bpo_sb2a1-082907.htm

SB-2/A 1 bpo_sb2a1-082907.htm BPO MANAGEMENT SERVICES, INC. bpo_sb2a1-082907.htm

Registration No. 333-144570

As filed with the Securities and Exchange Commission on November 29, 2007

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM SB-2

Pre-effective Amendment No. 1

REGISTRATION STATEMENT

UNDER THE

SECURITIES ACT OF 1933

BPO MANAGEMENT SERVICES, INC.

(Name of Small Business Issuer in Its Charter)

Delaware	7372	22-2356861
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

1290 N. Hancock Street, Suite 202

Anaheim, California 92807

(714) 974-2670 Telephone

(714) 974-4771 Facsimile

(Address and Telephone Number of Principal Executive Offices)

Patrick A. Dolan

Chief Executive Officer

1290 N. Hancock Street

Suite 202

Anaheim, California 92807

(714) 974-2670 Telephone

(714) 974-4771 Facsimile

(Name, Address and Telephone Number of Agent For Service)

with copies to:

Randolf W. Katz, Esq.

Bryan Cave LLP

1900 Main Street, Suite 700

Irvine, California 92614

(949) 223-7103 Telephone

(949) 223-7100 Facsimile

Jack T. Cornman, Esq.

Cornman & Swartz

19800 MacArthur Boulevard, Suite 820

Irvine, California 92612

(949) 224-1500 Telephone

(949) 224-1505 Facsimile

Approximate Date of Proposed Sale to the Public: From time to time after this Registration Statement becomes effective.

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ ____________________________

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ ______________________________________________

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ ______________________________________________

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities To Be Registered	Amount To Be Registered	Proposed Maximum Offering Price Per Security	Proposed Maximum Aggregate Offering Price	Amount of Registration Fee
Common Stock, par value $0.01 per share	192,484	$0.97(1)	$186,709(1)	-
Common Stock, par value $0.01 per share, issuable upon conversion of Series D Convertible Preferred Stock (3)	23,333,338	$0.97(1)	$22,633,337(1)	-
Common Stock, par value $0.01 per share, underlying Series A Warrants (3)	11,666,670	$0.90(2)	$10,500,003(2)	-
Common Stock, par value $0.01 per share, underlying Series B Warrants (3)	23,333,338	$1.25(2)	$29,166,672(2)	-
Common Stock, par value $0.01 per share, underlying conversion of Series D-2 Convertible Preferred Stock upon exercise of Series J Warrants (3)	23,333,338	$0.90(2)	$21,000,004(2)	-
Common Stock, par value $0.01 per share, underlying Series C Warrants (3)	11,666,670	$1.35(2)	$15,750,004(2)	-
Common Stock, par value $0.01 per share, underlying Series D Warrants (3)	23,333,338	$1.87(2)	$43,633,342(2)	-
Common Stock, par value $0.01 per share, underlying other Common Stock Purchase Warrants (3)	1,166,667	$0.60(2)	$700,000(2)	-
TOTAL	118,025,843	-	$143,570,071	$4,407.60

(1)	Pursuant to Rule 457(c), the maximum offering price for the common stock is estimated solely for the purpose of calculating the registration fee, based upon the average of the bid and ask prices of the common stock on the OTC Bulletin Board on July 10, 2007.

(2)	Pursuant to Rule 457(g), the registration fee is to be calucluated upon the basis of the price at which the warrants or rights or securities subject thereto are to be offered.

(3)	In accordance with Rule 416, the registrant is also registering hereunder an indeterminate number of shares of common stock that may be issued and resold to prevent dilution from stock splits, stock dividends and similar transactions.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1993 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, Dated November 29, 2007

PROSPECTUS

59,692,497 SHARES

COMMON STOCK

BPO MANAGEMENT SERVICES, INC.

The selling stockholders named in this prospectus are offering up to 59,692,497 shares of our common stock, par value $0.01 per share. Of these shares, approximately 23.3 million shares are issuable upon conversion in full of our Series D Convertible Preferred Stock, par value $0.01 per share (“Series D Preferred”), and approximately 36.2 million shares are issuable upon exercise of warrants to purchase shares of our common stock. We will not receive any of the proceeds from the sale of the shares by the selling stockholders, except for funds from the exercise of warrants held by the selling stockholders, if, when, and as exercised. The selling stockholders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. Any commissions, fees, and discounts of underwriters, brokers, dealers or agents will be paid by the selling stockholders.

Our common stock is quoted on the OTC Bulletin Board under the trading symbol “BPOM.” The closing price for our common stock on the OTC Bulletin Board was $0.70 on November 27, 2007.

See “Risk Factors” beginning on page 4 of this prospectus for the factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these shares or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is , 2007

You may rely on the information contained in this prospectus. We have not authorized anyone to provide information different from that contained in this prospectus. Neither the delivery of this prospectus nor sale of common shares means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy our common shares in any circumstances under which the offer or solicitation is unlawful.

Table of Contents

Page


PROSPECTUS SUMMARY	3

RISK FACTORS	4

FORWARD-LOOKING STATEMENTS	8

USE OF PROCEEDS	9

DIVIDEND POLICY	9

CAPITALIZATION	9

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	9

EQUITY COMPENSATION PLAN INFORMATION	10

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION	11

BUSINESS	25

MANAGEMENT	34

EXECUTIVE COMPENSATION	36

CERTAIN RELATIONSHIPS AND TRANSACTIONS AND CORPORATE GOVERNANCE	42

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	43

DESCRIPTION OF SECURITIES	49

SELLING STOCKHOLDERS	50

PLAN OF DISTRIBUTION	56

LEGAL PROCEEDINGS	57

LEGAL MATTERS	57

EXPERTS	58

COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES	58

WHERE YOU CAN FIND MORE INFORMATION	58

We own various registered and unregistered trademarks, some of which are mentioned in this prospectus.

