----

----

| Pennsylvania                                                         |         | 23-2214195                              |
|----------------------------------------------------------------------|--------------------------------------------|-----------------------------------------|
|  (State or Other Jurisdiction of Incorporation or Organization) |         |  (IRS Employer Identification No.) |

| 1290 N. Hancock, Ste 200, Anaheim, CA    |   | 92807      |
|------------------------------------------|--------|------------|
| (Address of Principal Executive Offices) |   | (Zip Code) |

|  (714) 974-2670                                                        |
|-----------------------------------------------------------------------------|
|  (Registrant’s  Telephone Number, Including Area Code) |

|   | Large accelerated filer | o | Accelerated filer         | o |
|--------|-------------------------|---|---------------------------|---|
|   | Non-accelerated filer   | o | Smaller reporting company | x |

  

----

| PART I                                                                                                   |                                                                                                                                         |
|----------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| FINANCIAL INFORMATION                                                                                    |                                                                                                                                         |
|                                                                                                     |                                                                                                                                         | Page |
|                                                                                                     |                                                                                                                                         |   |
| Item 1.  Financial Statements                                                                  | 3                                                                                                                                            |
|                                                                                                     |                                                                                                                                         |   |
|                                                                                                     | Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2009 and 2008 (Unaudited) | 3 |
|                                                                                                     |                                                                                                                                         |   |
|                                                                                                     | Condensed Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008                                             | 4 |
|                                                                                                     |                                                                                                                                         |   |
|                                                                                                     | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (Unaudited)                                  | 5 |
|                                                                                                     |                                                                                                                                         |   |
|                                                                                                     | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                             | 7 |
|                                                                                                     |                                                                                                                                         |   |
| Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations | 16                                                                                                                                           |
|                                                                                                     |                                                                                                                                         |   |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                            | 25                                                                                                                                           |
|                                                                                                     |                                                                                                                                         |   |
| Item 4T.  Controls and Procedures                                                              | 25                                                                                                                                           |
|                                                                                                     |                                                                                                                                         |
| PART II                                                                                                  |                                                                                                                                         |
| OTHER INFORMATION                                                                                        |                                                                                                                                         |
|                                                                                                     |                                                                                                                                         |
| Item 1.  Legal Proceedings                                                                     | 26                                                                                                                                           |
|                                                                                                     |                                                                                                                                         |   |
| Item 1-A  Risk Factors                                                                         | 26                                                                                                                                           |
|                                                                                                     |                                                                                                                                         |   |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                           | 26                                                                                                                                           |
|                                                                                                     |                                                                                                                                         |   |
| Item 3.  Defaults Upon Senior Securities                                                       | 26                                                                                                                                           |
|                                                                                                     |                                                                                                                                         |   |
| Item 4.  Submission of Matters to a Vote of Security Holders                                   | 26                                                                                                                                           |
|                                                                                                     |                                                                                                                                         |   |
| Item 5.  Other Information                                                                     | 26                                                                                                                                           |
|                                                                                                     |                                                                                                                                         |   |
| Item 6.  Exhibits                                                                              | 27                                                                                                                                           |
|                                                                                                     |                                                                                                                                         |   |
| Signatures                                                                                               | 28                                                                                                                                           |
|                                                                                                     |                                                                                                                                         |   |
| Exhibits Attached to this Quarterly Report on Form 10-Q                                                  | 29                                                                                                                                           |

  

----

|                                                         |   | Three months ended June 30, |       |   | Six months ended June 30, |   |
|--------------------------------------------------------------|--------|-----------------------------|------------|--------|---------------------------|--------|
|                                                         |   | 2009                        |       |   | 2008                      |   |   | 2009 |   |   | 2008 |   |
| Revenues:                                                    |   |                        |       |   |                      |   |   |   |   |   |   |   |
| IT outsourcing services                                      |   | $                           | 2,848,147  |   |                      | $      | 3,308,739 |   |   | $ | 5,833,864 |   |   | $ | 6,450,543 |   |
| Healthcare                                                   |   |                        | 3,489,384  |   |                      |   | - |   |   |   | 7,111,812 |   |   |   | - |   |
| Human resource outsourcing servicing                         |   |                        | 225,653    |   |                      |   | 592,226 |   |   |   | 528,839 |   |   |   | 972,835 |   |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                               |   |                        | 6,563,184  |   |                      |   | 3,900,965 |   |   |   | 13,474,515 |   |   |   | 7,423,378 |   |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                                          |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Cost of services provided                                    |   |                        | 4,745,799  |   |                      |   | 1,782,555 |   |   |   | 9,496,167 |   |   |   | 3,274,170 |   |
| Selling, general and administrative                          |   |                        | 2,482,060  |   |                      |   | 1,741,587 |   |   |   | 4,824,648 |   |   |   | 4,172,982 |   |
| Research and development                                     |   |                        | 118,908    |   |                      |   | 77,335 |   |   |   | 224,760 |   |   |   | 147,037 |   |
| Depreciation and amortization                                |   |                        | 1,031,846  |   |                      |   | 518,116 |   |   |   | 2,013,615 |   |   |   | 1,115,891 |   |
| Share-based compensation                                     |   |                        | 18,333     |   |                      |   | 207,092 |   |   |   | 18,333 |   |   |   | 414,184 |   |
| Restructuring costs                                          |   |                        | 382,207    |   |                      |   | - |   |   |   | 382,207 |   |   |   | - |   |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses                                     |   |                        | 8,779,153  |   |                      |   | 4,326,685 |   |   |   | 16,959,730 |   |   |   | 9,124,264 |   |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss from operations                                         |   |                        | (2,215,969 | )      |                      |   | (425,720 | ) |   |   | (3,485,215 | ) |   |   | (1,700,886 | ) |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                             |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Related parties                                              |   |                        | 18,579     |   |                      |   | 26,853 |   |   |   | 39,166 |   |   |   | 53,705 |   |
| Other, net                                                   |   |                        | 110,618    |   |                      |   | 21,053 |   |   |   | 236,024 |   |   |   | 41,076 |   |
| Total interest expense                                       |   |                        | 129,197    |   |                      |   | 47,906 |   |   |   | 275,190 |   |   |   | 94,781 |   |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss before income taxes                                     |   |                        | (2,345,166 | )      |                      |   | (473,626 | ) |   |   | (3,760,405 | ) |   |   | (1,795,667 | ) |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense                                           |   |                        | 7,800      |   |                      |   | - |   |   |   | 15,600 |   |   |   | 44,452 |   |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss from continuing operations                              |   |                        | (2,352,966 | )      |                      |   | (473,626 | ) |   |   | (3,776,005 | ) |   |   | (1,840,119 | ) |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued operations (Note 3):                            |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss from operations of discontinued business                |   |                        | (2,686,089 | )      |                      |   | (457,709 | ) |   |   | (2,738,321 | ) |   |   | (863,286 | ) |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                     |   |                        | (5,039,055 | )      |                      |   | (931,335 | ) |   |   | (6,514,326 | ) |   |   | (2,703,405 | ) |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation gain (loss)                     |   |                        | 535,642    |   |                      |   | (46,842 | ) |   |   | 460,335 |   |   |   | (180,194 | ) |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive loss                                           |   | $                           | (4,503,413 | )      |                      | $      | (978,177 | ) |   | $ | (6,053,991 | ) |   | $ | (2,883,599 | ) |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss per share - basic and diluted                           |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss from continuing operations                              |   | $                           | (0.15      | )      |                      | $      | (0.04 | ) |   | $ | (0.25 | ) |   | $ | (0.15 | ) |
| Loss from discontinued operations                            |   |                        | (0.18      | )      |                      |   | (0.04 | ) |   |   | (0.18 | ) |   |   | (0.07 | ) |
| Net loss per share - basic and diluted                       |   | $                           | (0.33      | )      |                      | $      | (0.08 | ) |   | $ | (0.43 | ) |   | $ | (0.22 | ) |
|                                                         |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted weighted average common shares outstanding |   |                        | 15,165,586 |   |                      |   | 12,671,034 |   |   |   | 15,165,586 |   |   |   | 12,457,919 |   |

