bpo_10qsb-093007.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 FOR THE

TRANSITION PERIOD FROM __________ to __________

Commission file number: 0-28560

BPO MANAGEMENT SERVICES, INC.

(Exact name of small business issuer as specified in its charter)

DELAWARE	22-2356861
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1290 N HANCOCK STREET, ANAHEIM HILLS, CA 92807

(Address of principal executive offices)

(714) 974-2670

(Issuer's telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year,

if changed since last report)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

The number of shares outstanding of the registrant's only class of common stock, $.01 par value, was 12,171,034 on November 14, 2007.Transitional Small Business Disclosure Format (Check one). Yes [ ] No [X]

PART I

FINANCIAL INFORMATION

		Page

Item 1. Financial Statements		3
	Condensed Consolidated Statements of Operations for the three and nine months ended
	September 30, 2007 and 2006 (unaudited)	3

	Condensed Consolidated Balance Sheet as of September 30, 2007 (unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30,
	2007 and 2006 (unaudited)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2. Management's Discussion and Analysis or Plan of Operation		23

Item 3. Controls and Procedures		32

PART II

OTHER INFORMATION

Item 1. Legal Proceedings											32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds											32

Item 3. Defaults Upon Senior Securities											33

Item 4. Submission of Matters to a Vote of Security Holders											33

Item 5. Other Information											33

Item 6. Exhibits											33

Signatures											34

Exhibits Attached to this Quarterly Report on Form 10-QSB											35

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2007			2006			2007			2006

Revenues:
Enterprise content management	$	3,504,953		$	492,908		$	5,866,997		$	2,290,238
IT outsourcing services		880,978			458,269			2,861,891			1,327,867
Human resource outsourcing servicing		246,371			10,114			260,188			232,795

Total revenues		4,632,302			961,291			8,989,076			3,850,900

Operating expenses:
Cost of services provided		2,563,277			376,438			4,436,764			1,341,553
Selling, general and administrative		3,054,506			1,003,089			7,207,185			3,949,307
Research and development		168,371			-			261,738			-
Share-based compensation		112,118			(4,439	)		258,861			35,514

Total operating expenses		5,898,272			1,375,088			12,164,548			5,326,374

Loss from operations		(1,265,970	)		(413,797	)		(3,175,472	)		(1,475,474	)

Interest expense (income)
Related parties		27,222			-			89,819			-
Amortization of related party debt discount		-			-			594,029			-
Other, net		(11,300	)		26,898			76,045			31,894
Other income		(3,115	)		(911	)		(3,102	)		-

Total interest and other expense (income)	$	12,807		$	25,987		$	756,791		$	31,894

Net loss	$	(1,278,777	)	$	(439,784	)	$	(3,932,263	)	$	(1,507,368	)

Basic and diluted net loss per share	$	(0.14	)	$	(0.04	)	$	(0.45	)	$	(0.15	)

Basic and diluted weighted average common
shares outstanding		9,004,368			9,927,174			8,750,543			9,894,091

See accompanying notes to condensed consolidated financial statements.

BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

September 30, 2007

(Unaudited)

	2007
ASSETS
Current assets:
Cash and cash equivalents	$	6,102,487
Restricted cash		922,888
Accounts receivable, net of allowance for doubtful accounts of $138,934		3,672,086
Inventory consisting of finished goods, net of reserves of $0		184,220
Prepaid expenses and other current assets		287,627
Total current assets		11,169,309

Equipment, net of accumulated depreciation of $194,893		1,058,555
Goodwill		10,179,091
Intangible assets, net of accumulated amortization of $266,194		960,751
Other assets		33,155

	$	23,400,861

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt, net of discount of $3,367	$	141,943
Current portion of capital lease obligations		132,263
Accounts payable		2,327,226
Accrued expenses		1,266,252
Accrued interest-related party		9,450
Accrued dividend payable-related party		11,392
Amount due former shareholders of acquired companies		1,101,771
Deferred revenues		1,655,185
Related party notes payable		1,200,000
Severance obligations payable		272,912
Other current liabilities (Income taxes payable)		245,013
Total current liabilities		8,363,407

Long-term debt, net of current portion and net of discount of $5,613		28,058
Capital lease obligations, net of current portion		415,776
Total liabilities		8,807,241

Commitments and contingencies (Note 9)

Stockholders' equity
Convertible preferred stock, Series A, par value $.01; authorized
1,608,612 shares; 1,605,598 shares issued and outstanding		16,056
Convertible preferred stock, Series B, par value $.01; authorized
1,449,204 shares; 1,449,204 shares issued and outstanding		14,492
Non-convertible preferred stock, Series C, par value $.01; authorized
21,378,000 shares; 916,667 shares issued and outstanding		9,167
Convertible preferred stock, Series D, par value $.01; authorized
1,500,000 shares; 1,458,334 shares issued and outstanding		14,583
Convertible preferred stock, Series D-2, par value $.01; authorized
1,500,000 shares; 375,000 shares issued and outstanding		3,750
Common stock, par value $.01; authorized 150,000,000 shares;
9,004,368 shares issued and outstanding		90,044
Additional paid-in capital		22,916,997
Accumulated deficit		(8,032,969	)
Accumulated other comprehensive loss, foreign currency translation adjustments		(438,500	)
Total stockholders' equity		14,593,620

	$	23,400,861

See accompanying notes to condensed consolidated financial statements.

BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(Unaudited)

	2007			2006
Cash flows from operating acitvities:
Net loss	$	(3,932,263	)	$	(1,507,368	)
Adjustments to reconcile loss from continuing operations
to net cash provided by (used in) operating activities:
Depreciation		175,248			263,501
Amortization of intangible assets		153,947			311,777
Non-cash compensation expense recognized on issuance of stock options		258,861			35,514
Amortization of loan discount		594,031			-

Changes in operating assets and liabilities:
Accounts receivable		(1,097,353	)		(244,889	)
Inventory		(25,238	)		-
Income tax receivable		250,000			-
Prepaid expenses and other current assets		(103,721	)		-
Other assets		113,568			(107,257	)
Accounts payable		(1,027,744	)		482,864
Accrued expenses		614,748			(67,401	)
Accrued interest related parties		90,119			-
Accrued dividends related parties		(69,870	)		-
Deferred revenues		371,890			226,231
Amount due former shareholders of acquired companies		179,579			-
Income tax payable		7,782			-
Payments of severance liability		(500,841	)		(92,295	)
Net cash used in operating activities		(3,947,257	)		(699,323	)

Cash flows from investing activities:
Purchase of property and equipment, net		(516,847	)		(279,014	)
Purchase obligation payment - Novus		(962,571	)		-
Purchase obligation payment - DocuCom		(917,338	)		-
Restricted deposit of purchase obligation - DocuCom		(922,888	)		-
Cash paid for acquisitions, net of cash acquired		(2,952,429	)		(2,050,071	)
Net cash used in investing activities		(6,272,073	)		(2,329,085	)

Cash flows from financing activities:
Proceeds from bank loans		-			269,369
Repayment of bank loans		(317,251	)		-
Proceeds (payment) of notes payable		-			902,386
Repayment of capital lease obligations		(68,928	)		-
Proceeds from related party loans		400,000			516,693
Acquisition of capital leases		435,666			291,817
Proceeds from issuance of preferred stock, net of cash paid for direct costs		15,737,910			-
Distributions to related parties		(240,598	)		-
Issuance of common stock in acquisition		-			148,285
Net cash provided by financing activities		15,946,799			2,128,550
Effect of exchange rate changes on cash and cash equivalents		(331,178	)		-
Net increase (decrease) in cash		5,396,290			(899,858	)
Cash and cash equivalents, beginning of period		706,197			1,232,169
Cash and cash equivalents, end of period	$	6,102,487		$	332,311

See accompanying notes to condensed consolidated financial statements.

BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

	2007		2006

Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$	114,132	$	47,771

Supplemental disclosure of non-cash investing and financing activities:
Acquisition of equipment under capital leases	$	435,666	$	-
Issuance of warrants	$	185,187	$	-
Preferred Stock Series A dividend	$	957	$	757
Acquisition of a company:
Net assets acquired	$	2,236,115	$	1,243,927
Net liabilities assumed	$	3,138,627	$	524,925
Common stock issued as consideration for acquisition	$	400,000	$	5,000

See accompanying notes to condensed consolidated financial statements.

BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2007

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

BPO Management Services, Inc and Subsidiaries (the "Company") was incorporated in Delaware and commenced operations on July 26, 2005. On December 15, 2006, the Company entered into a merger agreement with netGuru, Inc. (netGuru). The shareholders of the Company received aggregate netGuru equity comprised of 7,336,575 shares of common stock, 1,567,095 shares of Series A preferred stock, 1,449,200 shares of Series B preferred stock, and 916,666 shares of Series C preferred stock, which represented the majority of the outstanding shares after the merger. Therefore, the merger was treated as a "reverse merger" and the previously outstanding shares of netGuru were treated as an equity transaction by the Company. The Company is a provider of business process outsourcing services offering enterprise content management ("ECM") services, information technology outsourcing ("ITO") services and human resource outsourcing ("HRO") services to middle market enterprises located primarily in the United States and Canada.

For accounting purposes, the acquisition has been treated as a recapitalization of BPO Management Services, Inc., prior to the merger with netGuru (Former BPOMS) with Former BPOMS as the acquirer. The historical financial statements prior to December 15, 2006, are those of the Former BPOMS which began operations on July 26, 2005. All share-related data has been presented giving effect to the recapitalization resulting from the reverse merger.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements are prepared on a consistent basis in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-QSB and Item 10 of Regulation SB. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and consolidation and elimination entries) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. The interim financial statements should be read in conjunction with the Company's consolidated financial statements and related footnotes included in our Annual Report on Form 10-KSB for the year ended December 31, 2006.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of BPOMS and its wholly-owned subsidiaries. All significant intercompany accounts, transactions and profits among the consolidated entities have been eliminated upon consolidation. Each of the following entities is included in consolidation as of the Company's formation or the subsidiary's date of acquisition.

