8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  October 10, 2007

BPO MANAGEMENT SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-28560	22-2356861
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1290 N. Hancock Street, Anaheim, California 92807

(Address of principal executive offices)    (Zip Code)

Registrant’s telephone number, including area code:  (714) 974-2670

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

SECTION 1 – REGISTRANT’S BUSINESS AND OPERATIONS

ITEM 1.01  Entry into a Material Definitive Agreement.

Through a Stock Purchase Agreement, entered into as of October 10, 2007, we 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, we transferred approximately $11 million of value, as follows:  (i) cash payments to the current selling stockholders of approximately $6.6 million; (ii) our 15-month promissory note in the initial principal amount of $1 million, subject to offset in our favor with respect to any claims for indemnity by us 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 our restricted common stock valued at approximately $1.8 million (based upon the volume-weighted average closing bid price of our 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 our common stock, the number of which is to be calculated in the same manner as the shares issued at closing were calculated.

Included in the Share Purchase Agreement were three-year covenants by the selling shareholders not to compete with Blue Hill Data Services' business as conducted as of the closing and not to solicit business from any of Blue Hill Data Services customers or prospective customers.  The Share Purchase Agreement also contained customary representations, warranties, and indemnities by the selling shareholders in our favor.

As of the closing, Everett Huntoon, the former President and CEO, entered into a 3-month Consulting Agreement with us, whereby he agreed to assist us in an orderly transition of management of Blue Hill Data Services.  We agreed to compensate him $10,000 per month.  Mr. Howard Andrews, the former Executive Vice-President, has entered into a 15-month Consulting Agreement with us, whereby he agreed to assist us in an orderly transition of management of Blue Hill Data Services, and also to perform certain day-to-day duties for Blue Hill support activities.  We agreed to compensate him $12,500 per month.

Blue Hill, founded in 1994, is a full-service data center outsourcing provider with customers located throughout the country representing a wide range of industries. This company has been recognized by industry analysts as a quality provider of data center outsourcing services for middle-market enterprises. Core services include enterprise-scale mainframe/server hosting, wide-area network management and dedicated business recovery solutions provided under long-term, recurring-revenue-based contracts. Services are delivered from its Class A, SAS70 Type II audited data center facility encompassing important support and high-availability features such as redundant feeds to utility power and telecom grids, virtually unlimited fiber-based telecom bandwidth, stand-alone back-up power generation and state of the art security and environmental controls. The facility and 24*7 data center operation are with supporting its customers' Sarbanes-Oxley and HIPAA requirements.

BPOMS intends to consolidate the operations of its existing Information Technology Outsourcing (ITO) business unit with the operations of the proposed acquisition to create additional capability for both new and existing customers and generate additional economic efficiencies. Additionally, the SAS70 Type II data center facility will allow BPOMS to expand its IT outsourcing footprint with existing customers as well as enable it to target new and larger enterprises, yielding important future growth opportunities with significantly larger contract values.

2

SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS

Item 9.01 Financial Statements and Exhibits.

(a)      Financial Statements of businesses acquired.

The audited financial statements of Blue Hill Data Services, Inc. for the years ended December 31, 2006 and December 31, 2005 are incorporated herein by reference to Exhibit 99.1 to this current report on Form 8-K/A.

The unaudited interim financial statements of Blue Hill Data Services, Inc. for the nine month period ended September 30, 2007 are incorporated herein by reference to Exhibit 99.2 to this current report on Form 8-K/A.

(b)      Pro forma financial information.

The unaudited pro forma financial statements of the Company and the acquired business are incorporated herein by reference to Exhibit 99.3 to this current report on Form 8-K/A.

(d)      Exhibits.

Exhibit No.	Description of Exhibit
10.45**	Stock Purchase Agreement entered into as of October 10, 2007, by and among BPO Management Services, Inc., Everett Huntoon and Howard Andrews dated October 10, 2007
10.46**	Consulting Agreement made as of October 10, 2007, between Blue Hill Data Services, Inc., and Everett Huntoon
10.47**	Consulting Agreement made as of October 10, 2007, between Blue Hill Data Services, Inc., and Howard Andrews
10.48**	Escrow Agreement dated as of October 10, 2007, by and among BPO Management Services, Inc., Everett Huntoon, Howard Andrews  and U.S. Bank National Association
99.1*	Financial statements of Blue Hill Data Services, Inc. as of and for the years ended December 31, 2006 and December 31, 2005.
99.2*	Financial statements of Blue Hill Data Services, Inc. for the nine months ended September 30, 2007 (unaudited).
99.3*	Pro forma unaudited balance sheets of the Company as at December 31, 2006 and September 30, 2007, and pro forma unaudited statements of operations for the year ended December 31, 2006 and the nine month period ended September 30, 2007.