----

| BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES |
|------------------------------------------------|
| CONDENSED CONSOLIDATED BALANCE SHEETS          |
| AS OF JUNE 30, 2009 AND DECEMBER 31, 2008      |
| (UNAUDITED)                                    |

|                                                                                                                                                 |   | 2009   |        |   | 2008   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                                                                                                 |   |   |        |   |   |   |
| ASSETS                                                                                                                                               |   |
| Current assets:                                                                                                                                      |   |   |        |   |   |   |
| Cash and cash equivalents                                                                                                                            |   | $      | 1,584,771   |   |   | $      | 2,895,711 |   |
| Accounts receivable, net of allowance for doubtful accounts of $492,186 and $505,338, respectively                                                   |   |   | 3,998,273   |   |   |   | 5,408,156 |   |
| Prepaid expenses and other current assets                                                                                                            |   |   | 1,021,271   |   |   |   | 928,647 |   |
| Current assets held for sale                                                                                                                         |   |   | 2,148,025   |   |   |   | 2,290,630 |   |
| Total current assets                                                                                                                                 |   |   | 8,752,340   |   |   |   | 11,523,144 |   |
|                                                                                                                                                 |   |   |        |   |   |   |   |   |
| Equipment, net                                                                                                                                       |   |   | 7,378,058   |   |   |   | 7,170,213 |   |
| Goodwill                                                                                                                                             |   |   | 2,282,064   |   |   |   | 2,282,064 |   |
| Intangible assets, net                                                                                                                               |   |   | 3,878,498   |   |   |   | 4,192,955 |   |
| Other assets                                                                                                                                         |   |   | 801,298     |   |   |   | 1,244,641 |   |
| Non-current assets held for sale                                                                                                                     |   |   | 2,392,982   |   |   |   | 4,447,545 |   |
|                                                                                                                                                 |   | $      | 25,485,240  |   |   | $      | 30,860,562 |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                 |   |
| Current liabilities:                                                                                                                                 |   |   |        |   |   |   |   |   |
| Current portion of lines of credit and long-term debt                                                                                                |   | $      | 3,099,156   |   |   | $      | 2,196,652 |   |
| Current portion of capital lease obligations                                                                                                         |   |   | 572,301     |   |   |   | 394,765 |   |
| Accounts payable                                                                                                                                     |   |   | 5,337,939   |   |   |   | 4,687,333 |   |
| Accrued expenses                                                                                                                                     |   |   | 2,777,293   |   |   |   | 2,856,021 |   |
| Restructuring liability                                                                                                                              |   |   | 347,774     |   |   |   | - |   |
| Accrued interest-related party                                                                                                                       |   |   | 39,166      |   |   |   | - |   |
| Accrued dividend payable                                                                                                                             |   |   | 1,369,331   |   |   |   | 1,369,331 |   |
| Accrued dividend payable-related party                                                                                                               |   |   | 651,281     |   |   |   | 651,281 |   |
| Amount due former shareholders of acquired companies                                                                                                 |   |   | -           |   |   |   | 1,000,000 |   |
| Deferred revenues                                                                                                                                    |   |   | 1,989,218   |   |   |   | 2,091,277 |   |
| Related party notes payable                                                                                                                          |   |   | 830,246     |   |   |   | 930,246 |   |
| Other current liabilities                                                                                                                            |   |   | 120,000     |   |   |   | 137,715 |   |
| Current liabilities associated with assets held for sale                                                                                             |   |   | 4,108,277   |   |   |   | 4,101,437 |   |
| Total current liabilities                                                                                                                            |   |   | 21,241,982  |   |   |   | 20,416,058 |   |
|                                                                                                                                                 |   |   |        |   |   |   |   |   |
| Lines of credit and long-term debt, net of current portion                                                                                           |   |   | -           |   |   |   | 722,304 |   |
| Capital lease obligations, net of current portion                                                                                                    |   |   | 780,568     |   |   |   | 690,278 |   |
| Other long-term liabilities                                                                                                                          |   |   | 1,205,922   |   |   |   | 742,520 |   |
| Non-current liabilities associated with assets held for sale                                                                                         |   |   | -           |   |   |   | 5,694 |   |
| Total liabilities                                                                                                                                    |   |   | 23,228,472  |   |   |   | 22,576,854 |   |
|                                                                                                                                                 |   |   |        |   |   |   |   |   |
| Commitments and contingencies (Note 9)                                                                                                               |   |   |        |   |   |   |   |   |
|                                                                                                                                                 |   |   |        |   |   |   |   |   |
| Stockholders' equity                                                                                                                                 |   |   |        |   |   |   |   |   |
| Convertible preferred stock, Series B, par value $1.00;  authorized 21,105,000 shares;  21,103,955 shares issued and outstanding |   |   | 21,103,955  |   |   |   | 21,103,955 |   |
| Common stock, par value $0.10;  authorized 1,900,000,000 shares; 15,165,586  shares issued and outstanding                       |   |   | 1,516,559   |   |   |   | 1,516,559 |   |
| Additional paid-in capital                                                                                                                           |   |   | 14,714,257  |   |   |   | 14,687,206 |   |
| Accumulated deficit                                                                                                                                  |   |   | (35,221,055 | )      |   |   | (28,706,729 | ) |
| Accumulated other comprehensive income (loss), foreign currency translation adjustments                                                              |   |   | 143,052     |   |   |   | (317,283 | ) |
| Total stockholders' equity                                                                                                                           |   |   | 2,256,768   |   |   |   | 8,283,708 |   |
|                                                                                                                                                 |   | $      | 25,485,240  |   |   | $      | 30,860,562 |   |