All references to “we,” “us,” “our,” “our company,” “BPOMS” and similar terms refer to BPO Management Services, Inc. and its predecessor, netGuru, Inc.

____________________________

PROSPECTUS SUMMARY

This summary provides a brief overview of the key aspects of our company and the offering. However, it is a summary and may not contain all of the information that is important to you. For a more complete understanding of this offering, we encourage you to read this entire prospectus, including our financial statements and the notes to those statements.

Company Overview

We were incorporated in 1981 under the name Research Engineers, Inc. and changed our name to netGuru, Inc. in 2000. On December 15, 2006, we acquired all of the outstanding common stock of privately held BPO Management Services, Inc. (“Former BPOMS”) in a reverse merger (“Merger”). Former BPOMS was incorporated in July 2005. Upon the closing of the Merger, we adopted Former BPOMS’ fiscal year end of December 31 as, for accounting purposes, it was the accounting acquirer. We are a Delaware corporation.

We provide business process outsourcing (BPO) services to middle-market enterprises in the United States, Canada and Europe. “BPO” refers to the outsourcing of entire business processes, typically to reduce cost and/or 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:

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

Information technology services outsourcing or “ITO”; and

Human resources outsourcing or “HRO.”

Our principal executive offices are located at 1290 North Hancock Street, Suite 202, Anaheim, California 92807 and our telephone number is 714-974-2670.

The Offering

Securities offered	59,692,497 shares of common stock, including approximately 23.3 million shares underlying our Series D Convertible Preferred Stock and approximately 36.2 million shares underlying warrants to purchase common stock.

Transactions in which selling stockholders acquired securities offered	On June 13, 2007, seven institutional investors purchased an aggregate of 1,458,333.8 shares of our Series D Convertible Preferred Stock (which shares are initially convertible into approximately 23.3 million shares of our common stock), Series A, B, C and D Warrants to purchase an aggregate of approximately 70.0 million shares of our common stock, and Series J Warrants to purchase an aggregate of 1,458,333.8 shares of our Series D-2 Convertible Preferred Stock (which, if fully exercised and converted, are initially convertible into approximately 23.3 million shares of our common stock). We are not currently registering the shares of common stock underlying the Series J, C, and D Warrants. In connection with that transaction, we awarded warrants for the purchase of up to an aggregate of 1,166,667 shares of our common stock to C.E. Unterberg, Towbin, Inc. and George Logan. On June 29, 2007, in connection with the closing of our acquisition of the outstanding capital stock of Human Resource MicroSystems, Inc., we issued the former holders of such stock 384,968 shares of our restricted common stock, one-half of which is being registered hereunder. The shares of Series D Convertible Preferred Stock are entitled to certain dividends and liquidation preferences, and each share of Series D Convertible Preferred Stock is initially convertible into sixteen shares of our common stock. The three-year Series A Warrants that we granted (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 that we granted (initial exercise price of $1.25 per share) are exercisable for the purchase of up to approximately 23.3 million shares of our common stock. We also granted the investors 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 our common stock. At the closing and in connection with such option, we 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 our 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 our common stock. The Series C Warrants and the Series D Warrants vest only upon the exercise of the Series J Warrants. There can be no assurance that any or all of the warrants will be exercised. Please refer to “Selling Stockholders” beginning on page 49 for a more complete description of this transaction and the Series D Convertible Preferred Stock and the Series A, B, J, C and D Warrants purchased in this transaction.

Common stock outstanding	12,171,034 as of November 27, 2007.

Use of proceeds	We will not receive any of the proceeds from the sale of the shares by the selling stockholders but will receive funds from the exercise of warrants held by the selling stockholders, if, when, and as exercised. We will pay all of the expenses of this offering, including, without limitation, professional fees and registration fees.

Risk factors	The offering involves a high degree of risk. Please refer to “Risk Factors” beginning on page 4 for a description of the risk factors you should consider.

OTC Bulletin Board symbol	BPOM

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risk factors listed below and all other information contained in this prospectus before investing in our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us.

If any of the following risks occur, our business, our quarterly and annual operating results, or our financial condition could be materially and adversely affected. In that case, the market price of our common stock could decline or become substantially volatile, and you could lose some or all of your investment.

Risks Related to our Business

An investment in shares of our common stock involves a high degree of risk. In addition to the other information contained in this prospectus, you should carefully consider the following risk factors before deciding to invest or maintain an investment in shares of our common stock. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this prospectus. If any of the following risks actually occurs, it is likely that our business, financial condition, and operating results would be harmed. As a result, the trading price of our common stock could decline, and you could lose part or all of your investment.

We do not have a policy of updating or revising forward-looking statements, and silence by our management over time should not be assumed to mean that actual events are bearing out as estimated in the forward-looking statements.

We have limited cash resources and continue to generate net operating losses.

Notwithstanding the proceeds received in the Share Sale (as defined below in “Selling Stockholders” on page 49 of this prospectus), our cash resources may quickly diminish in the future. Our future capital requirements will depend upon many factors, including possible future strategic acquisitions, sales and marketing efforts, and the development of new products and services. As of December 31, 2006, we had negative working capital of $3,137,580 and an accumulated deficit of $4,100,706. As of that date, we had $706,197 in cash and cash equivalents and $743,114 in accounts receivable, net of allowance for doubtful accounts. As of September 30, 2007, we had net working capital of $2,805,902 and an accumulated deficit of $8,032,969. As of that date, we had $6,102,487 in cash and cash equivalents and $3,672,086 in accounts receivable, net of allowance for doubtful accounts.

