months~~An ~~ended~~example ~~September 30,~~of ~~2004~~this is ~~primarily~~the ~~due~~decision toby ~~the refinancing~~AT&T ~~costs~~during ~~associated~~2004 ~~with~~to ~~the~~reduce ~~renegotiating~~and ofthen ~~the~~later ~~Company’s~~discontinue ~~old~~its ~~line~~outbound acquisition ofservices. ~~credit~~For inthe ~~2003. The~~first ~~Company~~quarter ~~obtained a~~2005, ~~new~~five ~~line~~customers ofeach ~~credit~~were inresponsible ~~January 2004. The~~for ~~Company~~at ~~did~~least ~~not~~10% ~~have~~of anour ~~outstanding~~revenues ~~balance~~and ontogether ~~the~~accounted ~~line~~for ofapproximately ~~credit~~69% ~~at September~~of ~~30,~~our ~~2004~~revenues as compared to a72% ~~balance~~for ofthe ~~$12~~comparable quarter 2004.7 ~~million~~Our onrevenue ~~the~~concentration for ~~old~~these ~~line~~five ~~of credit~~customers atwas ~~September~~as ~~30,~~follows: ~~2003.~~

Non-cash Interest Expense. Non-cash interest expense decreased to $0.2 million in the quarter ended September 30, 2004, from $0.5 million in the quarter ended September 30, 2003. For the nine months ended September 30, 2004 and 2003, non-cash interest expense was $2.3 and $1.3 million, respectively. Non-cash interest for the three and nine months ended September 30, 2004, represents interest expense incurred on the Deutsche Bank and Essar notes and the $2.1 million in amortization of the discount on notes payable. On both the Deutsche Bank and Essar notes, the unpaid interest is added to the principal of the balance of the notes quarterly. For the three and nine months ended September 30, 2003, non-cash interest expense represents interest expense incurred on two subordinated notes. In accordance with the terms of the November 5, 2003, agreement with Deutsche Bank and Essar, the Company was required to repay or otherwise retire its obligations to various lenders from the proceeds of this transaction (and, to the extent the subordinated debt was not paid off, the holders of the subordinated debt discharged the debt and released the Company from any further liability under their promissory notes).


		Three Months Ended March 31,
Client	Industry Segment	2005		%		2004		%
		(Dollars in millions)
AT&T	Telecommunications	$	1.8	11.4	%	$	10.0	33.7	%
JM Family	Insurance Services		2.3	14.4	%		1.0	3.2	%
Qwest	Telecommunications		2.9	18.5	%		4.0	13.5	%
American Express	Financial Services		1.8	11.3	%		4.0	13.7	%
Western Union	Financial Services		2.1	13.4	%		2.4	8.0	%

	Total	$	10.9	69.0	%	$	21.4	72.1	%

~~Income~~11 Tax Provision. We have historically generated net operating losses for income tax purposes. We have not provided an income tax benefit for the operating losses incurred for the three and nine months ended September 30, as such benefit would exceed any projected realizable deferred tax asset.

PreferredTable Dividends. Preferred dividends decreased to zero for the quarter ended September 30, 2004 from $2.4 million in the comparable prior year period. For the nine months ended September 30, 2004 and 2003, preferred dividends were zero and $7.0 million, respectively. In connection with the November 5, 2003 Deutsche Bank/Essar transaction, the holders of all classes of the Preferred Stock waived their rights to dividends.Contents

18Our revenues are also concentrated within the telecommunications and financial services industries. The telecommunications industry was under significant economic pressures throughout 2003 and 2004, and there continues to be added pressure to that industry starting in 2005. That revenue concentration creates an additional level of risk to the Company in terms of the continuity of this revenue and the ultimate collectibility of related accounts receivable.

~~FINANCIAL~~The ~~CONDITION~~Company seeks to secure recurring revenues from long-term relationships with companies that utilize customer contact strategies as integral, ongoing elements in their CRM programs. In addition to providing services on an outsourcing basis, in which we provide all or a substantial portion of a client’s CRM needs, we also continue to perform project-based services for certain clients. Project-based services, however, are frequently short-term and there can be no assurance that these clients will continue existing projects or provide new ones in the future.

~~Liquidity~~In ~~and~~looking ~~capital~~to ~~resources~~meet the growing demand in the industry for lower cost, offshore-based operations, we have been partnering with WNS North America, Inc. ~~The~~, ~~following~~a ~~table~~leading business processing outsourcer with extensive operations in India. However, on February 14, 2005, we signed an agreement with Aegis BPO Services, Ltd., a subsidiary of Essar, to provide additional outsourcing ~~sets~~alternatives ~~forth~~to ~~certain~~our ~~unaudited~~clients ~~information~~for our CRM needs. We have reached an agreement with Qwest Communications and WNS North America, Inc. to move the Company’s Qwest processes from ~~our~~WNS ~~statements~~to Aegis BPO Services, Ltd. in the second quarter of ~~cash~~2005. ~~flows~~Offshore capacity provides clients with a highly educated workforce, lower costs and 24-hour coverage. The growth of such offshore-based CRM has outpaced domestic growth industry-wide in recent years. The Company is attempting to become competitive for this segment of the industry as part of its strategy to increase revenues. However, there can be no assurance that the ~~periods~~Company ~~indicated:~~will be successful in competing for this segment of business.

	Nine months ended September 30,
	(Dollars in millions)
	2004			2003
Net cash provided by (used in) operating activities	$	1.2		$	(6.0	)
Net cash provided by (used in) investing activities	3.2			(0.8		)
Net cash (used in) provided by financing activities	(5.7		)	5.9
Net cash used in discontinued operations	—			(0.4		)
Net decrease in cash and cash equivalents	$	(1.3	)	$	(1.3	)

Cost of Services. Cost of services decreased $9.7 million from $21.2 million for the first quarter 2004 to $11.5 million for the first quarter 2005. As a percentage of sales, cost of services rose slightly over the same period, from 71.7% to 73.8%. The total decrease in cost of services experienced during the year is due to the reduction in wage expense associated with revenue shortfall for the comparable periods as well as the consolidation and shutting down of call center operations from 2004. The slight increase of cost of services as a percentage of revenue in both periods is a result of revenue declines occurring in advance of, or without a corresponding equal reduction of variable costs.

~~We have historically utilized cash flow from operations~~Selling, ~~available~~General ~~borrowing~~and ~~capacity under~~Administrative ~~our~~Expenses. ~~revolving line of credit~~Selling, ~~subordinated indebtedness provided by~~ ~~certain~~general ~~of our shareholders,~~ and ~~the~~administrative ~~issuance of convertible preferred stock to meet our liquidity needs. On January 26~~expenses, ~~2004~~SG&A, wedecreased ~~entered~~$2.7 ~~into~~million ~~the~~from ~~Loan~~$9.0 ~~Agreement~~million ~~with~~for ~~Foothill that will allow~~ the ~~company~~first toquarter ~~borrow~~2004 up to $256.03 million~~. The~~ ~~maximum~~for ~~amount available under~~ the ~~Loan Agreement~~first isquarter ~~determined~~2005, byor ~~the lesser of i) the sum of~~ a percentage ofincrease ~~eligible billed~~from ~~accounts~~30.5% ~~and~~of arevenues ~~percentage~~in of2004 ~~the~~to ~~amount~~40.3% of ~~eligible~~revenues ~~unbilled~~in ~~accounts~~2005. orThe ~~ii)~~decrease anin ~~amount~~SG&A ~~equal~~is toprimarily ~~the~~attributable ~~collections~~to ~~on accounts receivable for~~ the ~~past~~elimination ~~60 days, less the sum~~ of aoverhead ~~bank~~costs ~~product~~due ~~reserve,~~to ~~a payroll reserve,~~ the ~~AllServe~~reduction ~~reserve and~~in ~~an aggregate amount of reserves established by Foothill. The Loan Agreement contains restrictions and covenants limiting among other things~~workforce, the ~~amount~~closing of ~~indebtedness~~client ~~incurred~~service ~~by the~~centers ~~Company~~as ~~and~~well ~~its~~as ~~subsidiaries~~improved ~~capital~~management ~~expenditures and the maintaining~~ of ~~certain~~ ~~financial targets. As a result of the agreement, Foothill has been granted a continuing security interest in substantially all of~~ our ~~assets. Our~~self-insured ~~ability~~workers tocompensation ~~meet~~plan ~~financial~~compared ~~obligations and make planned capital expenditures will depend on our future operating performance, which will be subject~~ to ~~financial, economic and other factors affecting our business and operations, including factors beyond our control, and our ability to remain in compliance with~~ the ~~restrictive covenants under the~~ ~~Loan~~prior ~~Agreement~~period. ~~There~~Increases ~~can~~as bea nopercentage ~~assurance~~of ~~that~~revenue weare ~~will~~primarily bedue ~~able~~ to ~~successfully execute~~decreases ~~our future business plan, remain~~ in ~~compliance~~revenues ~~with~~for ~~restrictive covenants~~2005 ~~under~~as ~~the~~compared ~~Loan~~to ~~Agreement, or obtain additional financing. As of September 30,~~ 2004~~, there was no outstanding balance on the loan~~.