_____________

* filed herewith

** filed as an exhibit to the Registrant's Form 8-K that was filed with the SEC on October 16, 2007

3

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:       December 21, 2007	BPO MANAGEMENT SERVICES, INC.
	By:	/s/  Donald Rutherford
		Donald Rutherford
		Principal Accounting Officer

4

Exhibit Index

Exhibit No.	Description of Exhibit
10.45**	Stock Purchase Agreement entered into as of October 10, 2007, by and among BPO Management Services, Inc., Everett Huntoon and Howard Andrews dated October 10, 2007
10.46**	Consulting Agreement made as of October 10, 2007, between Blue Hill Data Services, Inc., and Everett Huntoon
10.47**	Consulting Agreement made as of October 10, 2007, between Blue Hill Data Services, Inc., and Howard Andrews
10.48**	Escrow Agreement dated as of October 10, 2007, by and among BPO Management Services, Inc., Everett Huntoon, Howard Andrews  and U.S. Bank National Association
99.1*	Financial statements of Blue Hill Data Services, Inc. as of and for the years ended December 31, 2006 and December 31, 2005.
99.2*	Financial statements of Blue Hill Data Services, Inc. for the nine months ended September 30, 2007 (unaudited).
99.3*	Pro forma unaudited balance sheets of the Company as at December 31, 2006 and September 30, 2007, and pro forma unaudited statements of operations for the year ended December 31, 2006 and the nine month period ended September 30, 2007.

_____________

* filed herewith

** filed as an exhibit to the Registrant's Form 8-K that was filed with the SEC on October 16, 2007

EX-99.1

EXHIBIT 99.1

BLUE HILL DATA SERVICES, INC.

FINANCIAL STATEMENTS

FOR THE YEARS ENDED

DECEMBER 31, 2006 AND 2005

BLUE HILL DATA SERVICES, INC

TABLE OF CONTENTS

	Page No.
INDEPENDENT AUDITORS’ REPORT	1
FINANCIAL STATEMENTS
Balance Sheets	2
Statements of Income and Changes in Owners’ Equity	3
Statements of Cash Flows	4
NOTES TO FINANCIAL STATEMENTS	5 – 10

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors,

Blue Hill Data Services, Inc.

Pearl River, New York

We have audited the accompanying balance sheets of Blue Hill Data Services, Inc. (a New York S Corporation) as of December 31, 2006 and 2005 and the related statements of income and changes in owners’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Blue Hill Data Services, Inc. as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Tropeano & McGrady, PC

Whitehouse Station, New Jersey

December 17, 2007

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BLUE HILL DATA SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
ASSETS
Current Assets:	2006			2005
Cash	$	12,161		$	47,278
Accounts receivable		1,025,235			1,148,746
Prepaid expenses		144,798			131,388
Total Current Assets		1,182,194			1,327,412
Fixed Assets at Cost, Net		877,224			811,772
Other Assets:
Deposits		45,000			45,000
Loans to stockholders		208			21,476
Total Other Assets		45,208			66,476
TOTAL ASSETS	$	2,104,626		$	2,205,660
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	162,906		$	28,014
Current portion of long-term debt		98,528			165,471
Current portion of treasury stock loan payable		382,259			362,560
Deferred revenue		540,507			494,673
Accrued taxes payable		856			60
Accrued payroll		81,429			73,918
Accrued expenses		51,123			159,051
Line-of-credit		216,092			98,468
Total Current Liabilities		1,533,700			1,382,215
Long-Term Debt, Net of Current Portion		143,767			60,693
Treasury Stock Loan Payable, Net of Current Portion		1,320,397			1,702,974
Stockholders' Equity:
Common stock, no par value; authorized 200 shares;
issued and outstanding 30 shares		1,500			1,500
Treasury stock		(2,500,000	)		(2,500,000	)
Retained earnings		1,605,262			1,558,278
Total Stockholders' Equity		(893,238	)		(940,222	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,104,626		$	2,205,660
The Accompanying Notes are an Integral Part of these Financial Statements