COMPANY					INCEPTION/ACQUISITION DATE

BPO Management Services, Inc. (the "Company")					Inception date: July 26, 2005
Adapsys Document Management LP ("ADM")					Acquired: July 29, 2005
Adapsys LP ("ADP")					Acquired: July 29, 2005
Digica, Inc. ("Digica")					Acquired: January 1, 2006
Novus Imaging Solutions, Inc. ("Novus")					Acquired: September 30, 2006
NetGuru Systems, Inc. ("netGuru")					Acquired: December 15, 2006
Research Engineers, GmbH ("GmbH")					Acquired: December 15, 2006
DocuCom Imaging Solutions, Inc. ("DocuCom")					Acquired: June 21, 2007
Human Resource Micro-Systems, Inc. ("HRMS")					Acquired: June 29, 2007

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent obligations in the financial statements and accompanying notes. Our most significant assumptions are employed in determining values for uncollectible accounts receivable, depreciation, intangible asset valuation and useful lives, goodwill impairments contingencies, determination of the remaining severance obligation, valuation of share based payments revenue recognition and the valuation of liabilities resulting from a business combination as well as estimates used in applying our revenue recognition policy. The estimation process requires assumptions to be made about future events and conditions, and, as such, is inherently subjective and uncertain. Actual results could differ materially from our estimates. In estimating the fair value of stock-based payments, we use the current quoted market price of our underlying common share for stock awards, and the Black-Scholes-Merton Option Pricing Model for stock options and warrants. We estimate our expected volatility of our common share based on the average volatilities of similar entities for an appropriate period following their going public; and we estimate the expected term of the option, taking into account both the contractual term of the option and the effects of employees' expected exercise and post-vesting employment termination behavior.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value Of Financial Instruments," requires management to disclose the estimated fair value of certain assets and liabilities defined by SFAS No. 107 as financial instruments. At September 30, 2007, management believed the carrying amounts of cash and cash equivalents, receivable and payable amounts, and accrued expenses approximated fair value because of the short maturity of these financial instruments. The Company also believed that the carrying amounts of its capital lease obligations approximated their fair value, as the interest rates approximated a rate that the Company could have obtained under similar terms at the balance sheet date.

FOREIGN CURRENCY TRANSLATION

The financial position and operating results of all foreign operations are consolidated using the local currencies of the countries in which the Company operates as the functional currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period. The resulting translation adjustments are recorded directly into a separate component of shareholders' equity. Gains and losses resulting from foreign currency transactions are included in operations and were not material for the three and nine months ended September 30, 2007 and 2006.

CASH AND CASH EQUIVALENTS

The Company considers all liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash balances at financial institutions that management believes possess high-credit quality. At September 30, 2007, the Company had $5,658,761 on deposit that exceeded the United States (FDIC) federal insurance limit. At September 30, 2007, the Company had no accounts on deposit that exceeded the Canadian (CDIC) insurable limit of $100,000 CDN per entity per bank. The Canadian funds insurance is limited to Canadian currency deposits only and does provide coverage to money master high interest savings accounts (money market accounts) but all accounts are considered in the overall limitation per entity per bank.

RESTRICTED CASH

CDN $900,000 is payable to the previous shareholders of DocuCom nine months from the date of the acquisition. This payment is guaranteed by a letter of credit for which the Company deposited as security a forward contract for the purchase of Cdn $900,000 purchased by the company at a cost of approximately $923,000 and shown on the balance sheet as restricted cash. In addition, $500,000 has been deposited in an escrow account for the benefit of the prior shareholders of HRMS and is subject to offsets in accordance with the Share Purchase Agreement.

REVENUE RECOGNITION

The Company recognizes revenue when the following criteria are met: (1) persuasive evidence of an arrangement, such as agreements, purchase orders or written or online requests, exists; (2) delivery of the product or service has been completed and no significant obligations remain; (3) the Company's price to the buyer is fixed or determinable; and (4) collection is reasonably assured. The Company's revenues arise from the following segments: ECM solutions including collaborative software products and services, ITO services and HRO services.

Revenue from software sales is recognized upon shipment if no significant post-contract support obligations remain outstanding and collection of the resulting receivable is reasonably assured. Customers may choose to purchase maintenance contracts that include telephone, e-mail and other methods of support, and the right to unspecified upgrades on a when-and-if available basis. Revenue from these maintenance contracts is deferred and recognized ratably over the life of the contract, usually twelve months.

In October 1997, the Accounting Standards Executive Committee ("AcSEC") of the AICPA issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2 distinguishes between significant and insignificant vendor obligations as a basis for recording revenue, with a requirement that each element of a software licensing arrangement be separately identified and accounted for based on relative fair values of each element. The Company determines the fair value of each element in multi-element transactions based on vendor-specific objective evidence ("VSOE"). VSOE for each element is based on the price charged when the same element is sold separately.

In 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions," which modifies SOP 97-2 to allow for use of the residual method of revenue recognition if certain criteria have been met. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the transaction fee is recognized as revenue.

The Company sells its collaborative software along with a maintenance package. This constitutes a multi-element arrangement. The price charged for the maintenance portion is the same as when the maintenance is sold separately. The fair values of the maintenance contracts sold in all multi-element arrangements are recognized over the terms of the maintenance contracts. The collaborative software portion is recognized when persuasive evidence of an arrangement exits, price is fixed and determinable, when delivery is complete, collection of the resulting receivable is reasonably assured and no significant obligations remain.

Revenues from providing IT services are recognized primarily on a time and materials basis, with time at a marked-up rate and materials and other reasonable expenses at cost, once the services are completed and no significant obligations remain. Certain IT services contracts are fixed price contracts where progress toward completion is measured by mutually agreed upon pre-determined milestones for which the Company recognizes revenue upon achieving such milestones. Fixed price IT contracts are typically for a short duration of one to nine months. Fees for certain services are variable based on an objectively determinable factor such as usage. Those factors are included in the written contract such that the customer's fee is determinable. The customer's fee is negotiated at the onset of the arrangement.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company sells its products and services to its customers on credit terms; granting credit to those who are identified credit worthy based on an analysis of the entities credit history. A provision is made for an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based upon its historical collection experience and a review of the current collectibility status of accounts receivable - trade. Specific accounts receivable that are eventually determined to be uncollectible are charged against the allowance for doubtful accounts when identified. It is reasonably possible that the Company's estimate of the allowance for doubtful accounts will change.

DEFERRED REVENUES

The Company defers revenues for its maintenance contracts and for its collaborative software sales that are not considered earned. The Company defers its maintenance revenues when the maintenance contracts are sold, and then recognizes the maintenance revenues over the term of the maintenance contracts. The Company defers its collaborative software sales revenues if it invoices or receives payment prior to the completion of a project, and then recognizes these revenues upon completion of the project when no significant obligations remain.

RESEARCH AND DEVELOPMENT

The Company's research and development ("R&D") costs consist mainly of software developers' salaries. The Company follows the provisions of SFAS No. 86 to capitalize software development costs when technological feasibility has been established and to stop capitalization when the product is available for general release to customers. The Company expenses development costs when they are related to enhancement of existing software products.

INCOME TAXES

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

SHARE-BASED COMPENSATION

The Company accounts for share-based compensation to employees pursuant to SFAS No.123(R), "Share Based Payment," which requires that all share-based compensation to employees, including grants of employee stock options, be recognized as expense in the Company's financial statements based on their respective grant date fair values. As SFAS No. 123(R) requires that share-based compensation expense be based on awards that are ultimately expected to vest, share based compensation for 2007 has been reduced by estimated forfeitures.

SFAS 123(R) requires the use of a valuation model to calculate the fair value of share-based awards. The Company has elected to use the Black-Scholes-Merton option pricing model, which incorporates various assumptions including volatility, expected life, expected dividend and interest rates. As a private company, Former BPOMS did not have a history of market prices of its common stock, and as such, the Company used an estimated volatility in accordance with SAB No. 107 "Share Based Payment." In 2006, the Company used the volatility of the stock price of netGuru, BPOMS' predecessor company, adjusted to remove the effects of divestitures, cash distributions, and the reverse merger which BPOMS deems not representative of the events that would take place during expected term of the options that were valued. The expected life of awards was based on the simplified method as defined in SAB No. 107. The risk-free interest rate assumption was based on observed interest rates appropriate for the terms of the awards. The dividend yield assumption was based on the company's history and expectation of not paying any dividends in the foreseeable future. Forfeitures were estimated at the time of grant and will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses the straight line amortization method to record expenses under this statement and recognized share-based compensation expense. The fair value of the Company's stock options granted to employees was estimated using the following assumptions:

Expected Dividend yield	--
Expected volatility	124%
Risk-free interest rate	4.6%-5.03%
Expected option lives (in years)	7
Estimated forfeiture rate	7%

For the three months ended September 30, 2007 and 2006, the Company recognized $112,118, and $(4,439), respectively, in share-based compensation expense. For the nine months ended September 30, 2007 and 2006, the Company recognized $258,861 and $35,514, respectively, in share-based compensation expense. The Company may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense if there are any modifications or cancellation of the underlying unvested securities. Future share-based compensation expense and unearned share-based compensation will increase to the extent that we grant additional equity awards to employees or we assume unvested equity awards in connection with acquisitions. Share-based compensation expense was recorded in selling, general and administrative expense.