~~Cash~~Depreciation and ~~cash equivalents~~Amortization. ~~(excluding~~For ~~restricted~~the ~~cash)~~quarters ~~were~~ended ~~$0.4~~March ~~million at September 30~~31, ~~2004~~ 2005 and ~~$1.7~~2004, ~~million at December 31~~respectively, ~~2003. Working~~depreciation ~~capital~~and ~~totaled~~amortization aexpenses ~~deficit~~were of $5.1.7 million and ~~a surplus of~~ $52.75 million ~~at the end of the same periods~~. The ~~change~~reduction in ~~working~~depreciation ~~capital~~expense is ~~primarily attributable~~due to the ~~decrease~~effects ~~in accounts receivable and the decrease in restricted cash. Restricted cash at December 31, 2003, was composed~~ of ~~two~~a ~~cash~~mature ~~collateralized~~asset ~~outstanding irrevocable~~base ~~letters~~becoming offully ~~credit~~depreciated. ~~These letters~~ of credit totaled approximately $4.6 million in value and were maintained as security for the Company’s self-insured portion of its workers compensation insurance program and to support licensing requirements related to certain contractual obligations entered into by the Company. The Company has subsequently replaced all of the letters of credit under the new Loan Agreement. Cash and Restricted Cash at December 31, 2003 was used to make principal payments due on the notes payable owed to Deutsche Bank and Essar.

~~Cash~~12 provided by operating activities from continuing operations was approximately $1.2 million for the nine months ended September 30, 2004, as compared to cash used of $6.0 million for the same period in 2003. The increase in cash provided by operating activities is primarily attributable to a decrease in accounts receivable as a result of a decrease in revenue for the period ending September 30, 2004 versus the period ending September 30, 2003. The Company also experienced an increase in non-cash interest of $2.3 million for the comparable period associated with the accelerated amortization of the discount on notes payable to Deutsche Bank and Essar.

19Table of Contents

~~Cash~~Interest ~~provided~~Expense, bynet. ~~investing~~Net ~~activities~~interest ~~from~~expense ~~continuing~~decreased ~~operations~~from ~~during the first nine months of 2004 was~~ $30.2 million, asin ~~compared~~the tofirst quarter ~~cash~~2004 ~~used~~to of $0.81 million ~~during~~in the ~~comparable~~first ~~prior~~quarter ~~year period~~2005. The ~~change~~Reduction ~~year over year~~ is ~~primarily~~related ~~due~~ to a ~~decrease~~reduced ininterest ~~restricted~~expense ~~cash~~from ~~during~~reduced ~~the~~borrowings ~~first~~on ~~nine months of 2004, as a result of~~ the ~~replacement~~Wells ofFargo ~~letters of credit under the new~~ Foothill ~~Loan~~financing ~~Agreement partially~~in ~~offset by capital expenditures. Capital expenditures for~~ the first ~~nine~~quarter ~~months~~2005 ~~of 2004 were $1.5 million as~~ compared towith ~~$0.8 million in~~ the ~~same~~first ~~period~~quarter ~~of 2003~~2004.

~~Cash~~Non-cash ~~used~~interest ~~by financing~~expense. ~~activities~~Non-cash ~~during~~interest ~~the~~expense ~~period~~decreased from ~~ended September 30, 2004 totaled~~ $51.7 8 million ~~and~~in ~~consisted~~the ~~mainly~~first ofquarter ~~payments~~2004 ofto $~~10.~~0 ~~million on notes payable, payments of $1~~.04 million ~~made~~in onthe ~~capital~~first ~~lease~~quarter ~~obligations~~2005, ~~and~~mainly ~~proceeds~~representative of ~~$5.3 million~~the asone atime ~~result~~write-off of ~~warrant~~the ~~conversions~~Essar ~~by both~~ Deutsche Bank ~~and Essar. Cash~~discount ~~provided~~against ~~by financing activities during~~ the ~~nine~~note ~~months~~payables ~~ended~~of ~~September 30, 2003 totaled~~ $51.9 4 million, ~~and~~related ~~consisted~~to ofthe ~~net~~payment ~~borrowings~~ of approximately $~~6.8~~10 million ~~from~~during ~~our revolving~~the ~~line~~first ofquarter ~~credit, and payments of $0~~2004.9 ~~million made on capital lease obligations.~~

~~The~~Income ~~Company~~Tax ~~has~~Provision. ~~continued~~We tohave ~~experience~~historically ~~negative~~generated ~~cash~~net ~~flow~~operating ~~and net~~ losses ~~and~~for ~~anticipates~~income ~~the~~tax ~~continuation~~purposes. ofWe ~~this~~recognize ~~trend~~a ~~for~~deferred ~~the~~tax ~~fourth~~asset ~~quarter~~reflecting ~~of 2004~~the ~~and~~future ~~for~~benefits ~~sometime~~of ~~into~~ the ~~foreseeable~~resultant ~~future. While~~net ~~management~~operating ~~intends~~loss tocarry-forward. ~~continue to~~These ~~explore~~future ~~ways~~tax tobenefits ~~reduce~~expire ~~expenses,~~through ~~increase~~2022. ~~efficiencies~~Management ~~and~~regularly ~~increase~~evaluates ~~revenues, there~~the ~~can~~company’s beability noto ~~assurances~~realize ~~that~~its ~~such~~deferred ~~efforts~~tax ~~will~~asset, beand ~~successful. In~~determined ~~the~~as ~~near~~of ~~term~~June 30, in2002, ~~its~~that ~~effort~~more tolikely ~~reduce costs~~than not, ~~management~~the ~~will~~deferred ~~continue~~tax ~~its~~asset ~~evaluation~~would ofnot ~~its~~be ~~workstation~~realized ~~capacity~~in ~~needs~~the ~~and~~near ~~take~~future. ~~action~~We tohave ~~consolidate~~allocated ~~facilities~~a ~~and~~valuation ~~close~~allowance ~~others~~representing ~~where~~the ~~doing~~amount soof ~~makes sense~~the ondeferred atax ~~short~~asset ~~term~~for ~~and~~which ora ~~potentially~~valuation ~~permanent~~allowance ~~basis. Additionally,~~previously ~~management~~had ~~will~~not ~~continue~~been ~~to seek~~established. ~~alternative~~The ~~financing~~income ~~opportunities~~tax sobenefit asfrom tothe ~~obtain~~operating ~~funds~~losses ~~necessary~~incurred toduring first ~~operate~~quarter 2005 and ~~invest~~2004 inwere ~~its~~offset ~~business. One of~~by the ~~principal~~Company’s ~~shareholders,~~valuation ~~Essar~~allowance ~~Global~~since ~~Limited,~~the isbenefit ~~very~~would ~~supportive~~exceed of the ~~Company’s~~ ~~efforts~~projected torealizable ~~grow~~deferred ~~the~~tax ~~business~~asset. ~~However,~~ ~~there~~The ~~can~~Company behas noentered ~~assurance~~into ~~that~~transactions ~~management~~which ~~will~~may behave ~~successful~~an ~~in obtaining~~impact ~~the~~as ~~additional~~to ~~financing~~the ~~necessary~~ability ~~should~~to ~~cash flow from operations~~absorb ~~and~~Net ~~funds~~Operating ~~from~~Losses ~~existing~~in ~~credit~~the ~~facilities~~future ~~not~~based beon ~~sufficient~~Section to382 ~~maintain~~income ~~the Company’s~~tax ~~operations~~rulings.