We recorded a net operating loss of $2,943,975 and used $1,947,682 of cash in operating activities during fiscal 2006. We recorded a net operating loss of $3,175,472 and used $3,947,257 of cash in operating activities during the first nine months of fiscal 2007. Even after the closing of the DocuCom Imaging Solutions Inc. ("DocuCom"), Human Resource MicroSystems, Inc. ("HRMS") and Blue Hill Data Services, Inc. (“Blue Hill”) acquisitions, there is no assurance that we will be able to generate sufficient operating cash in future quarters.

We have a history of losses and an accumulated deficit that may continue in the future even after the recent completion of two acquisitions and that may adversely affect our business, prospects, financial condition, results of operations, cash flow, and stock price.

We have incurred net losses since our inception in July 26, 2005. Our accumulated deficit through December 31, 2006 was $4,100,706, and as of that date we had a total stockholders’ equity of $2,455,095. Our accumulated deficit through September 30, 2007 was $8,032,969, and, as of that date, we had a total stockholders’ equity of $14,593,620.

Our recurring losses from operations, the limitations on our cash resources, and negative cash flow from operations and our 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 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 may make it difficult for us to raise additional debt or equity financing necessary to complete our planned acquisitions and execute our business plan, 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. Investors should review the report of our independent registered public accounting firm and our consolidated financial statements before making a decision to invest or maintain an investment in us.

Any business combination or acquisition will likely be dilutive to our existing stockholders.

Any business combination involving us will most likely require our issuance of additional shares of common and/or preferred stock. These issuances could result in a change of control or substantial dilution to our existing stockholders, with or without stockholder review or approval.

The market price for our common stock may become more volatile after an acquisition transaction or as a result of various other factors.

We cannot predict how the final terms of the Share Sale will be viewed by the marketplace. Accordingly, the Share Sale may add to the volatility of our stock price. Additionally, the price of our common stock could further decline due to the impact of any of the following factors:

failure to meet sales goals or operating budgets;

decline in demand for our common stock;

revenues and operating results failing to meet expectations of securities analysts or investors in any quarter;

downward revisions in operating performance estimates or changes in general market conditions;

technological innovations by competitors or in competing technologies;

failure to integrate acquired entities;

investor perception of our industry or prospects; or

general economic trends.

Market fluctuations are often unrelated to operating performance and, therefore, are beyond our control.

Our success in our continuing operations depends, in part, on our ability to retain our current management team.

Our founders, Chairman and Chief Executive Officer, Patrick A. Dolan, and our President and Secretary, James Cortens, are an integral part of our operations and, until the Share Sale, have been the primary source of our funding since our inception. Their experience, expertise, industry knowledge, and historical company knowledge would be extremely difficult to replace if we were to lose the services of either of them. The precise impact of the loss of services of either of them is extremely difficult to predict, but would likely result in, at a minimum, significant costs to recruit, hire and retain a successor and could impair operating results while the successor was being recruited and transitioning into the position.

The markets in which we currently compete will continue to be highly competitive, which has resulted in significant price competition and may result in reduced revenues or loss of market share.

The BPO services we offer are each highly competitive. The market for these services is characterized by an increasing number of entrants due to low start-up costs. Some of our competitors and potential competitors have larger technical staffs, more established and larger marketing and sales organizations, and significantly greater financial resources than those that we have. Our competitors may develop products and services that are superior to ours or that achieve greater market acceptance. Our future success will depend significantly upon our ability to increase our share of our target markets and to sell additional products, product enhancements, and services to our customers. We are experiencing pricing pressures as we work to expand our software products and services market share. As a result of these pricing pressures, we may experience declines in our revenues, gross margins, and market share.

Our operating results may be adversely affected by exchange rate fluctuations.

We have established and acquired international subsidiaries that prepare their balance sheets in the relevant foreign currency. In order to be included in our consolidated financial statements, these balance sheets are converted, at the then-current exchange rate, into U.S. dollars, and the statements of operations are converted using weighted-average exchange rates for the applicable periods. Foreign currency denominated sales may result in gains and losses on the conversion to U.S. dollars. We do not engage in hedging activities to protect against the risk of currency fluctuations. Therefore, exchange rate fluctuations can have a detrimental effect on our reported operating results.

Changing technology may render our product and service offerings obsolete and, therefore, unmarketable.

Our ability to compete successfully depends upon the continued compatibility and interoperability of our services with products and architectures offered by various vendors. Although we intend to support emerging standards in the market for Internet access, industry standards may not be established and, if they become established, we may not be able to conform to these new standards in a timely fashion or maintain a competitive position in the market. The announcement or introduction of new products or services by us or our competitors and any change in industry standards could cause our customers to defer or cancel purchases of existing products or services.

Our stock price has been and may continue to be volatile, which could result in substantial losses for investors purchasing shares of our common stock and in litigation against us.

The market prices of securities of technology-based companies like ours tend to be highly volatile. The market price of our common stock has fluctuated significantly in the past. In fact, during the 52-week period ended November 27, 2007, the high and low sale prices of a share of our common stock were $6.00 and $0.20, respectively. Our market price may continue to exhibit significant fluctuations in response to a variety of factors, many of which are beyond our control. These factors include, among others, deviations in our results of operations from the estimates of securities analysts, changes in securities analysts’ estimates of our financial performance, changes in market valuations of similar companies, and stock market price and volume fluctuations generally. Additionally, it is likely that our quarter-to-quarter performance will be unpredictable and contribute to our stock price volatility.

In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. Because of the volatility of the market price of our common stock, we may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources.

The concentration of ownership of our common and preferred stock gives a few individuals significant influence over important policy decisions and could delay or prevent changes of control.