VALUATION OF THE COMPANY'S COMMON SHARES AT THE TIME OF GRANT

The Company granted shares of its common stock as partial consideration for the acquisition of Digica Inc. in January 2006 and the acquisition of Human Resource Micro-Systems, Inc. in June of 2007. The fair values of these grants were determined based on recent sales of the Company's securities immediately preceding the dates of closing.

SEGMENT REPORTING

The Company applies the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires segments to be determined and reported based on how management measures performance and makes decisions about allocating resources. See Note 10 "Segment and Geographic Data" for a description of and disclosures regarding the Company's significant reportable segments.

RETIREMENT PLANS

The Company and certain of its United States subsidiaries have qualified cash or deferred 401(k) retirement savings plans. The plans cover substantially all United States employees who have attained age 21 and have one year of service. Employees may contribute up to 15% of their compensation. The Company does not make matching contributions to the plan, except in one subsidiary, where it matches 100% of the employee contribution up to a maximum of 4% of the employee’s salary. For the quarters ended September 30, 2007 and 2006, the Company contributions to the plan amounted to $6,559 and $6,149, respectively. For the nine months ended September 30, 2007 and 2006, the Company contributions to the plan amounted to $19,660 and $20,667, respectively. Certain of its Canadian subsidiaries have defined contribution pension plans whereby after a qualification period the company contributes an amount which vary from 2% to 8% of the employees annual earnings. For the three months ended September 30, 2007 and 2006, the Company contributions to the plan amounted to $12,620 and $7,988, respectively. For the nine months ended September 30, 2007 and 2006, the Company contributions to the plan amounted to $33,303 and $30,331, respectively.

RECLASSIFICATIONS

Certain reclassifications have been made to the fiscal 2006 consolidated financial statements to conform to the fiscal 2007 presentation. The primary reclassifications relate to the presentation of the three business segments and the presentation of share and per share data giving effect to the one-for-fifteen reverse stock split, the reverse merger of BPOMS into netGuru, Inc. and the resulting recapitalization of equity.

BASIC AND DILUTED LOSS PER SHARE

In accordance with FASB Statement No. 128, Earnings Per Share, we calculate basic and diluted net loss per share using the weighted average number of common shares outstanding during the periods presented and adjust the amount of net loss, used in this calculation, for preferred stock dividends declared during the period.

We incurred a net loss in each period presented, and as such, did not include the effect of potentially dilutive common stock equivalents in the diluted net loss per share calculation, as their effect would be anti-dilutive for all periods. Potentially dilutive common stock equivalents would include the common stock issuable upon the conversion of preferred stock and the exercise of warrants and stock options that have conversion or exercise prices below the market value of our common stock at the measurement date. As of September 30, 2007 and 2006, all potentially dilutive common stock equivalents amounted to 133,344,209 and 5,853,371 shares, respectively.

The following table illustrates the computation of basic and diluted net loss per share:

		THREE MONTHS ENDED						NINE MONTHS ENDED
		SEPTEMBER 30,						SEPTEMBER 30,
		2007			2006			2007			2006

Numerator:
Net loss		$	(1,278,777	)	$	(439,784	)	$	(3,932,263	)	$	(1,507,368	)
Less:
	Preferred dividends paid in stock		32,754			-			96,348			-
Loss and numerator used in computing basis
	and diluted loss per share	$	(1,246,023	)	$	(439,784	)	$	(3,835,914	)	$	(1,507,368	)

Denominator:
Denominator for basic and diluted net loss per share-
	weighted average number of common shares outstanding		9,004,368			9,927,174			8,750,543			9,894,091

Basic and diluted net loss per share			(0.14	)		(0.04	)		(0.44	)		(0.15	)

The following table sets forth potential shares of common stock that are not included in the diluted net loss per share because to do so would be antidilutive since the company reported net losses in all the reporting periods:

	THREE MONTHS ENDED				NINE MONTHS ENDED
	SEPTEMBER 30,				SEPTEMBER 30,
	2007		2006		2007		2006

Options to purchase shares of common stock		2,487,002		2,100,000		2,487,002		2,100,000
Warrants to purchase shares of common stock		98,436,953		253,371		98,436,953		253,371
Shares of convertible preferred stock - Series A		1,637,710		1,500,000		1,637,710		1,500,000
Shares of convertible preferred stock - Series B		1,449,200		2,000,000		1,449,200		2,000,000
Shares of convertible preferred stock - Series D		23,333,344		-		23,333,344		-
Shares of convertible preferred stock - Series D-2		6,000,000		-		6,000,000		-

Total		133,344,209		5,853,371		133,344,209		5,853,371

COMPREHENSIVE INCOME (LOSS)

The net loss reflected on our Consolidated Statements of Operations substantially represents the total comprehensive loss for the periods presented.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES

In June 2006, the FASB issued Interpretation ("FIN") 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109," which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires recognition of tax benefits that satisfy a greater than 50% probability threshold. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for the Company beginning January 1, 2007. The Company believes that adoption of FIN 48 will not have a material effect on its financial position, results of operations or cash flows.

FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for us beginning January 1, 2008. Adoption of SFAS No. 157 did not have a material effect on our financial position, results of operations or cash flows.

3. BUSINESS COMBINATIONS

On June 21, 2007, the Company purchased 100% of the issued and outstanding capital stock of DocuCom Imaging Solutions Inc. a Canadian corporation (“DocuCom”) for a total purchase price of Cdn$2,761,097 (approximately US$2.58 million). The DocuCom results of operations have been included in the consolidated financial statements since the date of acquisition. In addition to adding the DocuCom data and document management solutions capability with its long term Canada-based customer relationships, the acquisition enhanced the Company’s ability to offer high quality, cost-effective service utilizing its near shore delivery model to its US customers.

The purchase price consisted of cash in the amount of Cdn$961,097 (approximately US$910,000), at closing on June 21, 2007. The purchase agreement also provided that the Company pay the selling shareholders Cdn$900,000 (approximately US$840,000) three months after closing and Cdn$900,000 (approximately US$840,000) nine months after closing. The Company secured the subsequent payments through a bank-issued irrevocable standby letter of credit in favor of the selling shareholders in the aggregate amount of Cdn$1,800,000 (approximately US$1.68 million). The letter of credit was securitized by the deposit of $1,955,955 that is shown on the balance sheet as restricted cash.

On June 29, 2007, the Company purchased 100% of the issued and outstanding capital stock of Human Resource Micro-Systems, Inc., a California corporation (“HRMS”). The aggregate purchase price was $2,000,000, of which amount the Company paid the selling shareholders $1,100,000 and issued them 384,968 shares of the Company’s restricted common stock valued at $400,000 (based upon the volume-weighted average closing bid price of the common stock during the ten consecutive trading days immediately preceding the closing). The Stock Purchase Agreement provided that the selling shareholders be paid the remaining $500,000 twelve months after closing through an escrow account, subject to offset with respect to any claims for indemnity by the Company under the terms of the Stock Purchase Agreement.

The HRMS product delivers customizable software solutions for domestic and global mid-market organizations seeking to optimize their human resources service delivery and is being integrated with the Company’s existing human resources outsourcing services based in San Francisco, California in order to broaden the Company’s HRO offering to its customers. Since HRMS was purchased at the end of the reporting period, its results of operations have not been included in the condensed consolidated statements of operations of BPOMS.

The following table presents the preliminary allocation of the acquisition price, including professional fees and other related acquisition costs, to the assets acquired and liabilities assumed, based on their fair values as of the date of acquisition:

	DocuCom		HRMS

Cash and cash equivalents	$	-	$	15,702
Accounts receivable		1,579,611		252,008
Acquired contracts		-		-
Other current assets		172,888		8,876
Property, plant and equipment		204,419		2,611
Goodwill		3,762,693		2,351,587
Identifiable intangible assets		-		-
Total assets acquired		5,719,611		2,630,784

Note payable to bank		420,610		-
Accounts payable and other accrued liabilities		2,247,173		470,844
Estimated termination liability		-		-
Total liabilities assumed		2,667,783		470,844

Net assets acquired	$	3,051,828	$	2,159,940

Acquired identifiable intangible assets in the amount of $0 were assigned to customer contracts pending valuation. The purchase price and costs associated with the DocuCom and HRMS acquisitions exceeded the Company's preliminary allocation of the fair value of net assets acquired by $3,762,693 and $2,351,587, respectively, which was assigned to goodwill. The amount ultimately assigned to goodwill is not expected to be deductible for United States income tax, state income tax or Canadian income tax purposes.

The following unaudited pro forma financial information presents the combined results of operations of the Company, DocuCom and HRMS for the quarter ended September 30, 2007 and 2006 as if the acquisitions had occurred on July 1, 2007 and July 1, 2006, respectively.

Unaudited Pro Forma Statement of Operations For the Three Months Ended September 30, 2007:

	BPOMS			DocuCom		HRMS			Pro Forma

Revenues	$	1,666,560		$	2,719,666	$	246,076		$	4,632,302

Net Income (Loss)	$	(1,285,811	)	$	163,927	$	(156,893	)	$	(1,278,777	)

Basic and diluted loss per
common share	$	(0.15	)	$	-	$	(0.41	)	$	(0.14	)

Basic and diluted weighted average
common shares outstanding		8,619,400			-		384,968			9,004,368

Unaudited Pro Forma Statement of Operations For the Three Months Ended September 30, 2006:

	BPOMS			DocuCom			HRMS		Pro Forma

Revenues	$	961,291		$	2,386,450		$	312,229	$	3,659,970

Net Income (Loss)	$	(439,784	)	$	(140,647	)	$	15,935	$	(564,496	)

Basic and diluted loss per
common share	$	(0.04	)	$	-		$	0.04	$	(0.05	)

Basic and diluted weighted average
common shares outstanding		9,927,174			-			384,968		10,312,142

The following unaudited pro forma financial information presents the combined results of operations of the Company, DocuCom and HRMS for the nine months ended September 30, 2007 and 2006 as if the acquisitions had occurred on January 1, 2007 and January 1, 2006, respectively.