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BLUE HILL DATA SERVICES, INC.
STATEMENTS OF INCOME AND CHANGES IN OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
	2006			2005
Sales	$	6,826,667		$	7,012,723
Operating Expenses:
Cost of services		2,818,393			2,446,326
Selling, general and administrative		3,427,420			3,458,498
Total Operating Expenses		6,245,813			5,904,824
Operating Income		580,854			1,107,899
Other (Expense) Income
Interest expense		(150,874	)		(86,794	)
Interest income		4,127			159
Total Other (Expense) Income		(146,747	)		(86,635	)
Net Income		434,107			1,021,264
Retained Earnings, Beginning of Year		1,558,278			879,335
Stockholder Distributions		(387,123	)		(342,321	)
Retained Earnings, End of Year	$	1,605,262		$	1,558,278
The Accompanying Notes are an Integral Part of these Financial Statements

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BLUE HILL DATA SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
INCREASE (DECREASE) IN CASH
	2006			2005
Cash Flows From Operating Activities:
Net income	$	434,107		$	1,021,264
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		357,552			390,340
(Increase) decrease in:
Accounts receivable		123,511			(17,046	)
Prepaid expenses		(13,410	)		(131,388	)
Increase (decrease) in:
Accounts payable		134,892			(1,653	)
Deferred revenue		45,834			54,169
Accrued taxes payable		796			(786	)
Accrued payroll		7,511			(20,959	)
Accrued expenses		(107,928	)		(42,262	)
Net Cash Provided By Operating Activities		982,865			1,251,679
Cash Flows From Investing Activities:
Purchases of equipment		(423,004	)		(207,197	)
Net Cash Used In Investing Activities		(423,004	)		(207,197	)
Cash Flows From Financing Activities:
New borrowings		360,488			--
Debt reductions
Short term		(226,733	)		(228,350	)
Treasury stock loan payable		(362,878	)		(434,466	)
Distributions to stockholders		(387,123	)		(342,321	)
Stockholder loan receivable proceeds		21,476			5,179
Stockholder loan receivable borrowings		(208	)		(21,476	)
Net Cash Used In Financing Activities		(594,978	)		(1,021,434	)
Net (Decrease) Increase in Cash		(35,117	)		23,048
Cash, Beginning of Period		47,278			24,230
Cash, End of Period	$	12,161		$	47,278
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest	$	150,874		$	86,794
Supplemental Schedule of Noncash Financing Activities:
During the year ended December 31, 2005, the company financed the purchase of treasury
stock with the issuance of $2,500,000 in debt.
The Accompanying Notes are an Integral Part of these Financial Statements

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BLUE HILL DATA SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2006 AND 2005

Note A – Summary of Significant Accounting Policies:

Nature of Business

The Company was founded in 1994 and is incorporated under the laws of the State of New York.  The Company is a full-service data center outsourcing provider, with customers located throughout the country. Core services include enterprise-scale mainframe/server hosting, wide-area network management, and dedicated business recovery solutions, provided under long-term, recurring-revenue-based contracts. Services are delivered from its data center facility located in Pearl River, New York.

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.

Accounts Receivable

The Company uses the direct write-off method for recording any bad debts that it may incur from the accounts receivable.  Consequently, an allowance for bad debts account is not maintained on the books and records of Blue Hill Data Services, Inc.

Income Taxes

For the years ended December 31, 2006 and 2005, the Company has elected to be treated as a small business corporation for income tax purposes.  As such, there are no corporate level income taxes.  The net income is passed through to the stockholders and taxed on their personal tax returns.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Fixed Assets

Property and equipment are stated at cost.  The Company has elected to record depreciation under the Modified Accelerated Cost Recovery System method of depreciation pursuant to the Internal Revenue Code.  This accelerated method of depreciation and its prescribed depreciable lives is similar to the double-declining balance method of depreciation acceptable under generally accepted accounting principles. The prescribed lives according to management properly reflect the estimated useful lives of each category of fixed assets.  The effect of this departure is deemed by management not to be material.