----

| BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES  |
|-------------------------------------------------|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008 |
| (UNAUDITED)                                     |

|                                                                                                             |   | 2009   |       |   | 2008   |   |
|------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Cash flows from operating activities:                                                                            |   |   |       |   |   |   |
| Net loss                                                                                                         |   | $      | (6,514,326 | )      |   | $      | (2,703,405 | ) |
|                                                                                                             |   |   |       |   |   |   |   |   |
| Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities: |   |   |       |   |   |   |   |   |
| Loss from discontinued operations                                                                                |   |   | 2,738,321  |   |   |   | 863,286 |   |
| Depreciation                                                                                                     |   |   | 1,706,856  |   |   |   | 573,252 |   |
| Amortization of intangible assets                                                                                |   |   | 306,759    |   |   |   | 542,639 |   |
| Increase in the reserve for doubtful accounts                                                                    |   |   | 322,888    |   |   |   | - |   |
| Non-cash compensation expense recognized on issuance of stock options                                            |   |   | 27,051     |   |   |   | 414,184 |   |
|                                                                                                             |   |   |       |   |   |   |   |   |
| Changes in operating assets and liabilities:                                                                     |   |   |       |   |   |   |   |   |
| Accounts receivable                                                                                              |   |   | 1,086,995  |   |   |   | (594,646 | ) |
| Prepaid expenses and other current assets                                                                        |   |   | 272,412    |   |   |   | (229,591 | ) |
| Other assets                                                                                                     |   |   | 78,307     |   |   |   | 5,292 |   |
| Accounts payable                                                                                                 |   |   | 650,606    |   |   |   | (548,762 | ) |
| Accrued expenses                                                                                                 |   |   | (78,728    | )      |   |   | 422,231 |   |
| Restructuring liability                                                                                          |   |   | 347,774    |   |   |   | - |   |
| Accrued interest-related parties                                                                                 |   |   | 39,166     |   |   |   | (9,306 | ) |
| Accrued dividends-related parties                                                                                |   |   | -          |   |   |   | 749,837 |   |
| Amount due former shareholders of acquired companies                                                             |   |   | -          |   |   |   | (215,944 | ) |
| Deferred revenues                                                                                                |   |   | (102,059   | )      |   |   | (16,345 | ) |
| Other long-term liabilities                                                                                      |   |   | 379,181    |   |   |   | - |   |
| Net cash provided by (used in) operating activities                                                              |   |   | 1,261,203  |   |   |   | (747,278 | ) |
|                                                                                                             |   |   |       |   |   |   |   |   |
| Cash flows from investing activities:                                                                            |   |   |       |   |   |   |   |   |
| Purchase of equipment and internally developed capitalized software, net                                         |   |   | (1,391,536 | )      |   |   | (450,672 | ) |
| Release of restricted cash                                                                                       |   |   | -          |   |   |   | 922,888 |   |
| Net cash provided by (used in) investing activities                                                              |   |   | (1,391,536 | )      |   |   | 472,216 |   |
|                                                                                                             |   |   |       |   |   |   |   |   |
| Cash flows from financing activities:                                                                            |   |   |       |   |   |   |   |   |
| Proceeds from bank loans                                                                                         |   |   | 246,706    |   |   |   | 718,740 |   |
| Repayment of notes issued to former shareholders of acquired companies                                           |   |   | (1,000,000 | )      |   |   | (885,827 | ) |
| Repayment of capital lease obligations                                                                           |   |   | (255,339   | )      |   |   | (83,479 | ) |
| Proceeds from issuance of preferred stock, net of cash paid for commissions and direct costs                     |   |   | -          |   |   |   | 5,157,996 |   |
| Dividends accrued on preferred stock                                                                             |   |   | -          |   |   |   | (753,461 | ) |
| Repayment of notes payable - related party                                                                       |   |   | (100,000   | )      |   |   | - |   |
| Net cash provided by (used in) financing activities                                                              |   |   | (1,108,633 | )      |   |   | 4,153,969 |   |
| Net cash provided by (used in) discontinued operations                                                           |   |   | (540,007   | )      |   |   | 84,551 |   |
| Effect of exchange rate changes on cash and cash equivalents (cumulative)                                        |   |   | 468,033    |   |   |   | (57,945 | ) |
| Net change in cash                                                                                               |   |   | (1,310,940 | )      |   |   | 3,905,513 |   |
| Cash and cash equivalents, beginning of period                                                                   |   |   | 2,895,711  |   |   |   | 857,941 |   |
| Cash and cash equivalents, end of period                                                                         |   | $      | 1,584,771  |   |   | $      | 4,763,454 |   |