Unaudited Pro Forma Statement of Operations For the Nine Months Ended September 30, 2007:

	BPOMS			DocuCom		HRMS			Pro Forma

Revenues	$	6,023,334		$	9,854,158	$	795,930		$	16,673,422

Net Income (Loss)	$	(3,939,297	)	$	127,637	$	(399,250	)	$	(4,210,910	)

Basic and diluted loss per
common share	$	(0.47	)	$	-	$	(1.04	)	$	(0.48	)

Basic and diluted weighted average
common shares outstanding		8,365,575			-		384,968			8,750,543

Unaudited Pro Forma Statement of Operations For the Nine Months Ended September 30, 2006:

	BPOMS			DocuCom		HRMS		Pro Forma

Revenues	$	3,850,900		$	9,856,986	$	900,781	$	14,608,667

Net Income (Loss)	$	(1,507,368	)	$	71,109	$	67,450	$	(1,378,809	)

Basic and diluted loss per
common share	$	(0.16	)	$	-	$	0.18	$	(0.14	)

Basic and diluted weighted average
common shares outstanding		9,509,123			-		384,968		9,894,091

Both acquisitions took place close to the end of the second quarter and the Company has not concluded its study of the valuation of the assets acquired and the liabilities assumed.

4. DEBT

SHORT-TERM RELATED PARTY DEBT

Short-term related party debt consisted of the following at September 30, 2007:

Notes payable to 2 officers, who are also significant
shareholders, secured by all assets of the Company,
bearing an annual interest rate of 9%			$	1,200,000

Long-term debt, including capital lease obligations, consisted of the following
at September 30, 2007:

a.	Credit facility from Royal Bank of Canada, stated interest at a
	floating rate plus 1.05%, (totaling 7.3% at September 30, 2007),
	secured by assets of the Company		$	120,972
b.	Loan from Business Development Bank of Canada, stated
	interest at a floating rate plus 3.25%, (totaling 11.50% at
	September 30, 2007), secured by assets and personal guarantees			53,873
	of the Company, expiring May 21, 2010
c.	Collateralized loan payable to Chrysler Financial,
	expiring March 2008, fixed interest rate of 13.9%			4,136
d.	Capital lease obligations maturing at dates ranging
	from November 30, 2009 to December 31, 2011, secured
	by the leased assets			666,966

		Total long-term debt before unamortized discount
		and inputed interest		845,947
		Less: Imputed interest and unamortized discount		(127,907	)

		Long-term debt		718,040
		Less: current portion		274,206

			$	443,834

RELATED PARTY NOTES PAYABLE

In August 2006 the Company entered into an agreement with two individuals who are officers, directors, and significant shareholders for a bridge loan not to exceed $3,000,000. From the inception of that agreement through January 30, 2007 a total of $2,740,000 was advanced to the Company. The loan agreement provided for principal and accrued and unpaid interest were due and payable April 30, 2007. The loan agreement is unsecured. The unpaid principal of $1,200,000 and accrued and unpaid interest of $9,450 as of September 30, 2007 are due and payable on demand. The amount due under the loan agreement has both a face and stated value of $1,200,000 as of September 30, 2007. The stated fixed interest rate is 9.00% per annum for the three and nine month periods ended September 30, 2007. For financial reporting purposes the effective interest rate yield was 9% and 64% per annum for the three and nine month periods ended September 30, 2007. The loan agreement was not in effect during either the three or nine month periods ending September 30, 2006

Common share purchase warrants (collectively the Warrants) to purchase one share of the Company’s common stock, par value $0.01 per share (the Common Stock), at an exercise price of $0.035 per share that are exercisable on issuance were granted in conjunction with the loan agreement. The total funds borrowed from the related parties amounted $2,740,000. The associated Warrants are exercisable for 707,704 shares of common stock. The Warrants, which expire seven years after issuance, were assigned a value of $834,717, estimated using the Black-Scholes-Merton valuation model. The following assumptions were used to determine the fair value of the Warrants using the Black-Scholes-Merton valuation model: a term of seven years, risk-free rate range of 4.16% - 5.03%, volatility of 125%, and dividend yield of zero. In accordance with EITF No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, the values assigned to the Warrants was allocated based on their relative fair values. The discount on the loan agreement for the Warrants was accreted to interest expense, using the effective interest method, over the initial term of the loan agreement (original loan agreement due date was April 30, 2007) Total interest expense recognized relating to the accretion of the Warrants discount for the three and nine month periods ending September 30, 2007 was $0 and $594,030, respectively. There was no interest expense related to the accretion of the Warrant discount for the three and nine month periods ending September 30, 2006.

The loan agreement provided that if the Company required additional equity in order to meet certain surplus requirements needed to accomplish the reverse merger with netGuru; it could offer the related parties the opportunity to convert a portion of the outstanding loan agreement amount then payable at an aggregate conversion price equal to 50% of the fair value of the common stock at the adjusted closed market price on the day immediately preceding the conversion of the loan agreement amounts. A total of $1,540,000 was converted into 916,667 shares of the Company’s Series C preferred stock in December 2006 (conversion price of $1.68 per share of Series C preferred stock is based on an adjusted closing price of the common stock on the day immediately preceding the conversion of $3.36). The Company incurred an $82,200 loan fee of 3% of the total amount borrowed under the loan agreement which was paid to the related parties.

Under the loan agreement, the Company was required to pay an amount equal to an amount not less than 25% of the net proceeds it received from all subsequent debt and equity financings towards the retirement of the then outstanding principal and accrued and unpaid interest (Note 5). Any unwaived failure by the Company to make any such payment would constitute a material breach of the loan agreement. In connection with the consummation of the Series D preferred stock equity financing on June 13, 2007, the two individuals waived this loan agreement covenant. The waiver related solely to the Series D preferred stock financing.

A. CREDIT FACILITY FROM THE ROYAL BANK OF CANADA

Docucom Imaging Solutions Inc. (“DocuCom”) has a revolving Operating Line with the Royal Bank of Canada with a maximum availability of $1,000,000 and carries an annual interest rate of the Royal Bank of Canada prime rate plus 1.05%, which amounted to 7.30% at September 30, 2007. The credit facility is secured by a General Security Agreement signed by DocuCom as well as a guarantee and postponement of claim for $500,000 in the name of Novus Imaging Solutions Inc. (“Novus”) which is also supported by a General Security Agreement signed by Novus. The Borrowing Limit on the credit facility is 75% of the good accounts receivable of the company. At September 30, 2007, DocuCom had an outstanding balance of approximately $120,972 which did not exceed the borrowing limit.

B. TERM LOAN FROM BUSINESS DEVELOPMENT BANK OF CANADA

Adapsys Document Management LP (“ADM”) has a term loan with the Business Development Bank of Canada that expires on May 21, 2010. The interest rate on this loan is bank's floating rate plus 3.25% and monthly principal re-payments are approximately $1,433. At September 30, 2007, the annual rate of interest on this loan was 11.50% and the balance outstanding was approximately $53,984. The loan is secured by a general security agreement from ADM and joint and several personal guarantees in the amount of approximately $43,000 by two former principals of ADM who were also the Company's 5% shareholders. The Company issued a 7-year warrant to purchase 5,435 shares of the Company's common stock at an exercise price of $0.03 per share to each of these shareholders in return for their loan guarantees. The warrants, valued at approximately $11,049, were recorded as a discount to the term loan. The value of the warrants is being amortized to interest expense over the term of the loan. Unamortized discount at September 30, 2007 was approximately $8,980.

C. LOAN PAYABLE TO CHRYSLER FINANCIAL

Digica Inc. has a loan payable to Chrysler Financial collateralized by a vehicle with a net book value of $9,750. The loan has a fixed annual interest rate of 13.9% and matures in March 2008. At September 30, 2007, the loan balance was $4,136.

D. CAPITAL LEASES

Capital leases consist primarily of equipment leases for the U.S. entities. The Company added approximately $360,090 to capital leases in the first quarter of fiscal 2007.

Long-term debt, excluding unamortized discount, and capital lease obligations mature in each of the following years ending September 30:

	Long-Term		Capital Lease
	Debt		Obligations

2008	$	141,942	$	184,835
2009		16,834		179,995
2010		11,225		134,543
2011		-		134,256
2012		-		33,338
Thereafter		-		-
Total minimum payments	$	170,001	$	666,966
Less: amount representing interest				(118,927	)

Present value of minimum capital lease payments			$	548,039

5. CAPITAL STOCK

In January 2006 the Company issued 362,300 common shares as part of the purchase consideration for Digica, Inc.

In September 2006 the Company issued 144,920 common shares as part of the purchase consideration for Novus Imaging Solutions, Inc.

In December 2006 the Company issued 916,666 Series C Convertible Preferred Stock to two individuals that are officers and significant shareholders for $1,540,000.

In December 2006 the Company issued 1,282,820 common shares in exchange for the shares of NetGuru, Inc. in the reverse merger transaction.

In June 2007 the Company issued 384,968 common shares as part of the purchase consideration for Human Resource Micro-Systems, Inc.