~~Loan~~FINANCIAL ~~Agreement. On~~CONDITION January 26, 2004, we entered into the Loan and Security Agreement (the “Loan Agreement”) with Wells Fargo Foothill (“Foothill”) that will allow the company to borrow up to $25.0 million, with a maturity date of January 26, 2007. Interest rates under the agreement are variable and are tied to the London Interbank Borrowing Offered Rate and the Wells Fargo prime rate. The Loan Agreement contains restrictions and covenants limiting among other things, the amount of indebtedness incurred by us and our subsidiaries, certain financial targets and capital expenditures. On January 28, 2004, the Company borrowed $4.0 million under the Loan Agreement to make principal payments due to Deutsche Bank and Essar. Foothill has been granted a continuing security interest in substantially all of our assets. At September 30, 2004 there was no outstanding balance under this Loan Agreement.

~~The~~Liquidity ~~Company failed to meet covenants regarding earnings before interest, taxes, depreciation~~ and ~~amortization (“EBITDA”) that are common to~~capital ~~the Loan Agreement and the Amended and Restated Secured Promissory Notes, dated January 28, 2004, held by Deutsche Bank and Essar in the principal amounts of $10~~resources.~~088~~ ~~million~~The ~~and~~following ~~$10.144~~table ~~million,~~sets ~~respectively~~forth ~~(the~~certain ~~“Notes”). As~~unaudited ~~such,~~information itfrom ~~represented~~our astatements ~~default under these agreements and additionally, a cross default under the Loan Agreement. Additionally, while the Company made payments~~ of ~~$10.0~~cash ~~million~~flows of the required $12.344 million due in 2004, a portion of the amounts coming due were not paid as prescribed, thus resulting in a default under the Notes and the Loan Agreement. On March 30, 2004, the Company executed amended agreements with revised covenants and received waivers from the lenders for ~~all defaults in~~ the ~~Loan~~ ~~Agreement~~periods ~~and~~indicated: ~~Notes.~~

The Company was not in compliance with the amended EBITDA covenants common to the Loan Agreement and amended Notes for the periods ending April 30, May 31, and June 30, 2004. As such, it represented a default under these agreements and additionally, a cross default under the Loan Agreement. On August 23, 2004, the Company executed amended agreements with revised EBITDA and capital expenditure covenants and received waivers from Foothill, Deutsche Bank and Essar for all defaults in the Loan Agreement and amended Notes. Without the waivers and amended agreements dated August 23, 2004, the Company would not have been in compliance with the revised EBITDA and capital expenditure covenants for the Loan Agreement and the Notes at July 31, 2004. With the waivers and amended agreements dated August 23, 2004, the Company was in compliance with all covenants.


	Three months ended March 31,
	2005			2004
	(Dollars in millions)
Net cash provided by (used in) operating activities	$	0.1		$	(0.6	)
Net cash provided by (used in) investing activities		(1.2	)		3.1
Net cash provided by (used in) financing activities		1.1			(4.2	)
Net cash provided by (used in) discontinued operations		—			—

Net increase (decrease) in cash and cash equivalents		—		$	(1.7	)

~~The~~We ~~Company~~have historically ~~was~~used ~~not~~cash inflow ~~compliance~~from ~~with~~operations, available borrowing capacity under a revolving line of credit, subordinated indebtedness provided by certain of our stockholders, and the ~~August~~issuance 23of convertible preferred stock to meet our liquidity needs. On January 26, 2004, ~~EBITDA~~we ~~covenants~~entered ~~common~~into a Loan Agreement with Wells Fargo Foothill (Foothill) that allowed The company to borrow up to $25 million. The maximum amount available to borrow under the Loan Agreement was determined by the lesser of (i) the sum of a percentage of eligible billed accounts and ~~amended~~a ~~Notes~~percentage ~~for~~of the ~~periods~~amount ~~ending~~of ~~September~~eligible ~~30, 2004. As~~unbilled ~~such~~accounts or (ii) an amount equal to the collections on accounts receivable for the past 60 days, itless ~~represented~~the asum ~~default~~of certain reserves established by Foothill. The ~~under~~Loan ~~these~~Agreement ~~agreements~~contained restrictions and ~~additionally~~covenants limiting among other things, athe ~~cross~~amount ~~default~~of ~~under~~indebtedness incurred by the ~~Loan~~Company ~~Agreement~~and its subsidiaries, certain financial targets and capital expenditures. On ~~November~~As 22a result of this agreement, ~~2004~~Foothill was granted a continuing security interest in substantially all of our assets. Though we were not in compliance during certain months of the year and the non-compliance also resulted in cross defaults with other lenders, the Company ~~executed~~was able to execute amended agreements with revised ~~EBITDA~~ covenants, ~~and~~receiving ~~received~~ waivers from ~~Foothill,~~ ~~Deutsche~~all ~~Bank~~lenders, ~~and~~including ~~Essar~~Foothill, ~~for~~from all defaults in the ~~Loan~~loan ~~Agreement~~agreements and ~~amended~~ ~~Notes~~related notes. ~~Without~~ ~~the~~Effective ~~waivers~~April ~~and amended agreements dated November 22~~4, ~~2004~~2005, the Company ~~would~~replaced ~~not~~the ~~have~~Foothill ~~been~~Facility inwith an alternative ~~compliance~~credit arrangement with ~~the~~Rockland. ~~EBITDA~~Management ~~covenants~~believes ~~for~~that ~~the~~cash ~~Loan~~flows ~~Agreement~~from operations and ~~the~~funds ~~Notes~~available ~~at September~~from ~~30,~~financing ~~2004. With~~activities ~~the~~should ~~waivers~~be ~~and amended~~sufficient ~~agreements~~to ~~dated~~meet ~~November~~our ~~22,~~current ~~2004,~~liquidity ~~the~~requirements. ~~Company~~(See ~~was~~“Subsequent Events” in ~~compliance~~Note ~~with~~8 to ~~all~~Unaudited ~~covenants~~Consolidated Financial Statements.)

2013

ContractualTable Obligations and Commitments. On July 18, 2003, two of our public stockholders, John Beggi and Steven Stremke, filed complaints in the District Court of Dallas County, Texas against the Company and the individual members of its Board of Directors. The complaints alleged, among other things, that the then-proposed acquisition of the Company by AllServe was unfair to our public stockholders and that the defendants breached their fiduciary duties to the public stockholders in connection with the then-proposed acquisition. The plaintiffs are seeking a class action in each complaint and are seeking to enjoin the transaction with AllServe. At this time, it is not possible to predict accurately the outcome of these lawsuits as it is not yet clear what effect the subsequent termination of the merger agreement with AllServe and completion of the transaction with Deutsche Bank and Essar may have on this stockholder litigation. The Company continues to contest this lawsuit.Contents

OnCash ~~November 12,~~provided ~~2003,~~by ~~AllServe~~operating ~~and~~activities ~~its~~was ~~wholly owned subsidiary AllServe Systems, Inc~~$0.1 ~~filed suit~~million ~~against the Company~~ in the ~~Court~~first ofquarter ~~Chancery of the State of Delaware. Based on the complaint~~2005, ~~the plaintiffs~~as ~~are~~compared ~~apparently seeking an injunction~~ to ~~prevent the closing the~~cash ~~transaction~~used ~~with~~of ~~Deutsche~~$0.6 ~~Bank~~million ~~and Essar, which~~ in the ~~Company’s~~first ~~view~~quarter ~~has already been closed~~2004. The ~~complaint also seeks to specifically enforce our merger agreement with AllServe. Alternatively, the complaint seeks payment of the~~ $10.1 million ~~break-up~~of ~~fee~~operating ascash ~~well~~flow asin ~~other~~the ~~monetary~~first ~~damages~~quarter ~~that, according to AllServe, exceed $50 million. We deny that AllServe is entitled to any injunctive relief, payment~~ of ~~the~~2005 ~~break-up~~was ~~fee or~~mainly ~~any~~provided ~~other~~by ~~damages~~increases orin ~~payments. At September~~accounts ~~30,~~payable ~~2004~~ and ~~December~~accrued ~~31,~~liabilities ~~2003,~~of ~~the~~ $12.16 million ~~was~~offset ~~accrued~~by ~~as a reserve for~~ the ~~benefit~~net of ~~the~~net ~~subordinated~~losses ~~debt holders. Payment to the subdebt holders is contingent~~less ~~upon~~adjustments ~~the outcome of the AllServe litigation. If certain fees are paid~~ to ~~AllServe,~~reconcile ~~this~~loss ~~will~~from ~~reduce~~operations ~~the amount paid~~ to ~~the~~cash ~~subordinated~~used ~~debt~~in ~~holders~~operations upof to $12.15 million. At ~~this time, it is not possible to accurately predict the outcome of this lawsuit. The Company continues to contest this lawsuit vigorously.~~

~~The~~Cash ~~Company~~used isin ~~party~~investing toactivities ~~certain~~was ~~legal proceedings incidental to its business~~$1. ~~Certain~~2 ~~claims~~million ~~arising~~ in the ~~ordinary~~ ~~course~~first quarter of ~~business~~2005 ~~have~~as ~~been~~compared ~~filed~~to orcash ~~are~~provided ~~pending~~of ~~against us~~$3. ~~Management~~1 ~~believes~~million ~~that~~in the ~~ultimate resolution~~first quarter of ~~such~~2004. ~~contingencies~~The ~~will~~change ~~not~~is ~~have~~primarily aattributable ~~material~~to ~~adverse~~restricted ~~effect~~cash balances oneliminated in 2004 freeing up cash held for the ~~consolidated~~ ~~financial~~Company’s ~~position~~workers orcompensation ~~consolidated~~insurance ~~results~~policies ofand ~~operations~~the ofsurety ~~Aegis Communications~~bonds ~~Group, Inc~~required for telemarketing compliance.