----

| BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES                    |
|-------------------------------------------------------------------|
|  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) |
| FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008                   |
| (UNAUDITED)                                                       |

|                                                                    |   | 2009   |    |   | 2008   |   |
|-------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Supplemental disclosure of cash flow information:                       |   |   |    |   |   |   |
| Cash paid for:                                                          |   |   |    |   |   |   |
| Interest                                                                |   | $      | 236,024 |   |   | $      | 117,049 |   |
| Income taxes                                                            |   | $      | 15,000  |   |   | $      | - |   |
|                                                                    |   |   |    |   |   |   |   |   |
| Supplemental disclosure of non-cash investing and financing activities: |   |   |    |   |   |   |   |   |
| Acquisition of equipment under capital leases                           |   | $      | 354,515 |   |   | $      | 380,161 |   |
| Issuance of preferred A shares stock dividend                           |   | $      | -       |   |   | $      | 689 |   |

----

| Company                                               |   | Inception/Acquisition Date               |
|------------------------------------------------------------|--------|------------------------------------------|
| BPO Management Services, Inc. (the "Company") or ("BPOMS") |   | Inception date:  July 26, 2005 |
| Adapsys Document Management LP ("ADM") (2)                 |   | Acquired:  July 29, 2005       |
| Adapsys LP ("ADP") (2)                                     |   | Acquired:  July 29, 2005       |
| Digica, Inc. ("Digica") (1)                                |   | Acquired:  January 1, 2006     |
| Novus Imaging Solutions, Inc. ("Novus") (2)                |   | Acquired:  September 30, 2006  |
| NetGuru Systems, Inc. ("NGSI")                             |   | Acquired:  December 15, 2006   |
| Research Engineers, GmbH ("GmbH")                          |   | Acquired:  December 15, 2006   |
| DocuCom Imaging Solutions, Inc. ("DocuCom") (2)            |   | Acquired:  June 21, 2007       |
| Human Resource Micro-Systems, Inc. ("HRMS")                |   | Acquired:  June 29, 2007       |
| Blue Hill Data Services, Inc. ("Blue Hill")                |   | Acquired:  October 10, 2007    |
| BPO Management Services, Ltd. ("BPOMS Ltd") (2)            |   | Amalgamation: January 1, 2008            |
| Healthaxis Inc. ("Healthaxis") (3)                         |   | Acquired:  December 30, 2008   |

| (1) | Effective January 1, 2008, Digica was merged with Blue Hill                                                                                                                                                                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | On January 1, 2008, ADM, ADP, Novus and DocuCom were amalgamated into one company, BPO Management Services, Ltd.  As of June 30, 2009, these operations were held for sale and classified as discontinued operations as discussed in Note 3.                                                                             |
| (3) | Because the merger of Legacy BPOMS and Legacy Healthaxis took place at the end of fiscal 2008, the operating results for the three and six months ended June 30, 2009 include those of the Healthcare segment, while the operating results for the three and six months ended June 30, 2008 do not include the Healthcare segment. |

----

 going concern. 

|       |   |   Percent of accounts and note receivable |
|------------|--------|-----------------------------------------------------|
|       |   | June 30, 2009                                       |   | Dec. 31, 2008 |
| Customer A |   | 15%                                                 |   | 13% |
| Customer B |   | 14%                                                 |   | 11% |

----

|                                                                                                      |   | Three Months Ended June 30, |       |   | Six Months Ended June 30, |   |
|-----------------------------------------------------------------------------------------------------------|--------|-----------------------------|------------|--------|---------------------------|--------|
| Loss From Continuing Operations:                                                                          |   | 2009                        |       |   | 2008                      |   |   | 2009 |   |   | 2008 |   |
| Numerator:                                                                                                |   |                        |       |   |                      |   |   |   |   |   |   |   |
| Loss from continuing operations                                                                           |   | $                           | (2,352,966 | )      |                      | $      | (473,626 | ) |   | $ | (3,776,005 | ) |   | $ | (1,840,119 | ) |
| Less:                                                                                                     |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Preferred dividends paid in stock                                                                         |   |                        | -          |   |                      |   | (34,759 | ) |   |   | - |   |   |   | (68,836 | ) |
| Loss and numerator used in computing basic and diluted loss per share                                     |   | $                           | (2,352,966 | )      |                      | $      | (508,385 | ) |   | $ | (3,776,005 | ) |   | $ | (1,908,955 | ) |
|                                                                                                      |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss From Discontinued Operations:                                                                        |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Numerator:                                                                                                |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss from discontinued operations                                                                         |   | $                           | (2,686,089 | )      |                      | $      | (457,709 | ) |   | $ | (2,738,321 | ) |   | $ | (863,286 | ) |
|                                                                                                      |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss and numerator used in computing basic and diluted loss per share                                     |   | $                           | (2,686,089 | )      |                      | $      | (457,709 | ) |   | $ | (2,738,321 | ) |   | $ | (863,286 | ) |
| Denominator:                                                                                              |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Denominator for basic and diluted net loss per share-weighted average number of common shares outstanding |   |                        | 15,165,586 |   |                      |   | 12,671,034 |   |   |   | 15,165,586 |   |   |   | 12,457,919 |   |
|                                                                                                      |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss per share - basic and dilluted                                                                       |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Loss from continuing operations                                                                           |   | $                           | (0.15      | )      |                      | $      | (0.04 | ) |   | $ | (0.25 | ) |   | $ | (0.15 | ) |
| Loss from discontinued operations                                                                         |   |                        | (0.18      | )      |                      |   | (0.04 | ) |   |   | (0.18 | ) |   |   | (0.07 | ) |
| Net loss per share - basic and diluted                                                                    |   | $                           | (0.33      | )      |                      | $      | (0.08 | ) |   | $ | (0.43 | ) |   | $ | (0.22 | ) |

|                                                            |   | As of June 30, |       |
|-----------------------------------------------------------------|--------|----------------|------------|
|                                                            |   | 2009           |       |   | 2008 |   |
| Options to purchase shares of common stock                      |   |           | 4,571,847  |   |   |   | 5,002,954 |   |
| Warrants to purchase shares of common stock                     |   |           | 2,189,868  |   |   |   | 68,086,261 |   |
| Shares of convertible preferred stock - Legacy BPOMS Series A   |   |           | -          |   |   |   | 1,637,710 |   |
| Shares of convertible preferred stock - Legacy BPOMS Series B   |   |           | -          |   |   |   | 1,449,204 |   |
| Shares of convertible preferred stock - Legacy BPOMS Series D   |   |           | -          |   |   |   | 22,833,341 |   |
| Shares of convertible preferred stock - Legacy BPOMS Series D-2 |   |           | -          |   |   |   | 20,999,998 |   |
| Shares of convertible preferred stock - Series B                |   |           | 21,103,955 |   |   |   | - |   |
|                                                            |   |           |       |   |   |   |   |   |
| Total                                                           |   |           | 27,865,670 |   |   |   | 120,009,468 |   |