In June 2007 the Company privately placed shares of Series D Convertible Preferred Stock and various common stock and Series D-2 preferred stock purchase warrants to a limited number of institutional investors for gross proceeds of approximately $14,000,000. The shares of Series D Convertible Preferred Stock are convertible into approximately 23.3 million shares of our common stock. The three-year Series A Warrants (initial exercise price of $.90 per share) are exercisable for the purchase of up to approximately 11.7 million shares of our common stock. The five-year Series B Warrants (initial exercise price of $1.25 per share) are exercisable for the purchase of up to approximately 23.3 million shares of common stock. If exercised in full, the aggregate Series A Warrant and Series B Warrant proceeds will be approximately $40 million.

The investors were also granted a one-year option (in the form of Series J Warrants) to purchase up to $21 million of Series D-2 Convertible Preferred Stock, which is convertible into approximately 23.3 million shares of common stock. At the closing and in connection with such option, the Company granted the investors three-year Series C warrants (initial exercise price of $1.35 per share), which are exercisable for the purchase of up to approximately 11.7 million shares of common stock, and five-year Series D Warrants (initial exercise price of $1.87 per share), which are exercisable for the purchase of up to approximately 23.3 million shares of common stock. The Series C Warrants and the Series D warrants vest only upon the exercise of the Series J Warrants. If exercised in full, the aggregate Series C Warrant and Series D Warrant proceeds will be approximately $60 million.

Through amendments to each of the Series J Warrants to Purchase Shares of Preferred Stock issued to the investors who purchased shares of the Company’s Series D Convertible Preferred Stock on June 13, 2007 (which Series J Warrants were issued in connection with such share purchases), the Company voluntarily reduced the per-share warrant exercise price payable upon exercise of its Series J Warrant from $14.40 to $9.60, effective only for exercises thereof during the period between September 28, 2007 and October 10, 2007. This reduced warrant exercise price only applied for up to seventy-five percent (75%) of the Series J Warrants then held by each investor and the original exercise price of $14.40 per share was automatically re-applied to any Series J Warrants not exercised at the reduced price.

The Company also amended each of the Series C Warrants to purchase shares of Common Stock and Series D Warrants to purchase shares of Common Stock, all of which were also issued in connection with the purchases of the Series D Convertible Preferred Stock on June 13, 2007, to provide that, in the event that an investor exercised any portion of the Series J Warrants at the reduced exercise price, the per-share warrant exercise price payable upon exercise of its Series C Warrant was reduced from $1.35 to $0.01 and the per-share warrant exercise price payable upon exercise of its Series D Warrant was reduced from $1.87 to $1.10 for the same percentage of the investor’s Series C Warrants and Series D Warrants as the percentage of Series J Warrants then exercised by such investor during the reduced warrant price period. Any applicable reduced warrant exercise price for the Series C Warrants and Series D Warrants applies for the remainder of their respective terms.

As of September 30, 2007, the period end of this Current Report, an investor had exercised certain of their Series J Warrants at the reduced exercise price and acquired an aggregate of 375,000 shares of the Company Series D-2 Convertible Preferred Stock for an aggregate of approximately $3.6 million. The anti-dilution provisions of the investors' agreements were waived for such reduced exercise prices.

6. CONCENTRATION OF SALES AND CREDIT RISK

The Company is subject to credit risk primarily through its accounts receivable balances. The Company does not require collateral for its accounts receivable balances. None of the Company's customers accounted for more than 10% of the Company's consolidated net sales during the three months ended September 30, 2007.

7. DEFERRED REVENUES

8. SEGMENT AND GEOGRAPHIC DATA

The Company is a business process outsourcing services provider. The Company's operating segments are:

o Enterprise content management (ECM)

o Information Technology services outsourcing (ITO) and

o Human resources outsourcing (HRO)

The Company applies the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires segments to be determined and reported based on how management measures performance and makes decisions about allocating resources. The Company's management monitors unallocable expenses related to the Company's corporate activities in a separate "Corporate," which is reflected in the tables below.

The significant components of worldwide operations by reportable operating segment are:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006

Net revenues
ECM	$	3,504,953		$	492,908		$	5,866,997		$	2,290,238
ITO		880,978			458,269			2,861,891			1,327,867
HRO		246,371			10,114			260,188			232,795
Consolidated	$	4,632,302		$	961,291		$	8,989,076		$	3,850,900


Operating loss
ECM	$	(361,629	)	$	(274,161	)	$	(865,350	)	$	(615,644	)
ITO		(1,384	)		(52,302	)		(187,168	)		(252,536	)
HRO		(339,551	)		(45,854	)		(488,061	)		(503,065	)
Corporate		(563,406	)		(41,480	)		(1,634,893	)		(104,229	)
Consolidated	$	(1,265,970	)	$	(413,797	)	$	(3,175,472	)	$	(1,475,474	)


Depreciation and amortization expense
ECM	$	45,859		$	11,651		$	39,168		$	25,977
ITO		31,591			74,380			64,962			111,790
HRO		2,580			-			5,159			-
Corporate		62,227			2,598			115,355			7,795
Consolidated	$	142,257		$	88,629		$	224,644		$	145,562

The Company's operations are based in foreign and domestic subsidiaries and branch offices in the U.S., Canada and Germany. The following are significant components of worldwide operations by geographic location:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006

Net revenues
North America	$	4,367,847	$	961,291	$	8,496,025	$	3,850,900
Europe		264,455		-		493,051		-
Consolidated	$	4,632,302	$	961,291	$	8,989,076	$	3,850,900


	At		At
	September 30,		December 31,
Long-Lived Assets	2007		2006
North America	$	12,207,230	$	5,829,298
Europe		24,322		25,874
Consolidated	$	12,231,552	$	5,855,172

9. COMMITMENTS AND CONTINGENCIES

Financial Results, Liquidity and Management's Plan activities

The Company has incurred losses in the nine month ended September 30, 2007 of $3,932,263. The Company has been able to obtain operating capital through a private debt funding source, the sale of shares of its common stock and through the exercise of warrants to purchase shares of its common stock. Management's plans include the continued development and implementation of its business plan.

No assurances can be given that the Company can obtain sufficient working capital through the sale of the Company's common stock and borrowing or that the continued implementation of its business plan will generate sufficient revenues in the future to sustain ongoing operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

AMOUNT DUE FORMER SHAREHOLDERS OF ACQUIRED COMPANIES

The purchase agreements pursuant to which the Company acquired certain companies provides for the cash portion of the purchase price to be paid in installments within the year.

OPERATING LEASES

The Company leases certain facilities and equipment under non-cancelable operating leases. The facility leases include options to extend the lease terms and provisions for payment of property taxes, insurance and maintenance expenses.

At September 2007, future minimum annual rental commitments under these lease obligations were as follows:

For the twelve months ending September 30:

2008	$	491,047
2009		332,335
2010		198,486
2011		72,449
2012		2,422
Thereafter		-

	$	1,096,739

For the three months September 30, 2007 and 2006 rent expense was $266,956 and $112,278, respectively. For the nine months ended September 30, 2007 and 2006 rent expense was $581,121 and 344,735, respectively.

LITIGATION

The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Management believes that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the financial condition or results of operations of the Company.

NOTE 10: SUBSEQUENT EVENT

In October 2007, subsequent to the period for this Current Report, additional investors exercised certain of their Series J Warrants at the reduced exercise price and acquired an aggregate of 354,167 shares of the Company Series D-2 Convertible Preferred Stock for an aggregate of approximately $3.4 million.

The Company used the proceeds to complete the acquisition of Blue Hill Data Services, Inc.

Through a Stock Purchase Agreement, entered into as of October 10, 2007, the Company purchased the issued and outstanding capital stock of Blue Hill Data Services, Inc., a privately-held data center outsourcing services company, based in Pearl River, New York (“Blue Hill”). At or about the closing date, the Company transferred approximately $11 million of value, as follows: (i) cash payments to the current selling stockholders of approximately $6.6 million; (ii) a 15-month promissory note in the initial principal amount of $1 million, subject to offset in favor of the Company with respect to any claims for indemnity by the Company under the terms of the Stock Purchase Agreement; (iii) cash payment through Blue Hill in the amount of approximately $1.4 million to its former stockholder; and (iv) 2,666,666 shares of the Company’s restricted common stock valued at approximately $1.8 million (based upon the volume-weighted average closing bid price of the common stock during the ten consecutive trading days immediately preceding the closing). The promissory note bears interest from and after January 1, 2009, at the rate of 9% per annum and is “secured” by a document to be held in escrow, styled as a confession of judgment. The principal of the note, less any offsets, is, at the selling stockholders’ option, convertible into restricted shares of the Company’s common stock, the number of which is to be calculated in the same manner as the shares issued at closing were calculated.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). We intend that those forward-looking statements be subject to the safe harbors created by those sections. These forward-looking statements generally include the plans and objectives of management for future operations, including plans and objectives relating to our future economic performance, and can generally be identified by the use of the words "believe," "intend," "plan," "expect," "forecast," "project," "may," "should," "could," "seek," "pro forma," "goal," "estimates," "continues," "anticipate" and similar words. The forward-looking statements and associated risks may include, relate to, or be qualified by other important factors, including, without limitation:

o Our ability to continue as a going concern;

o Our ability to obtain additional debt or equity financing to the extent needed for our continued operations or for planned expansion, particularly if we are unable to attain and maintain profitable operations in the future;

o Our ability to successfully implement our business plans and the possibility of strategic acquisitions;

o Our ability to attract and retain strategic partners and alliances;

o Our ability to hire and retain qualified personnel;

o The risks of uncertainty of protection of our intellectual property;

o Risks associated with existing and future governmental regulation to which we are subject; and

o Uncertainties relating to economic conditions in the markets in which we currently operate and in which we intend to operate in the future.