21Cash provided in financing activities was $1.1 million in the first quarter of 2005 as compared to cash used of $4.2 million in the first quarter of 2004. In the first quarter of 2005 the Company executed a note payable to Essar, which was paid back in April 2005. This Compares with the Company’s use of $6.0 million in proceeds from the Foothill Credit Facility in the first quarter of 2004 to pay off $10.0 million in Deutsche Bank/Essar notes payable in 2004.

~~FORWARD~~During ~~LOOKING~~the ~~STATEMENTS~~first quarter 2005, in an effort to improve its balance sheet and attract alternative lines of credit that would potentially replace the Foothill credit facility, the Company and Essar have been in discussions to consummate a transaction in which the Company would sell additional shares of its common stock to Essar in exchange for Essar’s cancellation of the Company’s approximate $17.8 million indebtedness to Essar. The Company has formed a special committee comprised of independent members of the Board of Directors to consider this transaction, negotiate with Essar, and potentially approve the transaction on terms that are entirely fair and in the best interests of the Company and its stockholders.

~~The~~Subsequent ~~following~~to isMarch a31, ~~“safe~~2005, ~~harbor”~~Essar ~~statement~~has ~~under~~arranged for the ~~Private~~posting ~~Securities Litigation~~of ~~Reform~~two ~~Act~~letters of ~~1995:~~credit ~~Statements~~to ~~contained~~cover incertain ~~this~~bonding ~~document~~requirements ~~that~~and ~~are not~~workers ~~based~~compensation oncontingent ~~historical~~liabilities ~~facts~~of ~~are~~the ~~“forward-looking statements”~~Company. ~~Terms~~ ~~such as “anticipates”~~Additionally, ~~“believes”,~~Essar ~~“estimates”,~~and ~~“expects”,~~Deutsche ~~“plans”,~~Bank ~~“predicts”,~~have ~~“may”,~~collectively ~~“should”,~~agreed ~~“will”,~~to extend the ~~negative~~due ~~thereof and~~date ~~similar~~of ~~expressions~~their ~~are~~short-term ~~intended~~debt tomaturities ~~identify~~of ~~forward-looking statements~~$3. ~~Such~~1 ~~statements~~million ~~are~~due ~~by nature~~in ~~subject~~the second quarter of 2004 to ~~uncertainties~~various maturities commencing on April 30, 2006 and ~~risks~~running to August 30, ~~including~~2006. ~~but~~Essar ~~not~~has ~~limited~~provided to: ~~our reliance~~the onCompany ~~certain~~a ~~major~~commitment ~~clients;~~to ~~unanticipated~~convert ~~losses~~its funded debt of orapproximately ~~delays~~$17.8 inmillion into common ~~implementation~~stock of ~~client~~the ~~programs;~~Company. ~~higher~~On ~~than~~April ~~anticipated~~4, ~~implementation~~2005, ~~costs associated~~the ~~with~~Company ~~new~~entered ~~client~~into ~~programs;~~a ~~the~~new ~~successful~~financing ~~combination~~agreement ofwith ~~revenue growth~~Rockland ~~with~~to ~~operating~~provide ~~expense~~working ~~reduction~~capital funding to ~~result~~the inCompany ~~improved~~(See ~~profitability~~“Subsequent ~~and cash~~Events” ~~flow;~~in ~~government~~Note ~~regulation~~8 ~~and~~to ~~tax~~Unaudited ~~policy;~~Consolidated ~~economic~~Financial ~~conditions;~~Statements). ~~competition~~The Company believes that with the turnaround strategy and ~~pricing;~~business ~~dependence~~plan oninitiative ~~our~~put ~~labor~~in ~~force;~~place ~~reliance~~by onthe ~~technology; telephone~~new ~~and~~management ~~internet~~team ~~service~~installed ~~dependence;~~during the ~~ability~~fourth quarter of 2004, ~~means~~additional financing by Rockland, ~~and~~Letters ~~willingness~~ of ~~financial~~Credit ~~markets~~arranged tothrough ~~finance~~Essar, ~~our~~deferment ~~operations;~~of ~~and~~short-term ~~other~~debt ~~operational, financial~~beyond orone ~~legal~~year ~~risks~~of ormaturity, ~~uncertainties~~and ~~detailed~~the incommitment ~~our~~of ~~SEC~~Essar ~~filings~~to ~~from~~convert ~~time~~its tofunded ~~time~~debt of $17. ~~Should~~8 ~~one~~million orinto ~~more~~common ofstock ~~these uncertainties~~will orposition ~~risks~~the ~~materialize,~~Company ~~actual~~to ~~results~~continue ~~may~~operations ~~differ~~and ~~materially~~execute ~~from those~~on ~~described~~its plan. We believe Essar, as demonstrated in the ~~forward-looking~~past ~~statements. We~~through ~~disclaim~~two ~~any~~short-term ~~intention~~bridge ortransactions, ~~obligation~~is willing to ~~revise~~ ~~any~~make ~~forward-looking~~available additional ~~statements~~funding ~~whether~~up asto a ~~result~~maximum of ~~new~~$3.0 ~~expectations, conditions~~million orto ~~circumstances~~cover short-term gaps, oras ~~otherwise~~necessary.

~~ITEM~~Restricted ~~3. QUANTITATIVE AND~~Cash ~~QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

~~For~~On March 31, 2005, the ~~nine~~Company ~~months~~had ~~ended~~restricted ~~September 30,~~cash ~~2004,~~balance of $2.1 million mostly composed of the Company’s ~~did~~letters ~~not experience~~of ~~any~~credit ~~material~~outstanding ~~changes~~of in$2.9 ~~market~~million ~~risk~~and ~~exposures~~set ~~that~~to ~~affect~~expire ~~the~~between February 6, 2005 and July 13, 2005. Those letters of credit were ~~quantitative~~being maintained as security for the self-insured portion of the Company’s workers compensation insurance program and ~~qualitative~~to ~~disclosures~~support ~~presented~~licensing inrequirements related to certain of the Company’s ~~Annual~~contractual obligations. On March 15, 2005, Essar ~~Report~~arranged onfor ~~Form~~the ~~10-K~~replacement of those letters of credit with two alternative letters of credits, which have been posted for the ~~year~~benefit ~~ended~~of ~~December~~ the Company. Subsequent to March 31, ~~2003~~2005, both companies that are beneficiaries of those letters of credit accepted the new letter of credit arranged by Essar. As a result, the restricted cash collateral was released to the Company on April 26, 2005.