As of November 27, 2007, our executive officers and directors and their family members together beneficially owned approximately 85.7% of the issued and outstanding shares of our common stock, as well as 100% of the issued and outstanding shares of our Series A Preferred Stock and 100% of the issued and outstanding shares of our Series C Preferred Stock. In addition, as of November 27, 2007, the seven institutional investors who participated in the Share Sale, if they elected to exercise all of the warrants issued to them and convert the Series D and Series D-2 Convertible Preferred Stock issued or issuable to them, would beneficially own approximately 90.9% of the issued and outstanding shares of our common stock (assuming that no Series A or Series C Preferred Stock is converted and no stock options or other warrants are exercised).

In addition, each class of our preferred stock is entitled to certain rights, including the following:

o Series A - Shares of Series A vote together with shares of common stock on an as-converted basis, with any fractional votes rounded to the nearest share, on matters submitted to a vote of stockholders generally. Series A holders, voting as a separate class, are entitled to elect two members of our board of directors at each meeting or pursuant to each written consent. The affirmative vote of a majority of the outstanding shares of Series A is required prior to:

o the sale, lease, or other transfer of all or substantially all of our assets;

o the merger or consolidation of us into or with any other corporation that results in the transfer of more than 50% of our voting power; or

o the acquisition in any manner or form, including through the issuance of debt and/or stock and/or payment of cash, of all or substantially all of the assets or business or capital stock or ownership interest of another entity or business

Also, the affirmative vote of holders of not less than two-thirds of the outstanding shares of Series A is required for:

o the creation of a new class or series of stock that is entitled to dividends or shares in the distribution of assets on a parity with or in priority to the Series A (other than the Series C); and

o the amendment of the terms of the Series A in a manner that would materially alter or change their powers, preferences, or special rights.

o Series B - Shares of Series B vote together with shares of common stock on an as-converted basis, with any fractional votes rounded to the nearest share, on matters submitted to a vote of stockholders generally. Holders of a majority of outstanding shares of Series B have the right to appoint an observer to attend all the meetings of our board of directors in a nonvoting capacity, except during any period in which any holder of Series B serves as a director of ours.

o Series C - Shares of Series C have one vote per share and vote together with shares of common stock on matters submitted to a vote of stockholders generally. In addition, the affirmative vote of a majority of the outstanding shares of Series C is required prior to any of the following events: a voluntary or involuntary liquidation, dissolution, or winding up; a merger or consolidation with or into any other corporation or corporations as a result of which our stockholders immediately prior to the consummation of the merger or consolidation hold less than 50% of the voting securities of the surviving entity; and the sale, transfer or lease of all or substantially all of our assets. Also, the affirmative vote of holders of not less than two-thirds of the outstanding shares of Series C is required for:

o the creation of a new class or series of stock that is entitled to dividends or shares in the distribution of assets on a parity with or in priority to the Series C or that provides for mandatory redemption;

o the redemption of shares of capital stock other than Series C; and

o the amendment of the terms of the Series C in a manner that would materially alter or change their powers, preferences, or special rights.

o Series D Convertible Preferred Stock - Except for certain transactions upon which the Series D Convertible Preferred Stock is entitled to vote separately as a class and except as required by the Delaware General Corporation Law, the Series D Convertible Preferred Stock has no voting rights. The following transactions require the approval of holders of at least 66% of the then-outstanding shares of Series D Convertible Preferred Stock: authorizing, creating, issuing, or increasing the authorized or issued amount of any class of stock; amending, altering or repealing the provisions of the Series D Convertible Preferred Stock in a way that would adversely affect any right, preference, privilege or voting power of the Series D Convertible Preferred Stock; repurchasing, redeeming or paying dividends or distributions on our common stock or any stock junior to the Series D Convertible Preferred Stock; amending our Certificate of Incorporation or Bylaws in a way that would materially and adversely affect the rights, preferences, privileges and voting power of the Series D Convertible Preferred Stock; reclassifying our outstanding securities; voluntarily filing for bankruptcy, liquidating our assets or making an assignment for the benefit of our creditors; materially changing the nature of our business; and authorizing, approving or entering into a change in control transaction. For as long as any shares of Series D Convertible Preferred Stock and Series D-2 Convertible Preferred Stock remain outstanding, the holders of such stock, voting together as a single class, are entitled to elect one member of our board of directors. Mr. Cleveland is currently such director.

o Series D-2 – Shares of our Series D-2 Convertible Preferred Stock possess the same rights as summarized above for shares of our Series D Convertible Preferred Stock.

As a result, our executive officers, directors and these seven institutional investors have the ability to exert significant influence over matters that could include the election of directors, changes in the size and composition of the board of directors, and mergers and other business combinations or strategic transactions involving our company. In addition, through their voting power, they may be able to exert significant influence over certain of our business decisions, including decisions regarding the qualification and appointment of officers, dividend policy, access to capital (including borrowing from third-party lenders and the issuance of additional equity securities), and the acquisition or disposition of our assets. Further, the concentration of voting power in the hands of those individuals and investors could have the effect of delaying or preventing a change of control of our company, even if the change of control would benefit our other stockholders. A perception in the investment community of an anti-takeover environment at our company could cause investors to value our stock lower than in the absence of such a perception.

Our common stock may be considered a “penny stock” and may thereby be subject to additional sale and trading regulations that may make it more difficult to sell.

Shares of our common stock are subject to rules adopted by the Securities and Exchange Commission that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in those securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission, which contains the following:

a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;

a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of securities’ laws;

a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks, and the significance of the spread between the “bid” and “ask” price;

a toll-free telephone number for inquiries on disciplinary actions;

definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and

such other information and in such form(including language, type, size and format), as the Securities and Exchange Commission shall require by rule or regulation.

Prior to effecting any transaction in penny stock, the broker-dealer also must provide the customer the following:

the bid and offer quotations for the penny stock;

the compensation of the broker-dealer and its salesperson in the transaction;

the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and

monthly account statements showing the market value of each penny stock held in the customer’s account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. Holders of shares of our common stock may have difficulty selling those shares because our common stock will probably be subject to the penny stock rules.