These forward-looking statements necessarily depend upon assumptions and estimates that may prove to be incorrect. Although we believe that the assumptions and estimates reflected in the forward-looking statements are reasonable, we cannot guarantee that we will achieve our plans, intentions or expectations. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ in significant ways from any future results expressed or implied by the forward-looking statements. We do not undertake to update, revise or correct any forward-looking statements.

Any of the factors described above or in the "Risk Factors" section of this report could cause our future financial results, including our net income (loss) or growth in net income (loss) to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially.

OVERVIEW

The Company was incorporated in Delaware and commenced operations on July 26, 2005. On December 15, 2006, the Company acquired all of the outstanding common stock of publicly-held NetGuru, Inc. in a reverse merger ("Merger"). Upon the closing of the Merger, we adopted Former BPOMS’ (as the accounting acquirer) the accounting year end of December 31.

We provide business process outsourcing (BPO) services to enterprises in the United States, Canada and Europe. "BPO" refers to the outsourcing of entire business processes, typically to reduce cost and/or to improve the performance of that process. Our objective is to provide a comprehensive suite of BPO functions to support the back-office business requirements of middle-market enterprises throughout North America and Europe on an outsourced and/or recurring revenue basis.

Our primary business offerings are:

o Document and data management solutions, also known as enterprise content management or "ECM" including Finance and Accounting Services Outsourcing or "FAO";

o Information technology services outsourcing or "ITO"; and

o Human resources outsourcing or "HRO".

CRITICAL ACCOUNTING POLICIES

We have identified the following as accounting policies that are the most critical to aid in understanding and evaluating our financial results:

o revenue recognition;

o allowance for doubtful accounts receivable; and

o impairment of long-lived assets, including goodwill.

REVENUE RECOGNITION

We derive revenues from:

o Enterprise content management services, including collaborative software products and services;

o IT outsourcing services; and

o Human resources outsourcing services.

We recognize revenues when the following criteria are met:

o Persuasive evidence of an arrangement, such as agreements, purchase orders or written or online requests, exists;

o Delivery has been completed and no significant obligations remain;

o Our price to the buyer is fixed or determinable; and

o Collection is reasonably assured.

PERSUASIVE EVIDENCE OF AN ARRANGEMENT

We document all terms of an arrangement in a written contract signed by the customer prior to recognizing revenue.

DELIVERY HAS OCCURRED OR SERVICES HAVE BEEN PERFORMED

We perform all services or deliver all products prior to recognizing revenue. Monthly services are considered to be performed ratably over the term of the arrangement. Professional consulting services are considered to be performed when the services are complete. Equipment is considered delivered upon delivery to a customer's designated location.

THE FEE FOR THE ARRANGEMENT IS FIXED OR DETERMINABLE

Prior to recognizing revenue, a customer's fee is either fixed or determinable under the terms of the written contract. Fees for most monthly services, professional consulting services, and equipment sales are fixed under the terms of the written contract. Fees for certain services are variable based on an objectively determinable factor such as usage. Those factors are included in the written contract such that the customer's fee is determinable. The customer's fee is negotiated at the outset of the arrangement.

COLLECTIBILITY IS REASONABLY ASSURED

We determine that collectibility is reasonably assured prior to recognizing revenue. We assess collectibility on a customer by customer basis based on criteria outlined by management. New customers are subject to a credit review process, which evaluates the customer's financial position and ultimately its ability to pay. We do not enter into arrangements unless collectibility is reasonably assured at the outset. Existing customers are subject to ongoing credit evaluations based on payment history and other factors. If it is determined during the arrangement that collectibility is not reasonably assured, revenue will be recognized on a cash basis.

We recognize revenues from software that we customize to fit a customer's requirements based on satisfactory completion of pre-determined milestones (evidenced by written acceptance from the customer) and delivery of the product to the customer, provided no significant obligations remain and collection of the resulting receivable is reasonably assured. Customers may choose to purchase ongoing maintenance contracts that include telephone, e-mail and other methods of support, and unspecified upgrades on a when-and-if available basis. Revenue from the maintenance contracts is deferred and recognized ratably over the life of the contract, usually twelve months.

In 1997, the Accounting Standards Executive Committee ("AcSec") of the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2 distinguishes between significant and insignificant vendor obligations as a basis for recording revenue and requires that each element of a software licensing arrangement be separately identified and accounted for based on relative fair values of each element. We determine the fair value of each element in multi-element transactions based on vendor-specific objective evidence ("VSOE"). VSOE for each element is based on the price charged when the same element is sold separately.

In 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2, "Software Revenue Recognition, With Respect to Certain Transactions," which modified SOP 97-2 to allow for use of the residual method of revenue recognition if certain criteria are met. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then we recognize revenue using the residual method. Under the residual method, the fair value of the undelivered elements is deferred, and the remaining portion of the transaction fee is recognized as revenue.

We recognize revenues from our IT services primarily on a time and materials basis, with time at a marked-up rate and materials and other reasonable expenses at cost, as we perform IT services. Certain IT services contracts may be fixed price contracts where we would measure progress toward completion by mutually agreed upon pre-determined milestones and recognize revenue upon reaching those milestones. Our fixed price IT contracts typically are for a short duration of one to nine months.

ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

We sell to our customers on credit and grant credit to those who are deemed credit worthy based on our analysis of their credit history. We review our accounts receivable balances and the collectibility of these balances on a periodic basis. Based on our analysis of the length of time that the balances have been outstanding, the pattern of customer payments, our understanding of the general business conditions of our customers and our communications with our customers, we estimate the recoverability of these balances. When recoverability is uncertain, we record bad debt expense and increase the allowance for accounts receivable by an amount equal to the amount estimated to be unrecoverable. If the historical data we use to calculate the allowance provided for doubtful accounts does not reflect our future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and our future results of operations could be materially affected.

IMPAIRMENT OF LONG-LIVED ASSETS INCLUDING GOODWILL

At inception, we adopted the provisions of SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144. Pursuant to SFAS No. 142, we were required to perform an assessment of whether there was an indication that goodwill was impaired as of the date of adoption.

We are required to perform reviews for impairment annually, or more frequently when events occur or circumstances change that would more likely than not reduce the fair value of the net carrying amount. The evaluation of goodwill impairment involves assumptions about the fair values of assets and liabilities of each reporting unit. If these assumptions are materially different from actual outcomes, the carrying value of goodwill will be incorrect. In addition, the Company's results of operations could be materially affected by the write-down of the carrying amount of goodwill to its estimated fair value.

We assessed the fair value of its three reporting units by considering their projected cash flows, using risk-adjusted discount rates and other valuation techniques and determined that there was no impairment to goodwill. As of September 30, 2007, our goodwill account balance was $10,179,091.

CONSOLIDATED RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2007 VS. THREE MONTHS ENDED SEPTEMBER 30, 2006 AND NINE MONTHS ENDED SEPTEMBER 30, 2007 VS. NINE MONTHS ENDED SEPTEMBER 30, 2006

The privately held Former BPOMS began operations in July 26, 2005 and merged with the then publicly-held netGuru, Inc. on December 15, 2006 in a reverse merger ("Merger"). For accounting purposes, the acquisition has been treated as a recapitalization of Former BPOMS with Former BPOMS as the accounting acquirer. The historical financial statements prior to December 15, 2006, are those of the Former BPOMS.

Certain reclassifications have been made to the fiscal 2006 consolidated financial statements to conform to the fiscal 2007 presentation. The primary reclassifications relate to the presentation of the three business segments and the presentation of share and per share data giving effect to the one-for-fifteen reverse stock split, the Merger, and the resulting recapitalization of equity.

The following entities of BPOMS are included in the consolidated results of operations from the date of their respective acquisitions:

COMPANY					INCEPTION/ACQUISITION DATE

BPO Management Services, Inc. (the "Company")					Inception date: July 26, 2005
Adapsys Document Management LP ("ADM")					Acquired: July 29, 2005
Adapsys LP ("ADP")					Acquired: July 29, 2005
Digica, Inc. ("Digica")					Acquired: January 1, 2006
Novus Imaging Solutions, Inc. ("Novus")					Acquired: September 30, 2006
NetGuru Systems, Inc. ("netGuru")					Acquired: December 15, 2006
Research Engineers, GmbH ("GmbH")					Acquired: December 15, 2006
DocuCom Imaging Solutions, Inc. ("DocuCom")					Acquired: June 21, 2007
Human Resource Micro-Systems, Inc. ("HRMS")					Acquired: June 29, 2007

NET REVENUES

The following table presents our net revenues by operating segment:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006

Net revenues
ECM	$	3,504,953		$	492,908		$	5,866,997		$	2,290,238
% of total net revenues		75.7	%		51.3	%		65.3	%		59.5	%


ITO		880,978			458,269			2,861,891			1,327,867
% of total net revenues		19.0	%		47.7	%		31.8	%		34.5	%


HRO		246,371			10,114			260,188			232,795
% of total net revenues		5.3	%		1.1	%		2.9	%		6.0	%

Total net revenues	$	4,632,302		$	961,291		$	8,989,076		$	3,850,900

Total net revenues increased by $3,671,011 or 382% to $4,632,302 during the three months ended September 30, 2007 from $961,291 during the same period in the prior year. Total net revenues increased by $5,138,176 or 133% to $8,989,076 during the nine months ended September 30, 2007 from $3,850,900 during the same period in the prior year. Our total net revenues primarily consisted of net revenues from (1) enterprise content management, (2) IT Outsourcing services and (3) human resource outsourcing services.