~~ITEM~~Accounts ~~4. CONTROLS AND~~Receivable ~~PROCEDURES~~

~~As required~~Accounts byreceivable ~~Exchange~~at ~~Act~~March ~~Rule 13a-15(b)~~31, ~~Aegis~~2005 ~~management,~~were ~~including~~$9.7 ~~the Chief Executive Officer and Chief Operating Officer (who currently performs the functions of the Chief Financial Officer)~~million, ~~conducted an evaluation~~ as ofcompared ~~the end~~to of$9.8 ~~the~~million ~~period~~at ~~covered~~December ~~by this report~~31, of2004. ~~the~~The ~~effectiveness of Aegis~~Company’ ~~disclosure~~s ~~controls~~revenues and ~~procedures as defined in Exchange Act~~related ~~Rule 13a-15(e). Based~~accounts onreceivable ~~that evaluation,~~are ~~the~~concentrated ~~Chief~~with ~~Executive~~clients ~~Officer~~in ~~and~~ the ~~Chief~~telecommunications ~~Operating~~industry, ~~Officer concluded~~an industry that ~~Aegis’~~has ~~disclosure~~been ~~controls~~under ~~and~~significant ~~procedures~~economic ~~were~~stress. ~~effective~~The asreserve ~~of the~~was ~~end~~adjusted ofdownward ~~the~~at ~~period~~December ~~covered~~31, by2004 ~~this~~to ~~report. As~~reflect ~~required~~the byover ~~Exchange~~accrual ~~Act~~reserve ~~Rule 13a-15(d),~~based ~~Aegis~~on ~~management,~~a ~~including~~review ~~the~~of ~~Chief~~balances ~~Executive~~aged ~~Officer~~at ~~and~~60 ~~the~~days ~~Chief~~that ~~Operating~~had ~~Officer,~~not ~~also conducted~~been ancollected ~~evaluation~~by ofFebruary ~~Aegis’~~28, ~~internal~~2005. ~~controls~~At ~~over~~future ~~financial~~ reporting ~~to determine~~periods, ~~whether~~the ~~any~~Company ~~changes~~will ~~occurred~~consider ~~during~~ the ~~third~~need ~~fiscal~~for ~~quarter~~comparable ~~that have~~adjustments ~~materially affected, or are reasonably likely~~ to ~~materially~~the ~~affect,~~Accounts ~~Aegis’ internal~~Receivable ~~control~~Reserve ~~over~~based ~~financial reporting. Based~~ on ~~that~~individual ~~evaluation,~~client ~~there~~credit worthiness ~~has~~and ~~been~~aged ~~no such change during the third fiscal quarter~~balances.

It14 should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.

22Table of Contents

~~PART~~Related IIParty -Short ~~OTHER~~Term ~~INFORMATION~~Borrowings

~~ITEM~~The 1Company’s sharp decline in revenues during 2004 and first quarter 2005 continued to cause serious difficulties in financing ongoing operations. ~~LEGAL~~ The impact of the Company’s constrained credit availability on its critical liquidity needs was particularly acute in late October of 2004, when the Company was able to turn to Essar for a short term loan in the ~~PROCEEDINGS~~amount of $1.8 Million, of which $0.8 Million has already been repaid.

~~See~~On March 21, 2005, the Company executed a Promissory Note 8in favor of Essar Global Limited. The Promissory Note was repaid to Essar during April 2005. The promissory note was in the ~~Unaudited~~amount ~~Consolidated~~of ~~Financial~~$1.25 ~~Statements~~Million, ~~for~~was unsecured and bore interest at a simple rate of 0.50% over LIBOR per annum, with interest payable in arrears in fifteen-day periods beginning from the date of execution. Periodic interest payments were payable in cash, unless Essar agreed that such interest should be ~~description~~capitalized and added to the principle amount of ~~our~~the ~~legal~~Promissory ~~proceedings~~Note.

23Contractual Obligations and Commercial Commitments

~~ITEM~~The 6Company has agreements with certain telephone long distance carriers which currently range from 5 months to 30 months, and which provide for annual minimum usage requirements. ~~EXHIBITS~~ During the second quarter of 2002, the Company completed negotiations with one of its carriers to cancel the then-remaining minimum usage requirements under the agreement in exchange for entering into a new reduced usage commitment with the carrier under which the Company is committed to usage of $2.2 million over a 36-month period. During the fourth quarter of 2004, the Company reached agreement with its largest carrier to cancel the remaining minimum usage commitment under the then existing agreement in exchange for entering into a reduced usage commitment effective October 1, 2000, under which it is committed to usage of $7.4 million annually for seven years.

(A)		Exhibits
3.1		Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of the Company’s Form 10-K Annual Report for the year ended December 31, 1999).
3.2		Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2000).
3.3		Certificate of Amendment No. 2 to the Certificate of Incorporation (Incorporated by reference to Exhibit A to the registrant’s Schedule 14(c) Definitive Information Statement, filed with the SEC on March 26, 2004)
4.1		Specimen of Share Certificate of Company’s common stock (Incorporated by reference to Exhibit 4.1 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 1998).
4.2		Form of Series B Preferred Stock certificate, as amended. (Incorporated by reference to the registrant’s Form 10-K Annual Report for the year ended June 30, 1994).
4.3		Elimination Certificate for Series D Junior Participating Preferred Stock (Incorporated by reference to Exhibit 4.3 of the registrant’s Form 8-K filed on December 20, 1999).
4.4		Series D and E Preferred Stock Certificate of Designation (Incorporated by reference to Exhibit 4.10 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended June 30, 1999).
4.5		Amendment to Series D & E Preferred Stock Certificate of Designation (Incorporated by reference to Exhibit 4.2 of the registrant’s Form 8-K filed on December 20, 1999).
4.6		Series F Preferred Stock Certificate of Designation (Incorporated by reference to the Exhibit 4.1 of the registrant’s Form 8-K filed on December 20, 1999).
4.7		Warrant to Purchase Shares of Common Stock from the Company to Deutsche Bank AG-London acting through DB Advisors, LLC as investment advisor, dated November 5, 2003 (Incorporated by reference to Exhibit 4.7 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).
4.8		Warrant to Purchase Shares of Common Stock from the Company to Essar Global Limited, dated November 5, 2003 (Incorporated by reference to Exhibit 4.8 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).
4.9		Warrant to Purchase Shares of Common Stock from the Company to Deutsche Bank AG-London acting through DB Advisors, LLC as investment advisor, dated April 21, 2004 (Incorporated by reference to Exhibit 4.9 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended March 31, 2004).
4.10		Warrant to Purchase Shares of Common Stock from the Company to Essar Global Limited, dated April 21, 2004 (Incorporated by reference to Exhibit 4.9 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended March 31, 2004).
4.11		Certificate of Amendment to the Series F Preferred Stock Certificate of Designation (Incorporated by reference to Exhibit B to the registrant’s Schedule 14(c) Definitive Information Statement, filed with the SEC on March 26, 2004).

At December 31, 2004, the Company accrued $0.29 million related to unused and under accrual usage for the current years commitment of $7.4 million. The contract provides for a “Business Downturn / Network Optimization” clause which in the event of a business downturn beyond the control of us and other issues related to our business, which significantly reduces the volume of services required by us, with the result that we will be unable to meet our revenue and or volume commitments, we and the vendor service provider will cooperate to develop a mutually agreeable alternative agreement, and amend or replace the affected metrics of the contract currently in place. In January 2005, we initiated the downturn clause and have been working with the vendor provider to redraft the contract effective October 1, 2004 the beginning of the revised contract year, which runs consecutively for three years to completion at September 30, 2007. The contingency could be in the range from $0 to $0.6 million, and Management’s best estimate is $0.29 million which has been accrued for at December 31, 2004 and March 31, 2005.

24On March 31, 2005, the Company had two outstanding irrevocable letters of credit. Those letters of credit totaled approximately $2.9 million in value and were set to expire between February 6, 2005 and July 13, 2005. Those letters of credit were being maintained as security for the Company’s self-insured portion of its workers compensation insurance program and to support licensing requirements related to certain of the Company’s contractual obligations. Effective on March 15, 2005, Essar arranged for the replacement of those letters of credits with two alternative letters of credits which have been posted by the Company. As a result, on April 26, 2005 the restricted cash collateral was released to the Company.