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BLUE HILL DATA SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2006 AND 2005

Note A – Summary of Significant Accounting Policies (continued):

Fixed Assets (continued)

Expenditures for major renewals and betterments that extend the useful lives of fixed assets are capitalized.  Expenditures for maintenance and repairs are charged to expense as incurred.  The estimated useful lives of depreciable assets are three years for computer software, five years for computer equipment and computer-specific leasehold improvements, seven years for furniture and fixtures, and ten to fifteen years for leasehold improvements.

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.

Customers are invoiced ratably according to the terms of their contract. Typically this portion of the invoice is a fixed amount and billed monthly in advance. Additional services and supplies are added to their contractual monthly invoice in the month that the services are rendered and the supplies consumed.  Revenue from these invoices is recognized as it is earned in accordance with the criteria described above.

Deferred Revenue

Typically the Company’s customer contracts allow for advance billing resulting in deferred revenue on the portion that is considered not yet earned.  These deferred amounts are recognized in the period that all the criteria described above under “Revenue Recognition” are met. At December 31, 2006 and 2005, deferred revenue amounted to $540,507 and $494,673, respectively.

Fair Value of Financial Instruments

The carrying value of cash and equivalents approximates fair value due to the short maturity of these instruments.  The carrying value of short and long-term debt approximates fair value based on discounting the projected cash flows using market rates available for the same or similar debt offered to the Company having the same or similar maturities.  None of the financial instruments are held for trading purposes.

Advertising Costs

The Company’s policy for indirect response advertising costs is to expense them as incurred.  Advertising costs included in “Selling, general and administrative” were $25,718 and $33,857, for the years ended December 31, 2006 and 2005, respectively.  

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BLUE HILL DATA SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2006 AND 2005

Note A – Summary of Significant Accounting Policies (continued):

Accrued Compensated Absences

Employees of the Company are entitled to paid vacations, sick days and other time off depending on job classification, length of service, and other factors. Compensated absences included in “Accrued payroll” were $3,915 and $3,282 as of December 31, 2006 and 2005, respectively.

Note B – Concentration of Risk:

The Company’s customers are located throughout the country.  As of December 31, 2006 and 2005, the Company’s accounts receivable from these customers were $1,025,235 and $1,148,746, respectively.  These receivables are trade related and no specific collateral is provided for them.  During the year ended December 31, 2006, two customers individually accounted for 33 percent and 11 percent of revenues.  No other single customer accounted for more than 10 percent of revenues.  During the year ended December 31, 2005, four customers individually accounted for 33 percent, 11 percent, 10.3 percent and 10.1 percent of revenues.  No other single customer accounted for more than 10 percent of revenues.

The Company’s suppliers are located in various locations.  As of December 31, 2006 and 2005, the Company’s accounts payable to these suppliers were $162,906 and $28,014, respectively.  These payables are trade related and no specific collateral is required for them.  During the year ended December 31, 2006, two suppliers individually accounted for 15 percent and 13 percent of purchases.  No other single supplier accounted for more than 10 percent of purchases. During the year ended December 31, 2005, two suppliers individually accounted for 15 percent and 13 percent of purchases.  No other single supplier accounted for more than 10 percent of purchases.

Note C – Fixed Assets:

The major classifications of fixed assets at cost at December 31 are as follows:

Fixed Assets:	2006			2005
Computer Software	$	818,870		$	818,870
Computer equipment		1,646,810			1,373,497
Equipment		825,996			683,110
Leasehold improvements		240,368			233,563
Total		3,532,044			3,109,040
Less: Accumulated Depreciation		(2,654,820	)		(2,297,268	)
Fixed Assets, Net	$	877,224		$	811,772

Note D – Line-of-Credit:

The Company has a $250,000 line of credit with HSBC Bank. The balance due on the line was $216,092 at December 31, 2006 and $98,468 at December 31, 2005. The credit line is secured by substantially all corporate assets and is personally guaranteed by the stockholders.  The line of credit expires on June 30, 2007 and may be withdrawn at the financial institution’s option.  Interest is at prime.