ENTERPRISE CONTENT MANAGEMENT ("ECM")

Net revenue from ECM products and services during the three months ended September 30, 2007 increased by $3,012,045 or 611% to $3,504,953 from $492,908 during the three months ended September 30, 2006. During the nine months ended September 30, 2007 net revenue increased by $3,576,759 or 156% to $5,866,997 from $2,290,238 during the same period in the prior year. Net revenue in the ECM business segment in fiscal 2007 also includes net revenue from Novus Imaging Solutions, Inc. ("Novus") which was acquired in October 2006, net revenues from netGuru, Inc. ("netGuru"), which was acquired in December 2006 and net revenues from DocuCom Imaging Solutions, Inc. (“DocuCom”) which was acquired in June of 2007. Net revenue increases attributable to these companies acquired subsequent to September 30, 2006 amounted to $2,960,677 in the three months ended September 30, 2007 and $4,267,782 in the nine months ended September 30, 2007. The ECM segment includes our ECM solutions group and our collaborative software products and related services. The majority of our ECM solutions group services and our collaborative software revenue are generated from service-oriented projects where the revenue is recognized only upon the completion of specific project deliverables. The timing of these projects and the completion and recognition of revenue from various size projects creates variability in our ECM solutions group services revenues and collaborative software net revenues between quarters and fiscal years.

IT OUTSOURCING SERVICES ("ITO")

Net revenue from ITO during the three months ended September 30, 2007 increased by $422,709 or 92% to $880,978 from $458,269 during the three months ended September 30, 2006. During the nine months ended September 30, 2007 net revenue increased by $1,534,024 or 116% to $2,861,891 from $1,327,867 during the same period in the prior year. Increases were primarily due to the additional revenues from NetGuru Systems, Inc. acquired in December 2006 in conjunction with the reverse merger with NetGuru Inc.

HUMAN RESOURCE OUTSOURCING SERVICES ("HRO")

During the third quarter of fiscal 2007, net revenues from HRO increased $236,257 or 2336% to $246,371 from $10,114 during the third quarter of fiscal 2006 and increased $27,393 or 12% to $260,188 from $232,795 during the nine months ended September 30, 2007. The increase is due to the acquisition of HRMS which took place June 29, 2007 and is expected to continue offering increasing revenues to this segment in succeeding periods.

OPERATING EXPENSES

The following table presents our operating expenses and the percentage of total net revenues:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006

Operating Expenses
Cost of services provided expenses	$	2,563,277		$	376,438		$	4,436,764		$	1,341,553
% of total net revenues		55.3	%		39.2	%		49.4	%		34.8	%


Selling, general and administrative expenses	$	3,054,506		$	1,003,089		$	7,207,185		$	3,949,307
% of total net revenues		65.9	%		104.3	%		80.2	%		102.6	%


Research and development expenses	$	168,371		$	-		$	261,738		$	-
% of total net revenues		3.6	%		0.0	%		2.9	%		0.0	%

Share-based compensation expense		$	112,118			$	(4,439	)		$	258,861			$	35,514
% of total net revenues			2.4	%			-0.5	%			2.9	%			0.9	%


Total operating expenses	$	5,898,272		$	1,375,088		$	12,164,548		$	5,326,374
% of total net revenues		127.3	%		143.0	%		135.3	%		138.3	%

COST OF SERVICES PROVIDED EXPENSES

Cost of services provided expenses increased by $2,186,839 or 581% to $2,563,277 during the third quarter of fiscal 2007 from $376,438 during the third quarter of fiscal 2006 primarily due to acquisitions of Novus, DocuCom, HRMS and of entities acquired from NetGuru subsequent to the third quarter of fiscal 2006.

Cost of services provided expenses increased by $3,095,211 or 231% to $4,436,764 during the nine months of fiscal 2007 from $1,341,553 during the nine months of fiscal 2006 primarily due to acquisitions of Novus, DocuCom, HRMS and of entities acquired from NetGuru subsequent to the nine months of fiscal 2006.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses increased by $2,051,417 or 205% to $3,054,506 during the third quarter of fiscal 2007 from $1,003,089 during the third quarter of fiscal 2006 primarily due to higher professional fees and higher intangible amortization expense from the assets acquired in the previous year, and higher business integration expense associated with the consolidation of the newly acquired business operations. Additionally, SG&A expenses in the third quarter of fiscal 2007 included those of Novus, DocuCom and HRMS in the amount of $1,017,175 and of entities acquired from netGuru in the amount of $316,746 that were not present in the third quarter of 2006 since they were acquired in the fourth quarter ended December 2006 and DocuCom and HRMS were acquired in June 2007.

Selling, general and administrative ("SG&A") expenses increased by $3,257,878 or 82% to $7,207,185 during the first nine months of fiscal 2007 from $3,949,307 during the first nine months of fiscal 2006 primarily due to higher professional fees and higher intangible amortization expense from the assets acquired in the previous year, and higher business integration expense associated with the consolidation of the newly acquired business operations. Additionally, SG&A expenses in the first nine months of fiscal 2007 included those of Novus, DocuCom and HRMS in the amount of $1,453,161 and of entities acquired from netGuru in the amount of $822,082 that were not present in the first nine months of 2006 since they were acquired in the fourth quarter ended December 2006 and DocuCom and HRMS were acquired in June 2007.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development ("R&D") expenses consist primarily of software developers' wages. In the first quarter and the first nine months of fiscal 2006 there were no R&D expenses since the Web4 division which is the primary generator of R&D expense was acquired in the fourth quarter of fiscal 2006.

SHARE-BASED COMPENSATION EXPENSE

We recorded share-based compensation expense of $112,118 in the third quarter of fiscal 2007 compared to $(4,439) in the same period in the prior year. We recorded share-based compensation expense of $258,861 in the first nine months of fiscal 2007 compared to $35,514 in the same period in the prior year. Grants of employee stock options are recognized as expense in the Company’s financial statements based on their respective grant date fair values and are charged to compensation expense based on awards that are ultimately expected to vest.

OPERATING LOSS BY SEGMENT

Operating loss in the ECM segment increased to $361,629 in the third quarter of fiscal 2007 from $274,161 third quarter of 2006 primarily due to higher business integration expenses with the acquisition of DocuCom in June 2007. The decrease in operating loss in the ITO segment to $1,384 in the third quarter of fiscal 2007 from $52,302 in the third quarter of fiscal 2006 is primarily due to higher revenues from acquired entities and organic growth in the ITO segment during the third quarter of fiscal 2007 compared to the same period in the prior year. The increase in operating loss in the HRO segment is primarily due to an increase in salaries in the third quarter of fiscal 2007 compared to the third quarter of fiscal 2006 and higher business integration expenses with the acquisition of HRMS in June 2007. Corporate expenses increased to $563,406 in the third quarter of fiscal 2007 from $41,480 in the third quarter of 2006 primarily due to additional employees in the corporate headquarters, increased professional fees, intangible amortization expense and share-based compensation expense. The following table details the operating loss by segment:

	Three Months Ended September 30,
	2007			% of Total			2006			% of Total
Operating loss
ECM	$	(361,629	)		28.6	%	$	(274,161	)		66.3	%
ITO		(1,384	)		0.1	%		(52,302	)		12.6	%
HRO		(339,551	)		26.8	%		(45,854	)		11.1	%
Corporate		(563,406	)		44.5	%		(41,480	)		10.0	%
Consolidated	$	(1,265,970	)		100.0	%	$	(413,797	)		100.0	%

Operating loss in the ECM segment increased to $865,350 in the first nine months of fiscal 2007 from $615,644 in the third quarter of 2006 primarily due to higher business integration expenses with the acquisition of DocuCom in June 2007, and the entities acquired from netGuru during the fourth quarter of 2006. The operating loss in the ITO segment of $187,168 in the first nine months of fiscal 2007 decreased from $252,536 in the same period in the prior year. The operating loss in the HRO segment of 488,061 in the first nine months of fiscal 2007 is little changed from $503,065 in the same period in the prior year. Corporate expenses increased to $1,634,893 in the first nine months of fiscal 2007 from $104,229 in the first nine months of 2006 primarily due to additional employees in the corporate headquarters, increased professional fees, intangible amortization expense and share-based compensation expense. The following table details the operating loss by segment:

	Nine Months Ended September 30,
	2007			% of Total			2006			% of Total

Operating loss
ECM	$	(865,350	)		27.3	%	$	(615,644	)		41.7	%
ITO		(187,168	)		5.9	%		(252,536	)		17.1	%
HRO		(488,061	)		15.4	%		(503,065	)		34.1	%
Corporate		(1,634,893	)		51.5	%		(104,229	)		7.1	%
Consolidated	$	(3,175,472	)		100.0	%	$	(1,475,474	)		100.0	%

INTEREST AND OTHER EXPENSE

The following table presents our interest and other expense and its percentage of total net revenues:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006

Other Expense (Income)
Related parties interest	$	27,222		$	-		$	89,819		$	-
% of total net revenues		0.6	%		0.0	%		1.0	%		0.0	%

Amortization of related
party debt discount	$	-		$	-		$	594,029		$	-
% of total net revenues		0.0	%		0.0	%		6.6	%		0.0	%

Other interest, net	$	(11,300	)	$	26,898		$	76,045		$	31,894
% of total net revenues		-0.2	%		2.8	%		0.8	%		0.8	%

Other income	$	(3,115	)	$	(911	)	$	(3,102	)	$	-
% of total net revenues		-0.1	%		-0.1	%		0.0	%		0.0	%

Total other expense (income)	$	12,807		$	25,987		$	756,791		$	31,894
% of total net revenues		0.3	%		2.7	%		8.4	%		0.8	%

TOTAL INTEREST AND OTHER EXPENSE

Total interest and other expense decreased by $13,180 in the third quarter of fiscal 2007 to $12,807 from $25,987 in the third quarter of fiscal 2006 primarily due to interest income earned on the restricted time deposit with no corresponding interest income in the same period in 2006.