10.1		Employment Agreement dated September 30, 2004, by and among Aegis Communications Group, Inc and its subsidiaries and Richard Nelson Ferry (filed herewith).
10.2		Employment Agreement dated September 30, 2004 by and among Aegis Communications Group, Inc. and its subsidiaries and Kannan Ramasamy (filed herewith).
10.3		Promissory note dated October 22, 2004, in the principal amount of $1,800,000 payable to Essar Global Limited (filed herewith).
10.4		Separation Agreement dated November 11, 2004, by and among Aegis Communications Group, Inc. and its subsidiaries and John Scot Brunke (filed herewith).
10.5		Amendment No. 4 to and Waiver Under Loan and Security Agreement, dated November 12, 2004 between Wells Fargo Foothill, Inc., Aegis Communications Group, Inc. and its subsidiaries (filed herewith).
10.6		Fourth Amended and Restated Secured Promissory Note, dated November 22, 2004 in the principal amount of $9,288,081.81, payable to Deutsche Bank AG London acting DB Alternative Trading, Inc. (filed herewith).
10.7		Fourth Amended and Restated Secured Promissory Note, dated November 2, 2004 in the principal amount of $9,345,888.96, payable to Essar Global Limited. (filed herewith).
31.1		Certification of the Chief Executive Officer Pursuant to Rule 13a-15(e) or 15d-15(c), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley act of 2002. (filed herewith)
31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-15(e) or 15d-15(c), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley act of 2002. (filed herewith)
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes Oxley Act of 2002. (furnished herewith)

On April 4, 2005, the Company executed a new financing arrangement with Rockland. The agreement provides for a $7,500 million facility based on factored receivables. The cost basis of financing is Wall Street Journal published prime rate

2515

SIGNATURESTable of Contents

~~Pursuant~~plus to2% ~~the~~on ~~requirements~~funds employed. Management fees are based on 0.75% of the ~~Securities~~face ~~Exchange~~value ~~Act~~ of ~~1934,~~every invoice purchased for each 30-day period up to 60 days. Thereafter, the ~~Registrant~~fee ~~has~~is ~~duly~~0.45% ~~caused~~each ~~this~~15-day ~~report~~period tofor an additional 30 days for a total 90-day period. The Company may be ~~signed~~required onto ~~its~~purchase ~~behalf~~back byoutstanding ~~the undersigned~~invoices ~~hereunto~~that ~~duly~~are ~~authorized~~more than 90 days old.

		AEGIS COMMUNICATIONS GROUP, INC.(The Registrant)
Dated: December 2, 2004	By:	/s/ Richard Ferry
		President & Chief Executive Officer

LONG-TERM DEBT

As part of the Deutsche Bank/Essar transaction on November 5, 2003, Deutsche Bank and Essar purchased three-year promissory notes in the aggregate principal amount of $28.2 million from the Company. Those notes have a floating interest rate equal to the three-month London Interbank Borrowing Offered Rate plus 0.50%. Interest under the notes is payable quarterly in cash or the Company may, at its option, cause such interest to be capitalized and added to the principal amount of the notes. The principal amount of each note is payable in two installments. On January 28, 2004, $8.0 million of the first required installment of $12.3 million was paid. On March 3, 2004 and March 8, 2004, the Company made payments totaling $2.0 million dollars to Deutsche Bank and Essar. Subsequently, both Essar and Deutsche Bank have committed to extending the remaining $2.3 million initial installment to April 16, 2006. The second installment of $16.1 million, along with capitalized interest of $0.2 million through March 30, 2004, is due on April 26, 2007. The notes are guaranteed by all of the Company’s subsidiaries.

On January 26, 2004, the Company entered into a Loan Agreement with Foothill that allowed the Company to borrow up to $25.0 million with a maturity date of January 26, 2007. Interest rates under the agreement were variable and were tied to the London Interbank Borrowing Offered Rate and the Wells Fargo prime rate. The Loan Agreement contained restrictions and covenants limiting among other things, the amount of indebtedness incurred by the Company and its subsidiaries, certain financial targets and capital expenditures. On April 4, 2005, the Foothill agreement was terminated and replaced by the Rockland Agreement (See “Subsequent Events” in Note 8 to Unaudited Consolidated Financial Statements).

Note Receivable

Aegis holds a judgment in the approximate amount of $2.2 million, excluding prejudgment interest, against Michael G. Santry, a former officer and director of Aegis. The judgment arises from a secured promissory note made by Mr. Santry in 1997 and payable to Aegis. Mr. Santry filed a bankruptcy petition in 2004. Aegis continues to pursue an action in Colorado state court to recover a portion of the collateral securing the promissory note. Because Mr. Santry was an affiliate and the amount of the loan had been outstanding for more than one year, the balance of the note receivable was reclassified as a reduction to additional paid-in capital in stockholders’ equity in the fourth quarter of 1999. Any amounts recovered as a result of the judgment will be recorded as capital upon receipt. As of March 31, 2005, no monies had been recovered as a result of the judgment.

FORWARD LOOKING STATEMENTS

The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995: Statements contained in this document that are not based on historical facts are “forward-looking statements”. Terms such as “anticipates”, “believes”, “estimates”, “expects”, “plans”, “predicts”, “may”, “should”, “will”, the negative thereof and similar expressions are intended to identify forward-looking statements. Such statements are by nature subject to uncertainties and risks, including but not limited to: our reliance on certain major clients; unanticipated losses of or delays in implementation of client programs; higher than anticipated implementation costs associated with new client programs; the successful combination of revenue growth with operating expense reduction to result in improved profitability and cash flow; government regulation and tax policy; economic conditions; competition and pricing; dependence on our labor force; reliance on technology; telephone and internet service dependence; the ability, means, and willingness of financial markets to finance our operations; and other operational, financial or legal risks or uncertainties detailed in our SEC filings from time to time. Should one or more of these uncertainties or risks materialize, actual results may differ materially from those described in the forward-looking statements. We disclaim any intention or obligation to revise any forward-looking statements whether as a result of new expectations, conditions or circumstances, or otherwise.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For the three months ended March 31, 2005, the Company did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in the Company’s Quarterly Report on Form 10-K for the year ended December 31, 2004.

ITEM 4.

CONTROLS AND PROCEDURES

As required by Rule 13a-15(b), Aegis management, including the Chief Executive Officer (who currently performs the functions of the Chief Financial Officer), conducted an evaluation as of the end of the period covered by this report, of the effectiveness of Aegis’ disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer concluded that Aegis’ disclosure controls and procedures were effective as of the end of the period covered by this report.

There have not been any changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f), as promulgated under The Securities Act of 1934) during the quarter ended March 31, 2005, that have materially affected or are reasonably likely to affect, the Company’s internal control over financial reporting, other than as follows:

Deficiencies in The Company’s Internal Controls over Financial Reporting:

During the preparation of the Company’s financial statements as of and for the year ended December 31, 2004, and in conjunction with Management’s assessment of the Company’s internal controls over financial reporting as of that date, the Company concluded its then-current system of disclosure controls and procedures was not effective because of certain internal control weaknesses. As a result of this conclusion, the Company initiated changes in internal control.

Corrective Actions Taken During the Quarter Ending March 31, 2005 with respect to deficiencies in the Company’s Internal Controls over Financial Reporting:

Lack of Adequate Accounting Staff

During the course of the audit several accounting errors were identified by the Company’s then-independent auditors and researched and appropriately adjusted in the financial statements by our management. That independent auditor questioned the depth and experience of the accounting staff responsible for preparing and closing the General Ledger for the Company’s financial statements as of and for the year ended December 31, 2004.

The Company was aware of its staffing needs and took steps to address its understaffed Finance and Accounting team to correct this material weakness. On December 28, 2004, the Company engaged an independent contractor as Vice President of Finance, who is a CPA with extensive CFO-level management and SEC reporting experience in public companies. He has subsequently come on board as a fulltime key employee of the Company. On January 3, 2005, the Company engaged an independent contractor, who is also a CPA with extensive experience, to lead its Sarbanes-Oxley compliance efforts. On February 16, 2005, the Company hired an Accounting Manager, who is also a CPA with SEC reporting experience. On February 28, 2005, the Company hired a Vice President of Global Finance, a Chartered Accountant with US-based CFO experience and an extensive financial management background. The Company believes these additions to the Company’s Finance and Accounting team will improve the quality of future period financial reporting.

Revenue Recognition Process enhancements

During the course of the audit of the Company’s financial statements, several accounting errors were identified by the Company’s then-independent auditor. That auditor identified the Company’s reliance on manual calculations and interventions in its revenue recognition process.

In order to correct this material weakness, the Company is

working to prepare model billing templates based on the two general methods through which the Company is paid for its services. When those templates are complete, they will be implemented for the Company’s customer accounts and considered for automation. Additional current actions ongoing by our management to correct this deficiency include a review of all customer contracts to ensure that all customer contract files are up to date. An initial draft of the report that has been prepared in this regard is currently under review and will be complete by the end of May 2005. Effective with the March billings to be prepared in early April, the Company’s Accounts Receivable Specialist will prepare a schedule comparing the actual billings by customer for the month to the monthly revenue estimates derived and reviewed in the Company’s weekly operations meeting. The Company’s Vice President of Finance and the appropriate Vice President responsible for the overall customer relationship currently approve this schedule prior to mailing the customer invoices.

Timely Closing of the Books

In connection with the preparation of the audit as of and for the year ended December 31, 2004, our management identified a material weakness based on the Company’s delay in closing its books for non-quarter end months during the first quarter of 2005.