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BLUE HILL DATA SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2006 AND 2005

Note E – Long-Term Debt:

Loan payable, HSBC Bank USA, NA, interest is at
6.25 percent per annum, final payment is due June
2008, collateralized by computer equipment with a
net book value of $43,321 and $72,201 at
December 31, 2006 and 2005, respectively.	$	60,911	$	98,238
Loan payable, HSBC Bank USA, NA, interest was at
6.5 percent per annum, final payment was made
March 2006.		--		24,926
Loan payable, HSBC Bank USA, NA, interest was at
7.71 percent per annum, final payment was made
March 2006.		--		35,000
Loan payable, HSBC Bank USA, NA, interest is at
7.75 percent per annum, final payment is due August
2009, collateralized by computer equipment with a
net book value of $99,613 at December 31, 2006.		112,551		--
Loan payable, HSBC Bank USA, NA, interest is at
7 percent per annum, final payment is due November
2009, collateralized by computer equipment with a
net book value of $56,639 at December 31, 2006.		68,833		--
Loan payable, Macro 4 Inc., interest was at zero
percent per annum, final payment was paid in
May 2006.		--		68,000
		242,295		226,164
Less Current Maturities		98,528		165,471
Total Long Term Debt	$	143,767	$	60,693

Aggregate maturities of long-term debt due within the next five years ending December 31 are as follows:  2007 - $98,528; 2008 - $84,301; 2009 - $59,466.

Note F – Retirement Plan:

The Company maintains a cash or deferred 401(k) retirement plan that covers substantially all employees who have attained age 21 and have had a minimal length of service. Annual contributions to which a vesting schedule applies are at the discretion of management and totaled $51,123 and $159,377 for the years ended December 31, 2006 and 2005, respectively.

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BLUE HILL DATA SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2006 AND 2005

Note G – Lease Commitments and Total Rent Expense:

The Company leases certain equipment under long-term operating leases.  During the years ended December 31, 2006 and 2005, rentals under these leases were $ 457,600 and $498,861, respectively.  Future minimum lease payments required under these operating leases are as follows: 2007 - $512,270, 2008 - $512,270, and 2009 - $254,214.

The Company conducts it operations in Pearl River, New York from a facility that is leased under a ten-year operating lease expiring September 30, 2011 with an option to extend the lease for an additional five years at a rate to be negotiated.  Total base rent payments relative to this lease for the years ended December 31, 2006 and 2005, were $ 719,539 and $629,456, respectively. The following are future minimum base rental payments required under this lease: 2007 - $737,352; 2008 - $745,800; 2009 - $745,800; 2010 - $745,800, and 2011 – 559,350.  In addition to the base payments the Company also pays an allocated portion of the real property taxes on the facility.  The amount paid for the years ended December 31, 2006 and 2005 was $31,460 and $38,303, respectively.

Note H – Buy/Sell Agreement and Treasury Stock Loan Payable:

Pursuant to the Company’s Shareholder Agreement, one of the stockholders has tendered his shares to the Company.  The agreement dated August 1, 2005 redeemed the shares for a net payment of $2,500,000.  This amount is recorded as treasury stock on the balance sheet.

In connection with this redemption of shares, the company has a loan payable to the former stockholder at the end of December 31, 2006 and 2005, in the amount of $1,702,656 and $2,065,534, respectively. Interest is at 7 percent per annum. See “Subsequent Events” below.

Note I – Subsequent Events:

On February 20, 2007 the Company borrowed $124,000 from HSBC to purchase hardware and software for its data center.  The note has a three-year repayment period with interest at 7.25%.  The monthly payment that began in March 2007 is $3,842.95.

Through a Stock Purchase Agreement, entered into as of October 10, 2007, BPO Management Services, Inc. (BPOMS) purchased the issued and outstanding capital stock of the Company for approximately $11 million of value, which included a cash payment through Blue Hill Data Services, Inc. in the amount of approximately $1.4 million to its former stockholder to payoff the Treasury Stock Loan Payable.

Included in the Share Purchase Agreement were three-year covenants by the selling stockholders not to compete with Blue Hill Data Services Inc.’s business as conducted as of the closing and not to solicit business from any of Blue Hill Data Services Inc.’s customers or prospective customers.