Conversion of Preferred Stock or exercise of outstanding warrants will increase the number of issued shares of common stock, reduce each then existing stockholder’s percent of ownership, and may dilute our share value.

In connection with the Share Sale, we issued 1,458,333.8 shares of our Series D Convertible Preferred Stock, which shares are convertible into approximately 23.3 million shares of our common stock. In addition, we granted warrants to purchase up to 1,458,333.8 shares Series D-2 Convertible Preferred Stock (which shares are convertible into approximately 23.3 million shares of our common stock) and warrants to purchase up to approximately 71.2 million shares of our common stock if such warrants are exercised in full. The conversion of any of the shares of our Series D Convertible Preferred Stock, the conversion of any of the shares of our Series D-2 Convertible Preferred Stock after exercise of the Series J Warrants to purchase our Series D-2 Convertible Preferred Stock, or exercise of any of the warrants to purchase common stock granted in connection with the Share Sale will result in the issuance of shares of our common stock and may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. The issuance of common stock upon any such conversion or exercise may have the effect of diluting the value of the shares held by our stockholders and might have an adverse effect on any trading market for our common stock.

FORWARD-LOOKING STATEMENTS

This prospectus 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”). These forward-looking statements are based on our current expectations, assumptions, estimates, and projections about us and our industry and generally include the plans and objectives of management for future operations, including plans and objectives relating to our future economic performance.

You can identify certain forward-looking statements by our use of forward-looking terminology such as the words “may,” “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “forecasts,” “projects,” “should,” “could,” “seek,” “pro forma,” “goal,” “continues,” “anticipates,” or similar expressions.

These forward-looking statements involve risks and uncertainties and include, in particular, statements about our plans, strategies, and prospects under the headings “Management’s Discussion and Analysis or Plan of Operation” and “Business.” In addition, the forward-looking statements and associated risks may include, relate to, or be qualified by other important factors, including, without limitation:

Our ability to continue as a going concern;

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;

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

Our ability to attract and retain strategic partners and alliances;

Our ability to hire and retain qualified personnel;

Our ability to integrate recent and future acquisitions;

The risks of uncertainty of protection of our intellectual property;

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

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 (including but not limited to the factors described in the “Risk Factors” section and elsewhere in this prospectus) 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 in any way, including but not limited to reflecting new events or circumstances.

Any of the factors described above or in the “Risk Factors” section of this prospectus 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.

USE OF PROCEEDS

All shares of our common stock offered by this prospectus are being offered for the account of the selling stockholders. We will not receive any of the proceeds from the sale of these shares by the selling stockholders. We have received approximately $7.0 million from partial exercises of the warants to date and may receive up to an additional approximately $92,750,000 upon the exercise of the remaining unexercised warrants in full at their respective current exercise prices. There can be no assurance that any or all of the remaining unexercised warrants will be exercised. These proceeds, if any, are expected to be used for future acquisitions and general working capital.

DIVIDEND POLICY

Other than payment of a cash distribution of $0.85 per share by netGuru, Inc. on January 30, 2006 and a cash distribution of $2.73 per share by netGuru, Inc. in December 2006, both of which were in connection with the sales of our assets for cash, we have not declared or paid any dividends on our common stock in the last five years, and we do not intend to pay any cash dividends in the foreseeable future. Pursuant to the terms of the Share Sale documentation, we agreed that (1) as long as any shares of Series D Convertible Preferred Stock, Series A Warrants, Series B Warrants, Series J Warrants, Series C Warrants, or Series D Warrants remain outstanding, we would not declare or pay any dividends or make any distributions on our common stock or any other class and series of our equity securities, which by their terms do not rank senior to the Series D or Series D-2 Convertible Preferred Stock, except for payment-in-kind dividends on account of our Series A Preferred Stock or cash dividends on account of our Series C Preferred Stock, and (2) in order to pay dividends on common stock, we must obtain the approval of at least 66% of the shares of the then-outstanding Series D Convertible Preferred Stock and of at least 66% of the shares of the then-outstanding Series D-2 Convertible Preferred Stock.

We intend to retain any future earnings for use in the operation and expansion of our business. Any future decision to pay dividends on common stock will be at the discretion of our Board of Directors and will be dependent upon our fiscal condition, results of operations, capital requirements, and other factors our Board of Directors may deem relevant.

	Shares Authorized		Shares Outstanding		Amount
Series A Preferred Stock		1,608,612		1,605,598	$	16,056
Series B Preferred Stock		1,449,204		1,449,204	$	14,492
Series C Preferred Stock		21,378,000		916,667	$	9,167
Series D Convertible Preferred Stock		1,500,000		1,458,334	$	14,583
Series D-2 Convertible Preferred Stock		1,500,000		375,000	$	3,750
Common stock		150,000,000		9,004,368	$	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

	High		Low
Fiscal 2005
1^st Quarter (January 1 - March 31)		$1.39		$1.001
2^nd Quarter (April 1 - June 30)		$1.10		$0.90
3^rd Quarter (July 1 - September 30)		$1.42		$0.80
4^th Quarter (October 1 – December 31)		$1.1101		$0.61

Fiscal 2006
1^st Quarter (January 1 - March 31)		$1.18		$0.255
2^nd Quarter (April 1 - June 30)		$0.51		$0.17
3^rd Quarter (July 1 - September 30)		$0.35		$0.14
4^th Quarter (October 1 – December 14)		$0.2501		$0.21
(December 15 – December 31) (1)		$5.33		$2.54

Fiscal 2007
1^st Quarter (January 1 – January 7)		$3.55		$2.77
(January 8 - March 31)		$2.20		$0.71
2^nd Quarter (April 1 - June 30)		$1.40		$0.92
3^rd Quarter (July 1 - September 30)		$0.93		$0.55

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options and Warrants (1)		Weighted Average Exercise Price of Outstanding Optionsand Warrants		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		-		-		3,658,000
Equity compensation plans not approved by security holders(2)		2,154,674	$	0.1296		-
Total		2,154,674	$	0.1296		3,658,000

(1)	Number of shares is subject to adjustment for changes in capitalization for stock splits, stock dividends, and similar events.
(2)	Represents options and warrants outstanding under equity compensation plans not approved by security holders.