----

----

| Discontinued Operations           |   |                       |       |   |                     |   |      |   |   |   |       |   |
|-----------------------------------|--------|----------------------------|------------|--------|--------------------------|--------|-----------|--------|--------|--------|------------|--------|
|                              |   | For the three months ended |       |   | For the six months ended |   |
|                              |   | June 30,                   |       |   | June 30,                 |   |
|                              |   | 2009                       |       |   | 2008                     |   |      | 2009   |   |   | 2008       |   |
|                              |   |                       |       |   |                     |   |      |   |   |   |       |   |   |   |   |   |
| Revenues                          |   | $                          | 3,371,342  |   |                     | $      | 3,919,793 |   |   | $      | 6,252,893  |   |   | $ | 7,679,966 |   |
|                              |   |                       |       |   |                     |   |      |   |   |   |       |   |   |   |   |   |
| Loss from discontinued operations |   | $                          | (2,686,089 | )      |                     | $      | (457,709  | )      |   | $      | (2,738,321 | )      |   | $ | (863,286 | ) |

|                                                                                                                |   | June 30, |      |   | December 31, |   |
|---------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|--------|--------------|--------|
| Assets Held For Sale                                                                                                |   | 2009     |      |   | 2008         |   |
|                                                                                                                |   |     |      |   |         |   |
| Cash and cash equivalents                                                                                           |   | $        | 276,155   |   |         | $      | - |   |
| Accounts receivable, net                                                                                            |   |     | 1,579,164 |   |         |   | 2,017,649 |   |
| Inventory                                                                                                           |   |     | 178,876   |   |         |   | 181,968 |   |
| Prepaid expenses and other current assets                                                                           |   |     | 113,830   |   |         |   | 91,013 |   |
| Total current assets                                                                                                |   |     | 2,148,025 |   |         |   | 2,290,630 |   |
|                                                                                                                |   |     |      |   |         |   |   |   |
| Equipment, net                                                                                                      |   |     | 510,167   |   |         |   | 565,564 |   |
| Goodwill                                                                                                            |   |     | 693,974   |   |         |   | 2,574,107 |   |
| Intangible assets, net                                                                                              |   |     | 1,152,049 |   |         |   | 1,307,874 |   |
| Other assets                                                                                                        |   |     | 36,792    |   |         |   | - |   |
| Total non-current assets                                                                                            |   | $        | 2,392,982 |   |         | $      | 4,447,545 |   |
|                                                                                                                |   |     |      |   |         |   |   |   |
| Liabilities Associated With Assets Held For Sale                                                                    |   |     |      |   |         |   |   |   |
|                                                                                                                |   |     |      |   |         |   |   |   |
| Bank debt                                                                                                           |   | $        | 1,345,878 |   |         | $      | 1,257,482 |   |
| Accounts payable                                                                                                    |   |     | 1,168,125 |   |         |   | 1,016,200 |   |
| Accrued expenses                                                                                                    |   |     | 664,738   |   |         |   | 572,551 |   |
| Deferred revenues                                                                                                   |   |     | 506,172   |   |         |   | 865,862 |   |
| Income taxes payable                                                                                                |   |     | 175,832   |   |         |   | 146,695 |   |
| Other current liabilities                                                                                           |   |     | 247,532   |   |         |   | 242,647 |   |
| Total current liabilities                                                                                           |   |     | 4,108,277 |   |         |   | 4,101,437 |   |
|                                                                                                                |   |     |      |   |         |   |   |   |
| Long-term bank debt                                                                                                 |   |     | -         |   |         |   | 5,694 |   |
|                 Total non-current liabilities |   | $        | -         |   |         | $      | 5,694 |   |

----

|                                              |   | Healthaxis |       |
|---------------------------------------------------|--------|------------|------------|
| Cash & cash equivalents                       |   | $          | 1,973,907  |   |
| Accounts receivable                               |   |       | 2,212,972  |   |
| Prepaids                                          |   |       | 2,068,757  |   |
| Property, plant and equipment                     |   |       | 2,917,563  |   |
| Other assets                                      |   |       | 959,349    |   |
| Goodwill                                          |   |       | 2,282,064  |   |
| Identifiable intangible assets                    |   |       | 1,600,000  |   |
| Total assets acquired                             |   |       | 14,014,612 |   |
|                                              |   |       |       |   |
| Current liabilities                               |   |       | 5,656,486  |   |
| Other non current liabilities                     |   |       | 1,360,147  |   |
| Total liabilities assumed                         |   |       | 7,016,633  |   |
|      Net assets acquired |   | $          | 6,997,979  |   |

| Unaudited Pro Forma Statement of Operations For the Three Months Ended June 30, 2008: |   |
|---------------------------------------------------------------------------------------|--------|
|                                                                                  |   | BPOMS |   |   | Healthaxis |   |   | Pro Forma |   |
| Revenues                                                                              |   | $ | 3,900,965 |   |   | $ | 3,935,000 |   |   | $ | 7,835,965 |   |
|                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                              |   | $ | (931,335 | ) |   | $ | (81,000 | ) |   | $ | (1,012,335 | ) |
|                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted loss per  common share                                         |   | $ | (0.07 | ) |   | $ | (0.01 | ) |   | $ | (0.07 | ) |
|                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted weighted average common shares outstanding                          |   |   | 12,671,034 |   |   |   | 8,402,464 |   |   |   | 15,165,586 |   |