In order to correct this material weakness, checklists are being developed delineating tasks, preparation responsibilities, and review responsibilities targeting specific completion dates. Those checklists provide evidentiary support of work performed and reviewed. Specific checklists are being developed for non-quarter end months, quarter end months, and the annual close. Those checklists were implemented for the first quarter 2005 close process and used in the preparation of the first quarter 2005 Form 10-Q.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

See Note 6 to the Unaudited Consolidated Financial Statements for a description of our legal proceedings.

ITEM 6.

EXHIBITS

(A)

EXHIBITS

Aegis Communications Group, Inc.

Index to Exhibits

The following exhibits are filed as a part of this Form 10-Q Quarterly Report:


3.1		Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of the registrant’s Form 10-K Annual Report for the year ended December 31, 1999).

3.2		Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2000).

4.1		Specimen of Share Certificate of Company’s common stock (Incorporated by reference to Exhibit 4.1 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 1998).

4.2		Form of Series B Preferred Stock certificate, as amended. (Incorporated by reference to the registrant’s Form 10-K Annual Report for the year ended June 30, 1994).

4.3		Warrant to Purchase Shares of Common Stock from the Company to Deutsche Bank AG—London acting through DB Advisors, LLC as investment advisor, dated November 5, 2003 (Incorporated by reference to Exhibit 4.7 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).

4.4		Warrant to Purchase Shares of Common Stock from the Company to Essar Global Limited, dated November 5, 2003 (Incorporated by reference to Exhibit 4.8 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).

4.5		Common Stock Warrant issued to Essar Global Limited, dated April 21, 2004 offering warrants to acquire common shares of the registrant (Incorporated by reference to Exhibit 4.9 of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2003)

4.6		Common Stock Warrant issued to Deutsche Bank AG-London acting through DB Advisors, LLC, dated April 21, 2004, offering warrants to acquire common shares of the registrant. (Incorporated by reference to Exhibit 4.10 of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2003)

10.1		1992 Stock Option Plan as amended (Incorporated by reference to Exhibit 4.1 of the registrant’s Form S-8 Registration Statement—File No. 333-01131).

10.2		1996 Stock Option Plan as amended (Incorporated by reference to Exhibit 4.2 of the registrant’s Form S-8 Registration Statement—File No. 333-01131).

10.3		Amended and Restated 1998 Stock Option Plan (Incorporated by reference to Exhibit 10.27 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2001).

10.4		Employment Agreement dated October 13, 2000 by and among Aegis Communications Group, Inc. and its subsidiaries and Thomas P.G. Franklin (Incorporated by reference to Exhibit 10.46 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2000).

10.5		Employment Agreement dated July 16, 2001, by and among Aegis Communications Group, Inc. and its subsidiaries and Herman M. Schwarz (Incorporated by reference to Exhibit 10.48 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ending September 30, 2001).



10.6		Employment Agreement between Lee O. Waters and Aegis Communications Group, Inc. and its subsidiaries dated December 3, 2001 (Incorporated by reference to Exhibit 10.34 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2001).

10.7		Employment Agreement between Joseph Marinelli and Aegis Communications Group, Inc. and it subsidiaries dated August 28, 2000 (Incorporated by reference to Exhibit 10.32 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2002).

10.8		Agreement between Joseph Marinelli and Aegis Communications Group, Inc. and its subsidiaries dated March 21, 2003 (Incorporated by reference to Exhibit 10.36 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2002).

10.9		Agreement between Thomas P.G. Franklin and Aegis Communications Group, Inc. and its subsidiaries dated March 21, 2003 (Incorporated by reference to Exhibit 10.37 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2002).

10.10		Agreement between Lee O. Waters and Aegis Communications Group, Inc. and its subsidiaries dated March 21, 2003 (Incorporated by reference to Exhibit 10.38 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2002).

10.11		Fourth Amended and Restated Credit Agreement, dated April 14, 2003 among IQI, Inc., the Company (as a guarantor), and various financial institutions, with The Bank of Nova Scotia as documentation agent and administrative agent and Credit Suisse First Boston as a syndication agent (Incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K Current Report filed on April 21, 2003).

10.12		Agreement and Plan of Merger dated as of July 11, 2003 by and among AllServe Systems PLC, AllServe Systems, Inc. and the Company (Incorporated by reference to Annex A of the Company’s Preliminary Proxy Statement filed on July 30, 2003).

10.13		Note and Warrant Purchase Agreement dated as of November 5, 2003 by and among the Company, Deutsche Bank AG—London acting through DB Advisors, LLC as investment advisor and Essar Global Limited (Incorporated by reference to Exhibit 10.2 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).

10.14		Secured Promissory Note, dated November 5, 2003, in the original principal amount of $14,087,352 from the Company to Deutsche Bank AG—London acting through DB Advisors, LLC (Incorporated by reference to Exhibit 10.3 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).

10.15		Secured Promissory Note, dated November 5, 2003, in the original principal amount of $14,143,815 from the Company to Essar Global Limited (Incorporated by reference to Exhibit 10.4 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).

10.16		Registration Rights Agreement, dated November 5, 2003, by and among the Company, Deutsche Bank AG—London acting through DB Advisors, LLC as investment advisor, Essar Global Limited, Questor Partners Fund II, L.P., Questor Side-by-Side Partners II, L.P., Questor Side-by-Side Partners II 3(c)(1), L.P., Thayer Equity Investors III, L.P., TC Co-Investors, LLC, Edward Blank and the Edward Blank 1995 Grantor Retained Annuity Trust (Incorporated by reference to Exhibit 10.5 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).

10.17		Stockholders Agreement, dated November 5, 2003, by and among the Company, Deutsche Bank AG—London acting through DB Advisors, LLC as investment advisor, Essar Global Limited, Questor Partners Fund II, L.P., Questor Side-by-Side Partners II, L.P., Questor Side-by-Side Partners II 3(c)(1), L.P., Thayer Equity Investors III, L.P. and TC Co-Investors, LLC (Incorporated by reference to Exhibit 10.6 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2003).



10.18		Subsidiary Guaranty dated as of November 5, 2003 (Incorporated by reference to Exhibit 10.46 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003).

10.19		Loan and Security Agreement, dated as of January 26, 2004, by and among Aegis Communications Group, Inc., each of its subsidiaries that are signatories thereto, the lenders that are signatories thereto, and Wells Fargo Foothill, Inc. as the Arranger and Administrative Agent 2003 (Incorporated by reference to Exhibit 10.47 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003)(exhibits excluded)

10.20		Amended and Restated Secured Promissory Note, dated as of January 28, 2004, in the original principal amount of $10,087,352 payable to Deutsche Bank AG—London Acting Through DB Advisors, LLC 2003 (Incorporated by reference to Exhibit 10.48 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003).

10.21		Amended and Restated Secured Promissory Note, dated as January 28, 2004, in the original principal amount of $10,143,815 payable to Essar Global Limited 2003 (Incorporated by reference to Exhibit 10.49 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003).

10.22		General Security Agreement, dated as of January 26, 2004, by and among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto and Wilmington Trust Company, as agent for Deutsche Bank AG—London Acting Through DB Advisors, LLC and Essar Global Limited 2003 (Incorporated by reference to Exhibit 10.50 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003)(exhibits excluded).

10.23		Trademark Collateral Assignment and Security Agreement, dated as of January 26, 2004, by and among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto and Wilmington Trust Company, as collateral trustee for Deutsche Bank AG—London Acting Through DB Advisors, LLC and Essar Global Limited 2003 (Incorporated by reference to Exhibit 10.51 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003)(exhibits excluded).

10.24		Copyright Collateral Assignment and Security Agreement, dated as of January 26, 2004, by and among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto and Wilmington Trust Company, as collateral trustee for Deutsche Bank AG—London Acting Through DB Advisors, LLC and Essar Global Limited 2003 (Incorporated by reference to Exhibit 10.52 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003)(exhibits excluded).

10.25		Stock Pledge Agreement, dated as of January 26, 2004, by Aegis Communications Group, Inc. and certain of its subsidiaries signatory thereto in favor of Wilmington Trust Company (Incorporated by reference to Exhibit 10.53 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003)(exhibits excluded).

10.26		Amendment No. 1 to Subsidiary Guaranty, dated as of January 26, 2004, among Advanced Telemarketing Corporation, IQI, Inc., LEXI International, Inc., Interserv Services Corporation, Deutsche Bank AG London, acting through DB Advisors, LLC, Essar Global Limited and Wilmington Trust Company, as Collateral Trustee 2003 (Incorporated by reference to Exhibit 10.54 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003).