		Acquisition Date
ADAPSYS Document Management LP (“ADM”)		July 29, 2005
ADAPSYS LP (“ADP”)		July 29, 2005
Digica, Inc. (“Digica”)		January 1, 2006
Novus Imaging Solutions, Inc. (“Novus”)		September 30, 2006
netGuru, Inc. (“netGuru”)		December 15, 2006

	Year Ended December 31, 2006		% of Total Net Revenues		July 26, 2005 to December 31, 2005		% of Total Net Revenues
NET REVENUES
Enterprise Content Management	$	2,713,769		57.6%	$	2,321,834		98.9%
IT Outsourcing Services		1,833,052		38.9%		-		-
Human Resources Outsourcing Services	$	164,318		3.5%	$	25,700		1.1%
Total net revenues	$	4,711,139		100%	$	2,347,534		100%

	YEAR ENDED DECEMBER 31,
	2006			% of Total Net Revenues			2005		% of Total Net Revenues
OPERATING EXPENSES
Cost of services	$	1,523,983			32.3%		$	887,456		37.8%
Selling, general and administrative expenses		5,737,335			121.8%			1,230,011		52.4%
Research and development expenses		19,491			0.4%			-		-%
Share-based compensation expense		598,031			12.7%			24,415		1.0%
Change in estimated severance liability		(223,726	)		(4.7)%	)		1,014,281		43.2%
Total operating expenses	$	7,655,114			162.5%		$	3,156,163		134.4%

	Year Ended December 31, 2006			% of Total		July 26, 2005 to December 31, 2005			% of Total
ECM	$	(650,551	)		22.1%	$	(462,915	)		57.2%
ITO		(355,393	)		12.1%		-			-%
HRO		(777,336	)		26.4%		(233,016	)		28.8%
Corporate		(1,160,695	)		39.4%		(112,698	)		13.9%
Consolidated	$	(2,943,975	)		100.0%	$	(808,629	)		100.0%

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

	Three Months Ended September 30,						Nine Months Ended 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

	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	%

	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	%

	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	%

			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	$	-

Name	Age	Position

Patrick Dolan	50	Chairman of the Board, Chief Executive Officer, and Director
James Cortens	51	Chief Operating Officer, President, Secretary, Director
Donald Rutherford	68	Chief Financial Officer
Dale Paisley (1)	66	Director
Russell Cleveland	68	Director
Koushik Dutta	43	Chief Technology Officer

Name and Principal Position	Fiscal Year Ended December 31	Salary ($)	Bonus ($)	Stock Awards (2) ($)	Option Awards ($)	Non-Equity Incentive Plan Compen-sation ($)	Change in Pension Value and Non-Qualified Deferred Compen-sation Earnings ($)	All Other Compen-sation (1) ($)	Total ($)

Patrick A. Dolan,	2006	---	---	186,041	---	---	---	---	186,041
Chairman, Chief Executive Officer	2005	---	---	---	114,150	---	---	---	114,150

James Cortens,	2006	---	---	167,437	---	---	---	---	167,437
President, Secretary, Director	2005	---	---	---	76,100	---	---	---	76,100

Koushik Dutta, (5)	2006	110,130	---	---	---	---	---	3,269	113,399
Chief Technology Officer	2005	114,231	---	---	---	---	---	3,427	117,658

Amrit K. Das (6), Former Chairman,	2006	259,121	---	---	---	---	---	13,518 (3)	272,639
Former Chief Executive, Former President	2005	212,000	---	---	---	---	---	34,432 (4)	246,432

Bruce K. Nelson (7), Former Chief	2006	127,000	150,975	---	---	---	---	3,810	281,785
Financial Officer, Former Secretary	2005	127,500	---	---	---	---	---	3,825	131,325

	Option Awards				Stock Awards
Name and Principal Position	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)

Patrick A. Dolan, Chairman, Chief Executive Officer	135,863	407,588	---	0.025	8/1/2015	---	---	---	---

James Cortens, President, Secretary, Director	90,575	271,125	---	0.025	8/1/2015	---	---	---	---

Koushik Dutta, Chief Technology Officer	---	---	---	---	---	---	---	---	---

Amrit K. Das, Former Chairman, Former Chief Executive, Former President	---	---	---	---	---	---	---	---	---

Bruce K. Nelson, Former Chief Financial Officer, Former Secretary	---	---	---	---	---	---	---	---	---

	Director Compensation (1)
Name and Principal Position	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)

Dale Paisley	1,750	---	---	---	---	53,525 (2)	55,275
D. Dean McCormick III	53,750	---	---	---	---	---	53,750
Stanley W. Corbett	48,000	---	---	---	---	---	48,000
Benedict A. Eazzetta	48,000	---	---	---	---	---	48,000
Santanu K. Das	48,000	---	---	---	---	---	48,000

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership (1)	Percent of Class
Executive Officers and Directors:
Common Stock	Patrick A. Dolan	4,920,390(2)	34.9%
Common Stock	James Cortens	3,099,137(3)	23.8%
Common Stock	Donald Rutherford	50,000(4)	*
Common Stock	Koushik Dutta	18,750(5)	*
Common Stock	Dale Paisley	24,759(6)	*
Common Stock	Russell Cleveland	33,333,347(7)	73.3%
Common Stock	All Directors and Executive Officers (6 persons) as a group	41,446,383(8)	85.7%