----

| Unaudited Pro Forma Statement of Operations For the Six Months Ended June 30, 2008: |   |
|-------------------------------------------------------------------------------------|--------|
|                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                |   | BPOMS |   |   | Healthaxis |   |   | Pro Forma |   |
| Revenues                                                                            |   | $ | 7,423,378 |   |   | $ | 7,939,000 |   |   | $ | 15,362,378 |   |
|                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                            |   | $ | (2,703,405 | ) |   | $ | (623,000 | ) |   | $ | (3,326,405 | ) |
|                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted loss percommon share                                              |   | $ | (0.22 | ) |   | $ | (0.07 | ) |   | $ | (0.22 | ) |
|                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted weighted averagecommon shares outstanding                         |   |   | 12,457,919 |   |   |   | 8,364,161 |   |   |   | 15,165,586 |   |

----

| ● | Information Technology services outsourcing (ITO)                                                                            |
|---------|------------------------------------------------------------------------------------------------------------------------------|
| ● | Healthcare administrative systems and related services and financial and accounting outsourcing services or (Healthcare) and |
| ● | Human resources outsourcing (HRO)                                                                                            |

|                                  |   | For the three months ended |       |   | For the six months ended |   |
|---------------------------------------|--------|----------------------------|------------|--------|--------------------------|--------|
|                                  |   | June 30,                   |       |   | June 30,                 |   |
|                                  |   | 2009                       |       |   | 2008                     |   |   | 2009 |   |   | 2008 |   |
| Net revenues                          |   |                       |       |   |                     |   |   |   |   |   |   |   |
| ITO                                   |   | $                          | 2,848,147  |   |                     | $      | 3,308,739 |   |   | $ | 5,833,864 |   |   | $ | 6,450,543 |   |
| Healthcare                            |   |                       | 3,489,384  |   |                     |   | - |   |   |   | 7,111,812 |   |   |   | - |   |
| HRO                                   |   |                       | 225,653    |   |                     |   | 592,226 |   |   |   | 528,839 |   |   |   | 972,835 |   |
| Consolidated                          |   | $                          | 6,563,184  |   |                     | $      | 3,900,965 |   |   | $ | 13,474,515 |   |   | $ | 7,423,378 |   |
|                                  |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (loss)               |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| ITO                                   |   | $                          | (998,544   | )      |                     | $      | 240,704 |   |   | $ | (1,499,610 | ) |   | $ | 172,410 |   |
| Healthcare                            |   |                       | 109,265    |   |                     |   | - |   |   |   | 251,192 |   |   |   | - |   |
| HRO                                   |   |                       | (101,771   | )      |                     |   | 34,718 |   |   |   | (200,384 | ) |   |   | (159,319 | ) |
| Corporate                             |   |                       | (1,224,919 | )      |                     |   | (701,142 | ) |   |   | (2,036,413 | ) |   |   | (1,713,977 | ) |
| Consolidated                          |   | $                          | (2,215,969 | )      |                     | $      | (425,720 | ) |   | $ | (3,485,215 | ) |   | $ | (1,700,886 | ) |
|                                  |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization expense |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
| ITO                                   |   | $                          | 525,524    |   |                     | $      | 429,886 |   |   | $ | 994,339 |   |   | $ | 856,133 |   |
| Healthcare                            |   |                       | 428,941    |   |                     |   | - |   |   |   | 863,110 |   |   |   | - |   |
| HRO                                   |   |                       | 13,296     |   |                     |   | 23,289 |   |   |   | 27,157 |   |   |   | 130,579 |   |
| Corporate                             |   |                       | 64,085     |   |                     |   | 64,941 |   |   |   | 129,009 |   |   |   | 129,179 |   |
| Consolidated                          |   | $                          | 1,031,846  |   |                     | $      | 518,116 |   |   | $ | 2,013,615 |   |   | $ | 1,115,891 |   |

----

|              |   | For the three months ended |       |   | For the six months ended |   |
|-------------------|--------|----------------------------|------------|--------|--------------------------|--------|
|              |   | June 30,                   |       |   | June 30,                 |   |
|              |   | 2009                       |       |   | 2008                     |   |   | 2009 |   |   | 2008 |   |
|              |   |                       |       |   |                     |   |   |   |   |   |   |   |
| Net revenues      |   |                       |       |   |                     |   |   |   |   |   |   |   |
| North America     |   | $                          | 6,506,784  |   |                     | $      | 3,702,732 |   |   | $ | 13,211,043 |   |   | $ | 7,065,307 |   |
| Europe            |   |                       | 56,400     |   |                     |   | 198,233 |   |   |   | 263,472 |   |   |   | 358,071 |   |
| Consolidated      |   | $                          | 6,563,184  |   |                     | $      | 3,900,965 |   |   | $ | 13,474,515 |   |   | $ | 7,423,378 |   |
|              |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|              |   |                       |       |   |                     |   |   |   |   |   |   |   |   |   |   |   |
|              |   | At June 30,                |       |   | At December 31,          |   |   |   |   |   |   |   |   |   |
| Long-Lived Assets |   |                       | 2009       |   |                     |   | 2008 |   |   |   |   |   |   |   |   |   |
| North America     |   | $                          | 16,712,636 |   |                     | $      | 18,956,867 |   |   |   |   |   |   |   |   |   |
| Europe            |   |                       | 20,264     |   |                     |   | 15,515 |   |   |   |   |   |   |   |   |   |
| Consolidated      |   | $                          | 16,732,900 |   |                     | $      | 18,972,382 |   |   |   |   |   |   |   |   |   |

----

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

----

|    |                                                                                                                                                  |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● | Information technology services outsourcing or “ITO”;                                                                                     |
|    |                                                                                                                                                  |
| ● | Healthcare administrative systems and related services and financial and accounting outsourcing services or “Healthcare and F&A”, and |
|    |                                                                                                                                                  |
| ● | Human resources information systems and related outsourcing services, or “HRO”                                                            |