The Share Purchase Agreement also contained customary representations, warranties, and indemnities by the selling stockholders in BPOMS’ favor.

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BLUE HILL DATA SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2006 AND 2005

Note I – Subsequent Events (continued):

As of the closing, the former stockholders entered into two distinct consulting agreements with BPOMS, whereby for compensation they agreed to assist BPOMS in an orderly transition of management of Blue Hill Data Services, Inc. and also to perform certain day-to-day duties for Blue Hill Data Services, Inc. support activities for a period of 3 months and 15 months.

BPOMS intends to consolidate the operations of its existing Information Technology Outsourcing business unit with the operations of Blue Hill Data Services, Inc.

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EX-99.2

EXHIBIT 99.2

BLUE HILL DATA SERVICES, INC.

FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2007

(UNAUDITED)

BLUE HILL DATA SERVICES, INC.
BALANCE SHEET
AS OF SEPTEMBER 30, 2007
(UNAUDITED)
	Amount
ASSETS
Current assets:
Cash and cash equivalents	$	35,571
Accounts receivable, net		1,130,571
Prepaids expenses and other current assets		52,272
Total current assets		1,218,414
Fixed assets:
Computer software		1,007,110
Computer equipment		1,958,829
Equipment		785,542
Leasehold improvements		212,057
Accumulated depreciation & amortization		(2,939,044	)
Fixed assets, net		1,024,494
Other assets		51,000
TOTAL ASSETS	$	2,293,908
LIABILITIES & EQUITY
Current liabilities:
Accounts payable	$	230,027
Accrued expenses		56,594
Current portion of long-term debt		284,835
Current portion of treasury stock loan payable		382,259
Deferred revenue		645,396
Total current liabilities		1,599,111
Long-term debt, net of current portion		519,680
Treasury stock loan payable, net of current portion		1,036,536
Total liabilities		1,556,216
Equity
Common stock		1,500
Treasury stock		(2,500,000	)
Shareholders distributions		(294,626	)
Retained earnings		1,931,707
Total equity		(861,419	)
TOTAL LIABILITIES & EQUITY	$	2,293,908

-1-

BLUE HILL DATA SERVICES, INC.
INCOME STATEMENT
FOR THE NINE MONTHS ENDING SEPTEMBER 30, 2007
(UNAUDITED)
	Amount
Revenue:
IT outsouring services	$	5,640,064
Operating expenses:
Cost of services		2,298,016
Selling, general and administrative		2,910,543
Total operating expenses		5,208,559
Operating income		431,505
Other expense (income)
Interest expense, net		119,111
Other income		(14,051	)
Total other expense		105,060
Net income	$	326,445

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BLUE HILL DATA SERVICES, INC.
STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
	2007
Cash flows from operating activities:
Net income	$	326,445
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		164,390
Changes in operating assets and liabilities:
Accounts receivable		(105,336	)
Prepaids and other assets		86,734
Accounts payable		67,121
Accrued expenses		(76,814	)
Deferred revenue		104,889
Net cash provided by operating activities		567,429
Cash flows from investing activities:
Purchase of equipment		(311,660	)
Net cash used in investing activities		(311,660	)
Cash flows from financing activities:
Proceeds from bank borrowings		346,128
Repayment of treasury stock loan		(283,861	)
Distributions to shareholders		(294,626	)
Net cash used in financing activities		(232,359	)
Net increase in cash		23,410
Cash - beginning of period		12,161
Cash - end of period	$	35,571

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EX-99.3

               EXHIBIT 99.3

BLUE HILL DATA SERVICES, INC. BUSINESS COMBINATION

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.

The following unaudited pro forma financial information presents the combined results of operations of the Company and Blue Hill for the year ended December 31, 2006 and for the nine months ended September 30, 2007 as if the acquisition had occurred on January 1, 2006 and January 1, 2007, respectively.