5% Beneficial Owners:
Common Stock	Don West	1,925,313(9)	14.7%
Common Stock	Brian Meyer	954,282(10)	7.5%
Common Stock	Vision Opportunity Master Fund, Ltd.**	56,666,670(11)	82.3%
Common Stock	Renaissance US Growth Investment Trust PLC	10,416,670(12)	46.1%
Common Stock	Renaissance Capital Growth & Income Fund III, Inc.	8,333,336(13)	40.6%
Common Stock	US Special Opportunities Trust PLC	10,416,670(14)	46.1%
Common Stock	Premier RENN US Emerging Growth Fund Ltd.	4,166,670(15)	25.5%
Common Stock	BridgePointe Master Fund Ltd.**	16,666,670(16)	58.8%
Common Stock	Heller Capital Investments LLC**	10,000,006(17)	45.1%
Common Stock	Everett Huntoon	1,333,333(18)	11.0%
Common Stock	Howard Andrews	1,333,333(19)	11.0%

Executive Officers and Directors:
Series A Preferred Stock	Patrick A. Dolan	1,019,135	63.5%
Series A Preferred Stock	James Cortens	586,463	36.5%
Series A Preferred Stock	All Directors and Executive Officers (6 persons) as a group	1,605,598	100%

5% Beneficial Owners:
Series B Preferred Stock	Don West	907,784(20)	62.6%
Series B Preferred Stock	Brian Meyer	439,813(21)	30.3%

Executive Officers and Directors:
Series C Preferred Stock	Patrick A. Dolan	833,333	90.9%
Series C Preferred Stock	James Cortens	83,333	9.1%
Series C Preferred Stock	All Directors and Executive Officers (6 persons) as a group	916,666	100%

Executive Officers and Directors:
Series D Convertible Preferred Stock	Russell Cleveland	416,666.9(22)	28.6%
Series D Convertible Preferred Stock	All Directors and Executive Officers (6 persons) as a group	416,666.9	28.6%

Name of Investor	Number of Shares of Series D Convertible Preferred Stock Purchased		Number of Shares of Common Stock Underlying Series A Warrants		Number of Shares of Common Stock Underlying Series B Warrants		Number of Shares of Series D-2 Convertible Preferred Stock Underlying Series J Warrants		Number of Shares of Common Stock Underlying Series C Warrants		Number of Shares of Common Stock Underlying Series D Warrants		Total Purchase Price Paid by Investor
Vision Opportunity Master Fund, Ltd.		708,333.4		5,666,667		11,333,334		708,333.4		5,666,667		11,333,334	$	6,800,000
Renaissance US Growth Investment Trust PLC		130,208.4		1,041,667		2,083,334		130,208.4		1,041,667		2,083,334	$	1,250,000
Renaissance Capital Growth & Income Fund III, Inc.		104,166.7		833,334		1,666,667		104,166.7		833,334		1,666,667	$	1,000,000
US Special Opportunities Trust PLC		130,208.4		1,041,667		2,083,334		130,208.4		1,041,667		2,083,334	$	1,250,000
Premier RENN US Emerging Growth Fund Ltd.		52,083.4		416,667		833,334		52,083.4		416,667		833,334	$	500,000
BridgePointe Master Fund Ltd.		208,333.4		1,666,667		3,333,334		208,333.4		1,666,667		3,333,334	$	2,000,000
Heller Capital Investments LLC		125,000.1		1,000,001		2,000,001		125,000.1		1,000,001		2,000,001	$	1,200,000

Selling Stockholder	Number of Shares Owned Before the Offering	Number of Shares Offered	Number of Shares Owned After the Offering	Percentage of Class of Shares After the Offering

Vision Opportunity Master Fund, Ltd. (1)*	56,666,670	28,333,335	28,333,335	70.0%

Renaissance US Growth Investment Trust PLC (2)	10,416,670	5,208,335	5,208,335	30.0%

Renaissance Capital Growth & Income Fund III, Inc. (3)	8,333,336	4,166,668	4,166,668	25.5%

US Special Opportunities Trust PLC (4)	10,416,670	5,208,335	5,208,335	30.0%

Premier RENN US Emerging Growth Fund Ltd. (5)	4,166,670	2,083,335	2,083,335	14.6%

BridgePointe Master Fund Ltd. (6)*	16,666,670	8,333,335	8,333,335	40.6%

Heller Capital Investments LLC (7)*	10,000,006	5,000,003	5,000,003	29.1%

C. E. Unterberg, Towbin, Inc. (8)	700,000	700,000	---	--

George Logan (9)	636,019	466,667	169,352	1.4%

Donald C. Helt and Bridget B. Helt, as trustees of the Donald C. and Bridget B. Helt Revocable Trust	384,968	192,484	192,484	1.6%

*	The selling stockholder has agreed that at no time may it exercise a warrant or convert any shares of Series D Convertible Preferred Stock or Series D-2 Convertible Preferred Stock into common stock if, as a result, it would beneficially own in excess of 9.99% of our then issued and outstanding shares of common stock. However, on 61 days’ notice to us, the selling stockholder may waive this limitation.

(1)	Includes 708,333.4 shares of Series D Convertible Preferred Stock (which are initially convertible into 11,333,334 shares of common stock), 458,334 shares of Series D-2 Convertible Preferred Stock (which are initially convertible into 7,333,344 shares of common stock), warrants to purchase 34,000,002 shares of common stock, and warrants to purchase 249,999.4 shares of Series D-2 Convertible Preferred Stock (which, if fully exercised and converted, are initially convertible into 3,999,990 shares of common stock). Adam Benowitz, Portfolio Manager of Vision Opportunity Master Fund, Ltd., is the person who has voting and investment control over the shares listed in the table.