Total interest and other expense increased by $724,897 in the first nine months of fiscal 2007 to $756,791 from $31,894 in the first nine months of fiscal 2006 primarily due to $594,029 in amortization of the value of warrants issued pursuant to bridge loans, $89,819 in interest expense on bridge loans and interest on lease obligations and bank debt.

INCOME TAXES

In the third quarter and first nine months of fiscal 2007 and fiscal 2006, we recorded no income tax expense since we had incurred net losses from operations.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity at September 30, 2007 consisted of $6,102,487 in cash and cash equivalents. Cash and cash equivalents increased by $5,396,290 in the first nine months of fiscal 2007. We incurred net losses from operations of $3,175,472 and $1,475,474 and used cash in operations of $3,947,257 and $699,323 in the first nine months of 2007 and 2006, respectively.

The primary reasons for cash used in operations during the first nine months of fiscal 2007 were: net loss of $3,932,263 that included non-cash charges related amortization of the loan discount in the amount of $594,031, depreciation and amortization expense of $329,195, and share-based compensation expense of $258,861. In addition, the timing differences in the payment of our current liabilities and collection of our current assets also contributed to the cash used in operations.

The primary reasons for cash used in operations during the first nine months of fiscal 2006 were: net loss of $1,507,368, depreciation and amortization expense of $575,278, and share-based compensation expense of $35,514. In addition, the timing differences in the payment of our current liabilities and collection of our current assets also contributed to the cash used in operations.

Net cash used in investing activities in the first nine months of fiscal 2007 was $6,272,073, primarily for purchase of DocuCom, Novus, HRMS and property and equipment.

Net cash used in investing activities in the first nine months of fiscal 2006 was $2,329,085, primarily for purchase of Digica and $279,014 for the purchase of property and equipment.

Net cash provided by financing activities during the first nine months of 2007 was $15,946,799 of which $15,737,910 came from the net proceeds from the sale of $17,600,000 of preferred shares. In the first nine months of fiscal 2007, we received $400,000 in cash proceeds from bridge loans and repaid bank debt in the amount of $317,251. The bridge loan was provided by Mr. Dolan, our chief executive officer and we issued a warrant to purchase 133,333 shares of common stock pursuant to the bridge loan agreement.

In lieu of procuring mezzanine financing from otherwise unaffiliated third parties in order to finance our acquisition of Blue Hill Data Services, Inc. (as originally contemplated by the seven institutional investors who purchased shares of our Series D Convertible Preferred Stock on June 13, 2007 and us as of June 13, 2007, the date on which we closed our Series D Convertible Preferred Stock private placement with such institutional investors), we provided an enhanced opportunity to obtain such financing from these seven institutional investors. Through amendments to each of our Series J Warrants to Purchase Shares of Preferred Stock (“Series J Warrants”) issued to these investors on June 13, 2007 (which Series J Warrants were issued in connection with the Series D Convertible Preferred Stock purchases), we voluntarily reduced the per-share warrant exercise price payable upon exercise by any such investor of its Series J Warrant from $14.40 to $9.60, effective only for exercises thereof during the period between September 28, 2007 and October 10, 2007 (the “Reduced Warrant Price Period”). This reduced warrant exercise price only applied for up to seventy-five percent (75%) of the Series J Warrants then held by each such institutional investor and the original exercise price of $14.40 per share automatically re-applied to any Series J Warrants not exercised at the reduced price during the Reduced Warrant Price Period. Since we believed that we would obtain the funds we needed to complete the acquisition from the exercise of these Series J Warrants, we agreed that we will not procure such mezzanine financing or any other financing which is not permitted by the terms of the Series D Convertible Preferred Stock Purchase Agreement dated as of June 13, 2007, entered into by these institutional investors and us.

We also amended each of our Series C Warrants to Purchase Shares of Common Stock (“Series C Warrants”) and Series D Warrants to Purchase Shares of Common Stock (“Series D Warrants”), all of which were also issued in connection with such purchases of our Series D Convertible Preferred Stock on June 13, 2007 to these seven institutional investors, to provide that, in the event that the investor holding such warrant exercises any portion of its Series J Warrant during the Reduced Warrant Price Period, the per-share warrant exercise price payable upon exercise of its Series C Warrant was reduced from $1.35 to $0.01 and the per-share warrant exercise price payable upon exercise of its Series D Warrant was reduced from $1.87 to $1.10 for the same percentage of such investor’s Series C Warrant and Series D Warrant as the percentage as the percentage of the Series J Warrant exercised by such investor during the Reduced Warrant Price Period. For example, if an institutional investor exercised one-quarter (1/4) of its Series J Warrant during the Reduced Warrant Price Period, the per-share exercise price for its Series C Warrant and Series D Warrant was reduced for one-quarter (1/4) of its Series C Warrant and Series D Warrant. Any applicable reduced warrant exercise price for the Series C Warrants and Series D Warrants will apply for the remainder of their respective terms.

During the Reduced Warrant Price Period, six institutional investors exercised certain of their Series J Warrants at the reduced exercise price and acquired an aggregate of approximately 729,167 shares of our Series D-2 Convertible Preferred Stock for an aggregate of approximately $7.0 million. In October 2007, one of the institutional investors exercised a portion of its Series C Warrant at the reduced exercise price and acquired an aggregate of 500,000 shares of our common stock.

We have funded our operations primarily from the private placement of shares of our common stock and preferred stock and through the founders bridge loan facility established in August 2006. During the next twelve months, we anticipate raising capital necessary to grow our business and complete additional acquisitions by issuing our equity securities and/or debt in one or more private transactions. We have retained C. E. Unterberg, Towbin as our investment banker to spearhead this effort.

In the event that such transaction(s) do not take place at all and/or are unreasonably delayed, our future capital requirements will depend upon many factors. These factors include but are not limited to sales and marketing efforts, the development of new products and services, possible future corporate mergers or strategic acquisitions or divestitures, the progress of research and development efforts, and the status of competitive products and services. If our anticipated financing transactions do not take place at all and/or are unreasonably delayed, we may not have adequate funds to extinguish all our remaining liabilities and fund our current operations going forward.

Although we expect to meet our operating capital needs by additional private equity and/or debt transactions, and current economic resources, there can be no assurance that funds required will be available on terms acceptable to us, if at all. If we are unable to raise sufficient funds on acceptable terms, we may be not be able to complete our business plan. If equity financing is available to us on acceptable terms, it could result in additional dilution to our existing stockholders.

This uncertainty, recurring losses from operations, limited cash resources, and an accumulated deficit, among other factors, raised doubt about our ability to continue as a going concern and led our independent registered public accounting firm to include an explanatory paragraph related to our ability to continue as a going concern in their report that accompanied our financial statements for the year ended December 31, 2006. Reports of independent auditors questioning a company's ability to continue as a going concern generally are viewed unfavorably by analysts and investors. This report may make it difficult for us to raise additional debt or equity financing to the extent needed for our continued operations or for planned expansion, particularly if we are unable to attain and maintain profitable operations in the future. Consequently, future losses may adversely affect our business, prospects, financial condition, results of operations and cash flows.

The following table summarizes our contractual obligations and commercial commitments at September 30, 2007:

			Less Than						After
	Total		1 Year		1-3 Years		4-5 Years		5 Years

Long-term debt	$	170,001	$	141,942	$	28,059	$	-	$	-

Capital lease obligations*		548,039		136,826		254,652		156,561		-

Operating leases		1,096,739		491,047		530,821		74,871		-

Purchase price payable -
Novus and DocuCom		1,101,771		1,101,771		-		-		-

Bridge loan payable		1,200,000		1,200,000		-		-		-

Total contractual obligations	$	4,116,550	$	3,071,586	$	813,532	$	231,432	$	-

*Excludes imputed interest of $118,927

ITEM 3. CONTROLS AND PROCEDURES

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2007. Based on such evaluation, our principal executive officer and principal financial officer have concluded, as of the end of such period, that our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934.

During the third quarter of fiscal 2007, there were no changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In September 2007, we recorded the following paid-in-kind dividends to Messrs. Dolan and Cortens: 32,754 shares of our Series A Preferred Stock, based on a calculated 1,637,710 shares of Series A Preferred Stock that would be outstanding as of June 30, 2007. Once we have obtained the approval of the requisite number of shares (and classes) of our equity to increase the number of authorized shares of our Series A Preferred Stock, we will issue the number of shares of Series A Preferred Stock covered by the paid-in-kind dividend recorded in June 2007 and September 2007.

In late September and early October 2007, we issued 729,167 Shares of our Series D-2 Convertible Preferred Stock to six institutional investors, based upon their partial exercise of their Series J Warrants, for gross proceeds of approximately $7.0 million. In October 2007, we issued 500,000 of our common shares to an institutional investor, based upon its partial exercise of its Series C Warrant, for gross proceeds of approximately $5,000.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit

Number

Description

31.1

Certification of Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)

31.2

Certification of Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)

______________

(1) Attached as an exhibit to this Form 10-QSB.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 14, 2007	BPO MANAGEMENT SERVICES, INC.

	By: /s/ Donald W. Rutherford Chief Financial Officer (principal financial officer and duly authorized officer)

EXHIBITS ATTACHED TO THIS QUARTERLY REPORT ON FORM 10-QSB

Exhibit

Number

Description

31.1

Certification of Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Date: November 14, 2007	BPO MANAGEMENT SERVICES, INC.

	By: /s/ Patrick A. Dolan Chief Executive Officer (principal executive officer)


Date: November 14, 2007	BPO MANAGEMENT SERVICES, INC.

	By: /s/ Donald W. Rutherford Chief Financial Officer (principal financial officer and duly authorized officer)