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BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2006
(Unaudited)
									Pro forma
	BPO								BPO
	Management						Pro forma		Management
	Services, Inc.			Blue Hill			Adjustments		Services, Inc.
ASSETS
Current assets:
Cash and cash equivalents	$	706,197		$	12,161		$	-	$	718,358
Accounts receivable		743,114			1,025,235			-		1,768,349
Inventory consisting of finished goods		37,960			-			-		37,960
Income taxes receivable		250,000			-			-		250,000
Prepaid expenses and other current assets		123,165			144,798			-		267,963
Total current assets		1,860,436			1,182,194			-		3,042,630
Equipment		509,929			877,224			-		1,387,153
Goodwill		4,009,223						10,431,130		14,440,353
Intangible assets		1,114,698			-			-		1,114,698
Other Assets		146,723			45,208			-		191,931
	$	7,641,009		$	2,104,626		$	10,431,130	$	20,176,765
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	322,778		$	98,528		$	-	$	421,306
Current portion of capital lease obligations		170,976			-			-		170,976
Current portion of treasury stock loan payable		-			382,259			-		382,259
Accounts payable		1,381,243			162,906			-		1,544,149
Accrued expenses		725,935			133,408					859,343
Purchase price payable-short term		977,473			-			1,000,000		1,977,473
Line-of-credit		-			216,092			-		216,092
Deferred revenues		334,672			540,507			-		875,179
Related party notes payable		516,157			-			-		516,157
Severence obligations payable		543,291			-			-		543,291
Other current liabilities		25,491			-			-		25,491
Total current liabilities		4,998,016			1,533,700			1,000,000		7,531,716
Long-term debt, net of current portion		39,475			143,767			-		183,242
Treasury stock loan payable, net of current portion		-			1,320,397
Capital lease obligations, net of current portion		10,328			-			-		10,328
Purchase price payable-long term		179,579			-			-		179,579
Other long-term liabilities		33,115			-			-		33,115
Total liabilities		5,260,513			2,997,864			1,000,000		7,937,980
Stockholders equity:
Capital stock		125,594			-			26,667		152,261
Additional paid-in capital		6,462,928			(2,498,500	)		9,404,463		13,368,891
Retained earnings (deficit)		(4,100,706	)		1,605,262			-		(2,495,444	)
Accumulated other comprehensive loss, foreign currency translation adjustments		(107,320	)		-			-		(107,320	)
Total stockholders ' equity		2,380,496			(893,238	)		9,431,130		10,918,388
	$	7,641,009		$	2,104,626		$	10,431,130	$	18,856,368
Pro forma adjustments: The adjustments reflect the booking of goodwill which resulted from the difference between net
assets and net liabilities acquired with an entry for the purchase price payable, issuance of common stock and
a corresponding entry to equity. All intercompany balances have been eliminated.

-2-

BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2006
(Unaudited)
								PRO FORMA
	BPO							BPO
	MANAGEMENT					PRO FORMA		MANAGEMENT
	SERVICES, INC.			BLUE HILL		ADJUSTMENTS		SERVICES, INC.
Revenues:
Enterprise content management	$	2,713,769		$	-	$	-	$	2,713,769
IT outsourcing services		1,833,052			6,826,667		-		8,659,719
Human resource outsourcing servicing		164,318			-		-		164,318
Total revenues		4,711,139			6,826,667		-		11,537,806
Operating expenses:
Cost of services provided		1,523,983			2,818,393		-		4,342,376
Selling, general and administrative		5,737,335			3,427,420		-		9,164,755
Research and development		19,491			-		-		19,491
Change in estimated severance liability		(223,726	)		-		-		(223,726	)
Share-based compensation		598,031			-		-		598,031
Total operating expenses		7,655,114			6,245,813		-		13,900,927
Income (loss) from operations		(2,943,975	)		580,854		-		(2,363,121	)
Interest expense (income)
Related parties		-			-		-		-
Amortization of related party debt discount		-			-		-		-
Other (net)		366,943			146,747		-		513,690
Other Expense (Income)		(10,732	)		-		-		(10,732	)
Total interest and other expense		356,211			146,747		-		502,958
Net income (loss)	$	(3,300,186	)	$	434,107	$	-	$	(2,866,079	)
Basic and diluted net income (loss) per share	$	(0.39	)	$	0.16	$	-	$	(0.26	)
Basic and diluted weighted average common		8,496,119			2,666,666				11,162,785