----

| Company                                                               |   | Segment    |   | Inception/Acquisition Date               |   |
|-----------------------------------------------------------------------|--------|------------|--------|------------------------------------------|--------|
|                                                                  |   |       |   |                                     |   |
| BPO Management Services, Inc. (the "Company") or  ("BPOMS") |   | Corporate  |   | Inception date:  July 26, 2005 |   |
| Adapsys Document Management LP ("ADM") (2)                            |   | (2)        |   | Acquired:  July 29, 2005       |   |
| Adapsys LP ("ADP") (2)                                                |   | (2)        |   | Acquired:  July 29, 2005       |   |
| Digica, Inc. ("Digica") (1)                                           |   | ITO        |   | Acquired:  January 1, 2006     |   |
| Novus Imaging Solutions, Inc. ("Novus") (2)                           |   | (2)        |   | Acquired:  September 30, 2006  |   |
| NetGuru Systems, Inc. ("NGSI")                                        |   | ITO        |   | Acquired:  December 15, 2006   |   |
| Research Engineers, GmbH ("GmbH")                                     |   | ITO        |   | Acquired:  December 15, 2006   |   |
| DocuCom Imaging Solutions, Inc. ("DocuCom") (2)                       |   | (2)        |   | Acquired:  June 21, 2007       |   |
| Human Resource Micro-Systems, Inc. ("HRMS")                           |   | HRO        |   | Acquired:  June 29, 2007       |   |
| Blue Hill Data Services, Inc. ("Blue Hill")                           |   | ITO        |   | Acquired:  October 10, 2007    |   |
| BPO Management Services, Ltd. ("BPOMS Ltd") (2)                       |   | (2)        |   | Amalgamation: January 1, 2008            |   |
| Healthaxis Inc. ("Healthaxis") (3)                                    |   | Healthcare |   | Acquired:  December 30, 2008   |   |

| (1) | Effective January 1, 2008, Digica was merged with Blue Hill                                                                                                                                                                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | On January 1, 2008, ADM, ADP, Novus and DocuCom were amalgamated into one company, BPO Management Services, Ltd.  As of June 30, 2009, these operations were held for sale and classified as discontinued operations.                                                                                                    |
| (3) | Because the merger of Legacy BPOMS and Legacy Healthaxis took place at the end of fiscal 2008, the operating results for the three and six months ended June 30, 2009 include those of the Healthcare segment, while the operating results for the three and six months ended June 30, 2008 do not include the Healthcare segment. |

| ● | IT Outsourcing (“ ITO”) comprised of Blue Hill, Digica (which was merged with Blue Hill in January 2008), NGSI and GmbH, |
|---------|--------------------------------------------------------------------------------------------------------------------------------------|
| ● | Healthcare comprised of Legacy Healthaxis, and                                                                                       |
| ● | Human Resources Outsourcing (“HRO”) comprised of HRMS.                                                                   |

----

|                                                           |   | For the three months ended June 30, |      |
|----------------------------------------------------------------|--------|-------------------------------------|-----------|
|                                                           |   | 2009                                |      |   | 2008 |   |   | Change |   |
|                                                           |   |                                |      |   |   |   |   |   |   |
| Revenues:                                                      |   | $                                   | 2,848,147 |   |   | $ | 3,308,739 |   |   | $ | (460,592 | ) |
|                                                           |   |                                |      |   |   |   |   |   |   |   |   |   |
| Operating expenses :                                           |   |                                |      |   |   |   |   |   |   |   |   |   |
| Cost of services provided                                      |   |                                | 2,040,827 |   |   |   | 1,641,673 |   |   |   | 399,154 |   |
| Selling, general and administrative                            |   |                                | 1,161,432 |   |   |   | 919,142 |   |   |   | 242,290 |   |
| Research and development                                       |   |                                | 118,908   |   |   |   | 77,335 |   |   |   | 41,573 |   |
| Depreciation and amortization                                  |   |                                | 525,524   |   |   |   | 429,886 |   |   |   | 95,638 |   |
|                                                           |   |                                |      |   |   |   |   |   |   |   |   |   |
| Total operating expenses                                       |   |                                | 3,846,691 |   |   |   | 3,068,035 |   |   |   | 778,656 |   |
|                                                           |   |                                |      |   |   |   |   |   |   |   |   |   |
| Income (loss) from operations before interest and income taxes |   | $                                   | (998,544  | ) |   | $ | 240,704 |   |   | $ | (1,239,248 | )  |

----

|                                                          |   | June 30, |      |   |         |   |
|---------------------------------------------------------------|--------|----------|-----------|--------|--------------|--------|
| For Three Months Ended                                        |   | 2009     |      |   | % of Revenue |   |
|                                                          |   |     |      |   |         |   |
| Revenues:                                                     |   | $        | 3,489,384 |   |         |   |   |
|                                                          |   |     |      |   |         |   |   |
| Operating expenses :                                          |   |     |      |   |         |   |   |
| Cost of services provided                                     |   |     | 2,619,373 |   |         |   | 75.1% |   |
| Selling, general and administrative                           |   |     | 331,805   |   |         |   | 9.5% |   |
| Research and development (2)                                  |   |     | -         |   |         |   | 0.0% |   |
| Depreciation and amortization                                 |   |     | 428,941   |   |         |   | 12.3% |   |
|                                                          |   |     |      |   |         |   |   |   |
| Total operating expenses                                      |   |     | 3,380,119 |   |         |   | 96.9% |   |
|                                                          |   |     |      |   |         |   |   |   |
|  Income from operations before interest and income taxes |   | $        | 109,265   |   |         |   | 3.1% |   |

| (1)    | Due to the merger with Legacy Healthaxis occuring on December 30, 2008, there is no comparable 2008 period with which to compare Healthcare's quarterly results for the three months ended June 30, 2009. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                      |
| (2)    | The Company capitalized software development costs of approximately $127,587 for the three months ended June 30, 2009.                                                                                    |