10.27		Collateral Trustee Agreement, dated as of January 26, 2004, among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto, Deutsche Bank AG—London, acting through DB Advisors, LLC, Essar Global Limited and Wilmington Trust Company, as Collateral Trustee (2003 (Incorporated by reference to Exhibit 10.55 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003)(exhibits excluded).



10.28		Trademark Collateral Assignment and Security Agreement, dated January 26, 2004, by and among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto, the lenders that are signatories thereto, and Wells Fargo Foothill, as the Arranger and Administrative Agent 2003 (Incorporated by reference to Exhibit 10.56 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003)(exhibits excluded).

10.29		Copyright Collateral Assignment and Security Agreement, dated January 26, 2004, by and among Aegis Communications Group, Inc., its subsidiaries that are signatories thereto, the lenders that are signatories thereto, and Wells Fargo Foothill, as the Arranger and Administrative Agent 2003 (Incorporated by reference to Exhibit 10.57 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003)(exhibits excluded).

10.30		Amendment Number 1 to and Waiver and Consent Under Loan and Security Agreement, dated as of March 30, 2004, among Aegis Communications Group, Inc., each of its subsidiaries that are signatories thereto, the lenders that are signatories thereto, and Wells Fargo Foothill, Inc. as the Arranger and Administrative Agent 2003 (Incorporated by reference to Exhibit 10.58 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003)(exhibits excluded).

10.31		Waiver Under Amended and Restated Secured Promissory Notes, dated as of March 30, 2004, between Aegis Communications Group, Inc., Deutsche Bank AG—London and Essar Global Limited 2003 (Incorporated by reference to Exhibit 10.59 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003)(exhibits excluded).

10.32		Second Amended and Restated Secured Promissory Note, dated March 30, 2004, in the original principal amount of $9,170,266 payable to Deutsche Bank AG—London Acting Through DB Advisors, LLC 2003 (Incorporated by reference to Exhibit 10.60 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003).

10.33		Second Amended and Restated Secured Promissory Note, dated March 30, 2004, in the original principal amount of $9,227,340 payable to Essar Global Limited 2003 (Incorporated by reference to Exhibit 10.61 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2003).

10.34		Employment agreement by and among Aegis Communications Group, Inc. and subsidiaries, and John Scot Brunke dated March 31, 2004, (Incorporated by reference to Exhibit 10.16 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended March 31, 2004).

10.35		Separation agreement and general release by and among Aegis Communications Group, Inc. and subsidiaries, and Angelo Macchia dated March 31, 2004, (Incorporated by reference to Exhibit 10.17 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended March 31, 2004).

10.36		Separation agreement and general release by and among Aegis Communications Group, Inc. and subsidiaries, and Thomas P.G. Franklin dated March 31, 2004, (Incorporated by reference to Exhibit 10.18 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended March 31, 2004).

10.37		Separation agreement and general release by and among Aegis Communications Group, Inc. and subsidiaries, and Joseph Marinelli dated March 31, 2004, (Incorporated by reference to Exhibit 10.19 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended March 31, 2004).

10.38		Separation agreement and general release by and among Aegis Communications Group, Inc. and subsidiaries, and Herman M. Schwarz dated April 4, 2004, (Incorporated by reference to Exhibit 10.20 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended March 31, 2004).

10.39		Bonus agreement by and between Aegis Communications Group, Inc., and Lee O. Waters dated April 1, 2004, (Incorporated by reference to Exhibit 10.21 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended March 31, 2004).



10.40		Amendment number 3 to and waiver under loan and security agreement between Aegis Communications Group, Inc. and Wells Fargo Foothill, Inc. dated August 23, 2004, (Incorporated by reference to Exhibit 10.1 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended June 30, 2004).

10.41		Third amended and restated secured promissory note between Aegis Communications Group, Inc. and Essar Global Limited dated August 23, 2004, (Incorporated by reference to Exhibit 10.4 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended June 30, 2004).

10.42		Employment agreement by and among Aegis Communications Group, Inc. and subsidiaries, and Richard Nelson Ferry dated September 30, 2004, (Incorporated by reference to Exhibit 10.1 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2004).

10.43		Employment agreement by and among Aegis Communications Group, Inc. and subsidiaries, and Kannan Ramasamy dated September 30, 2004, (Incorporated by reference to Exhibit 10.2 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2004).

10.44		Promissory note between Aegis Communications Group, Inc. and Essar Global Limited dated October 22, 2004, (Incorporated by reference to Exhibit 10.3 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2004).

10.45		Separation agreement and general release by and among Aegis Communications Group, Inc. and subsidiaries, and John Scot Brunke dated November 11, 2004, (Incorporated by reference to Exhibit 10.4 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2004).

10.46		Amended number 4 to and waiver under loan and security agreement between Aegis Communications Group, Inc. and subsidiaries, and Wells Fargo Foothill, Inc. dated November 12, 2004, (Incorporated by reference to Exhibit 10.5 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2004).

10.47		Fourth amended and restated secured promissory note by and among Aegis Communications Group, Inc., and Deutsche Bank AG London acting through DB Alternative Trading, Inc. (Formerly known as DB Advisors, LLC) dated November 22, 2004, (Incorporated by reference to Exhibit 10.6 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2004).

10.48		Fourth amended and restated secured promissory note by and between Aegis Communications Group, Inc., and Essar Global Limited dated November 22, 2004, (Incorporated by reference to Exhibit 10.7 of the registrant’s Form 10-Q Quarterly Report for the quarterly period ended September 30, 2004).

10.49		Secured Promissory Note, dated December 15, 2005, in the original principal amount of $7,443,947.62 between Aegis Communications Group, Inc. and Essar Global Limited, dated December 15, 2004 (Incorporated by reference to Exhibit 10.49 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2004).

10.50		First Amended and Restated Promissory Note, dated January 3, 2005, in the original principal amount of $1,006,162.40, payable to Essar Global Limited (Incorporated by reference to Exhibit 10.50 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2004).

10.51		First Amended and Restated Secured Promissory Note, dated January 3, 2005, in the original principal amount of $7,453,885.29 (Incorporated by reference to Exhibit 10.51 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2004).



10.52		Fifth Amended and Restated Secured Promissory Note, dated January 3, 2005, in the original principal amount of $ $9,376,855 payable to Essar Global Limited (Incorporated by reference to Exhibit 10.52 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2004).

10.53		Sixth Amended and Restated Secured Promissory Note, dated January 3, 2005, in the original principal amount of $1,863,471.32, payable to Deutsche Bank AG—London acting through DB Alternative Investments, Inc. (Incorporated by reference to Exhibit 10.53 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2004).

10.54		Master Factoring Agreement, dated April 3, 2004, between Aegis Communications Group, Inc. and Rockland Credit Finance, LLC (Incorporated by reference to Exhibit 10.54 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2004).

10.55		Multiple Guaranty of Payment, dated as of March 30, 2005, between Aegis Communications Group, Inc. and its subsidiaries and Rockland Credit Finance, LLC. Incorporated by reference to Exhibit 10.55 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2004

10.56		Promissory Note, dated March 21, 2005, in the original principal amount of $1,250,000, payable to Essar Global Limited (Incorporated by reference to Exhibit 10.56 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2004).

10.57		Seventh Amended and Restated Secured Promissory Note, dated April 27, 2005, in the original principal amount of $1,884,500.54, payable to Deutsche Bank AG-London acting through DB Alternative Investments, Inc. (filed herewith).

10.58		Transition Agreement, dated as of May 3, 2005, between Aegis Communications Group, Inc. and Richard N. Ferry (filed herewith).

23.1		Consent of BDO Seidman, LLP, dated March 31, 2004 (Incorporated by reference to Exhibit 23.1 of the registrant’s Form 10-K Annual Report for the year ended December 31, 2004).

31.1		Certification of the Chief Executive Officer Pursuant to Rule 13a-15(e) or 15d-15(c), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley act of 2002. (filed herewith)

31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-15(e) or 15d-15(c), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley act of 2002. (filed herewith)

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes Oxley Act of 2002. (furnished herewith)

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.


	AEGIS COMMUNICATIONS GROUP, INC. (The Registrant)

Dated: May 18, 2005	By:	/s/ KANNAN RAMASAMY
		Kannan Ramasamy, President and Chief Executive Officer, Person performing the Functions of Chief Financial Officer, Director

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