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BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(Unaudited)
									Pro forma
	BPO								BPO
	Management						Pro forma		Management
	Services, Inc.			Blue Hill			Adjustments		Services, Inc.
ASSETS
Current assets:
Cash and cash equivalents	$	6,102,487		$	35,571		$	-	$	6,138,058
Restricted cash		922,888			-			-		922,888
Accounts receivable		3,672,086			1,130,571			-		4,802,657
Inventory consisting of finished goods		184,220			-			-		184,220
Prepaid expenses and other current assets		287,628			52,272			-		339,900
Total current assets		11,169,309			1,218,414			-		12,387,723
Equipment		1,058,555			1,024,494			-		2,083,049
Goodwill		10,179,091			-			10,431,130		20,610,221
Intangible assets		960,751			-			-		960,751
Other Assets		33,155			51,000			-		84,155
	$	23,400,861		$	2,293,908		$	10,431,130	$	36,125,899
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	141,943		$	284,835		$	-	$	426,779
Current portion of capital lease obligations		132,263			-			-		132,263
Current portion of treasury stock loan payable		-			382,259
Accounts payable		2,327,226			230,027			-		2,557,252
Accrued expenses		1,266,252			56,594			-		1,322,846
Accrued interest-related party		9,450			-			-		9,450
Accrued dividend payable-related party		11,392			-			-		11,392
Amount due former shareholders of acquired companies		1,101,771			-			1,000,000		2,101,771
Income taxes payable		245,013			-			-		245,013
Deferred revenues		1,655,185			645,396			-		2,300,581
Related party notes payable		1,200,000			-			-		1,200,000
Severence obligations payable		272,912			-			-		272,912
Total current liabilities		8,363,407			1,599,111			1,000,000		10,580,259
Long-term debt, net of current portion		28,058			519,680			-		547,738
Treasury stock loan payable, net of current portion		-			1,036,536
Capital lease obligations, net of current portion		415,776			-			-		415,776
Total liabilities		8,807,241			3,155,327			1,000,000		11,543,773
Stockholders equity:
Capital stock		148,092			-			26,667		174,759
Additional paid-in capital		22,916,997			(2,498,500	)		9,404,463		29,822,960
Retained earnings (deficit)		(8,032,969	)		1,637,081			-		(6,395,888	)
Accumulated other comprehensive loss, foreign currency translation adjustments		(438,500	)		-			-		(438,500	)
Total stockholders ' equity		14,593,620			(861,419	)		9,431,130		23,163,331
	$	23,400,861		$	2,293,908		$	10,431,130	$	34,707,104
Pro forma adjustments: The adjustments reflect the booking of goodwill which resulted from the difference between net
assets and net liabilities acquired with an entry for the purchase price payable, issuance of common stock and
a corresponding entry to equity. All intercompany balances have been eliminated.

-4-

BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(Unaudited)
									PRO FORMA
	BPO								BPO
	MANAGEMENT						PRO FORMA		MANAGEMENT
	SERVICES, INC.			BLUE HILL			ADJUSTMENTS		SERVICES, INC.
Revenues:
Enterprise content management	$	5,866,997		$	-		$	-	$	5,866,997
IT outsourcing services		2,861,891			5,640,064			-		8,501,955
Human resource outsourcing servicing		260,188			-			-		260,188
Total revenues		8,989,076			5,640,064			-		14,629,140
Operating expenses:
Cost of services provided		4,436,764			2,298,016			-		6,734,780
Selling, general and administrative		7,207,185			2,910,543			-		10,117,728
Research and development		261,738			-			-		261,738
Share-based compensation		258,861			-			-		258,861
Total operating expenses		12,164,548			5,208,559			-		17,373,107
Income (loss) from operations		(3,175,472	)		431,505			-		(2,743,967	)
Interest expense (income)
Related parties		89,819			-			-		89,819
Amortization of related party debt discount		594,029			-			-		594,029
Other (net)		76,045			119,111			-		195,156
Other Expense		(3,102	)		(14,051	)		-		(17,153	)
Total interest and other expense		756,791			105,060			-		861,851
Net income (loss)	$	(3,932,263	)	$	326,445		$	-	$	(3,605,818	)
Basic and diluted net income (loss) per share	$	(0.45	)	$	0.12				$	(0.32	)
Basic and diluted weighted average common		8,750,543			2,666,666					11,417,209

-5-