(2)	Includes 130,208.4 shares of Series D Convertible Preferred Stock (which are initially convertible into 2,083,334 shares of common stock), 65,104.2 shares of Series D-2 Convertible Preferred Stock (which are initially convertible into 1,041,667 shares of common stock), warrants to purchase 6,250,002 shares of common stock, and warrants to purchase 65,104.2 shares of Series D-2 Convertible Preferred Stock (which, if fully exercised and converted, are initially convertible into 1,041,667 shares of common stock). Russell Cleveland, President and Director of Renaissance US Growth Investment Trust PLC, is the person who has voting and investment control over the shares listed in the table.

(3)	Includes 104,166.7 shares of Series D Convertible Preferred Stock (which are initially convertible into 1,666,667 shares of common stock), 52,083.3 shares of Series D-2 Convertible Preferred Stock (which are initially convertible into 833,333 shares of common stock), warrants to purchase 5,000,002 shares of common stock, and warrants to purchase 52,083.4 shares of Series D-2 Convertible Preferred Stock (which, if fully exercised and converted, are initially convertible into 833,334 shares of common stock). Russell Cleveland, President of Renaissance Capital Growth & Income Fund III, Inc., is the person who has voting and investment control over the shares listed in the table.


(4)	Includes 130,208.4 shares of Series D Convertible Preferred Stock (which are initially convertible into 2,083,334 shares of common stock), 65,104.2 shares of Series D-2 Convertible Preferred Stock (which are initially convertible into 1,041,667 shares of common stock), warrants to purchase 6,250,002 shares of common stock, and warrants to purchase 65,104.2 shares of Series D-2 Convertible Preferred Stock (which, if fully exercised and converted, are initially convertible into 1,041,667 shares of common stock). Russell Cleveland, U.S. Portfolio Manager of US Special Opportunities Trust PLC, is the person who has voting and investment control over the shares listed in the table.

(5)	Includes 52,083.4 shares of Series D Convertible Preferred Stock (which are initially convertible into 833,334 shares of common stock), 26,041.7 shares of Series D-2 Convertible Preferred Stock (which are initially convertible into 416,667 shares of common stock), warrants to purchase 2,500,002 shares of common stock, and warrants to purchase 26,041.7 shares of Series D-2 Convertible Preferred Stock (which, if fully exercised and converted, are initially convertible into 416,667 shares of common stock). Russell Cleveland, President of RENN Capital Group, Inc., the investment advisor of Premier RENN US Emerging Growth Fund Ltd., is the person who has voting and investment control over the shares listed in the table.

(6)	Includes 500,000 shares of common stock, 208,333.4 shares of Series D Convertible Preferred Stock (which are initially convertible into 3,333,334 shares of common stock), 62,500 shares of Series D-2 Convertible Preferred Stock (which are initially convertible into 1,000,000 shares of common stock), warrants to purchase 9,500,002 shares of common stock, and warrants to purchase 145,833.4 shares of Series D-2 Convertible Preferred Stock (which, if fully exercised and converted, are initially convertible into 2,333,334 shares of common stock). Eric S. Swartz, Director of BridgePointe Master Fund Ltd., is the person who has voting and investment control over the shares listed in the table.

(7)	Includes 125,000.1 shares of Series D Convertible Preferred Stock (which are convertible into 2,000,001 shares of common stock), 125,0001 shares of Series D-2 Convertible Preferred Stock underlying a warrant to purchase Series D-2 Convertible Preferred Stock (which, if fully exercised and converted, are convertible into 2,000,001 shares of common stock), and 6,000,004 shares of common stock underlying warrants. Ronald I. Heller, Chief Investment Officer of Heller Capital Investments LLC, is the person who has voting and investment control over the shares listed in the table.

(8)	Includes 700,000 shares of common stock underlying warrants. These warrants were received by C.E. Unterberg, Towbin, Inc. as compensation for its placement activities. David M. Barrett, Chief Financial Officer of C.E. Unterberg, Towbin, Inc., is the person who has voting and investment control over the shares listed in the table.

(9)	Includes 636,019 shares of common stock underlying warrants. These warrants were received by Mr. Logan as a finder's fee for introducing us to C.E. Unterberg, Towbin, Inc. Mr. Logan is affiliated with a registered broker-dealer.

Note:	The shares of common stock held by the selling stockholders which are covered by this prospectus (other than the shares of common stock held by C.E. Unterberg, Towbin, Inc., George Logan, and Donald C. Helt and Bridget B. Helt, as trustees of the Donald C. and Bridget B. Helt Revocable Trust) are being registered pursuant to the terms and conditions of a registration rights agreement dated June 13, 2007 that we entered into in connection with the Share Sale.

Financial Statements	Page

Report of Independent Registered Public Accounting Firm	F-1

Consolidated Financial Statements: Consolidated Balance Sheet as of December 31, 2006	F-2

Consolidated Statements of Operations for the year ended December 31, 2006 and for the period July 26, 2005 (inception) to December 31, 2005	F-3

Consolidated Statements of Stockholders’ Equity and Comprehensive Loss for the year ended December 31, 2006 and for the period July 26, 2005 (inception) to December 31, 2005	F-4

Consolidated Statements of Cash Flows for the year ended December 31, 2006 and for the period July 26, 2005 (inception) to December 31, 2005	F-6

Notes to Consolidated Financial Statements	F-8

Consolidated Financial Statements	F-37

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006 (unaudited)	F-37

Condensed Consolidated Balance Sheet as of September 30, 2007 (unaudited)	F-38

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006 (unaudited)	F-39

Notes to Condensed Consolidated Financial Statements (unaudited)	F-41