|                                                           |   | For the three months ended June 30, |     |
|----------------------------------------------------------------|--------|-------------------------------------|----------|
|                                                           |   | 2009                                |     |   | 2008 |   |   | Change |   |
|                                                           |   |                                |     |   |   |   |   |   |   |
| Revenues                                                       |   | $                                   | 225,653  |   |   | $ | 592,226 |   |   | $ | (366,573 | ) |
| Operating expenses :                                           |   |                                |     |   |   |   |   |   |   |   |   |   |
| Cost of services provided                                      |   |                                | 85,599   |   |   |   | 140,882 |   |   |   | (55,283 | ) |
| Selling, general and administrative                            |   |                                | 228,529  |   |   |   | 393,337 |   |   |   | (164,808 | ) |
| Depreciation and amortization                                  |   |                                | 13,296   |   |   |   | 23,289 |   |   |   | (9,993 | ) |
|                                                           |   |                                |     |   |   |   |   |   |   |   |   |   |
| Total operating expenses                                       |   | $                                   | 327,424  |   |   | $ | 557,508 |   |   | $ | (230,084 | ) |
|                                                           |   |                                |     |   |   |   |   |   |   |   |   |   |
| Income (loss) from operations before interest and income taxes |   | $                                   | (101,771 | ) |   | $ | 34,718 |   |   | $ | (136,489 | )  |

----

|                                                      |   | For the three months ended June 30, |      |
|-----------------------------------------------------------|--------|-------------------------------------|-----------|
|                                                      |   | 2009                                |      |   | 2008 |   |   | Change |   |
| Operating expenses :                                      |   |                                |      |   |   |   |   |   |   |
| Selling, general and administrative                       |   | $                                   | 760,294   |   |   | $ | 429,109 |   |   | $ | 331,185 |   |
| Research and development                                  |   |                                | -         |   |   |   | - |   |   |   | - |   |
| Depreciation and amortization                             |   |                                | 64,085    |   |   |   | 64,941 |   |   |   | (856 | ) |
| Stock based compensation                                  |   |                                | 18,333    |   |   |   | 207,092 |   |   |   | (188,759 | ) |
| Restructuring costs                                       |   |                                | 382,207   |   |   |   | - |   |   |   | 382,207 |   |
|                                                      |   |                                |      |   |   |   |   |   |   |   |   |   |
| Total operating expenses before interest and income taxes |   | $                                   | 1,224,919 |   |   | $ | 701,142 |   |   | $ | 523,777 |   |

|                   |   | For the three months ended June 30, |    |
|------------------------|--------|-------------------------------------|---------|
|                   |   | 2009                                |    |   | 2008 |   |   | Change |   |
| Interest expense:      |   |                                |    |   |   |   |   |   |   |
| Related parties        |   | $                                   | 18,579  |   |   | $ | 26,853 |   |   |   | (8,274 | ) |
| Other, net             |   |                                | 110,618 |   |   |   | 21,053 |   |   |   | 89,565 |   |
|                   |   |                                |    |   |   |   |   |   |   |   |   |   |
| Total interest expense |   | $                                   | 129,197 |   |   | $ | 47,906 |   |   | $ | 81,291 |   |

----

|                                                           |   | For the six months ended June 30, |       |
|----------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                           |   | 2009                              |       |   | 2008 |   |   | Change |   |
|                                                           |   |                              |       |   |   |   |   |   |   |   |   |   |
| Revenues:                                                      |   | $                                 | 5,833,864  |   |   | $ | 6,450,543 |   |   | $ | (616,679 | ) |
|                                                           |   |                              |       |   |   |   |   |   |   |   |   |   |
| Operating expenses :                                           |   |                              |       |   |   |   |   |   |   |   |   |   |
| Cost of services provided                                      |   |                              | 3,809,261  |   |   |   | 2,992,159 |   |   |   | 817,102 |   |
| Selling, general and administrative                            |   |                              | 2,305,114  |   |   |   | 2,282,804 |   |   |   | 22,310 |   |
| Research and development                                       |   |                              | 224,760    |   |   |   | 147,037 |   |   |   | 77,723 |   |
| Depreciation and amortization                                  |   |                              | 994,339    |   |   |   | 856,133 |   |   |   | 138,206 |   |
|                                                           |   |                              |       |   |   |   |   |   |   |   |   |   |
| Total operating expenses                                       |   |                              | 7,333,474  |   |   |   | 6,278,133 |   |   |   | 1,055,341 |   |
|                                                           |   |                              |       |   |   |   |   |   |   |   |   |   |
| Income (loss) from operations before interest and income taxes |   | $                                 | (1,499,610 | ) |   | $ | 172,410 |   |   | $ | (1,672,020 | )  |

|                                                    |   | June 30, |      |   |         |   |
|---------------------------------------------------------|--------|----------|-----------|--------|--------------|--------|
| For Six Months Ended                                    |   | 2009     |      |   | % of Revenue |   |
|                                                    |   |     |      |   |         |   |
| Revenues:                                               |   | $        | 7,111,812 |   |         |   |   |
|                                                    |   |     |      |   |         |   |   |
| Operating expenses :                                    |   |     |      |   |         |   |   |
| Cost of services provided                               |   |     | 5,468,304 |   |         |   | 76.9% |   |
| Selling, general and administrative                     |   |     | 529,206   |   |         |   | 7.4% |   |
| Research and development (2)                            |   |     | -         |   |         |   | 0.0% |   |
| Depreciation and amortization                           |   |     | 863,110   |   |         |   | 12.2% |   |
|                                                    |   |     |      |   |         |   |   |   |
| Total operating expenses                                |   |     | 6,860,620 |   |         |   | 96.5% |   |
|                                                    |   |     |      |   |         |   |   |   |
| Income from operations before interest and income taxes |   | $        | 251,192   |   |         |   | 3.5% |   |

| (1)    | Due to the merger with Legacy Healthaxis occuring on December 30, 2008, there is no comparable 2008 period with which to compare Healthcare's results for the six months ended June 30, 2009. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                          |
| (2)    | The Company capitalized software development costs of approximately $213,133 for the six months ended June 30, 2009.                                                                          |

----

|                                                  |   | For the six months ended June 30, |     |
|-------------------------------------------------------|--------|-----------------------------------|----------|
|                                                  |   | 2009                              |     |   | 2008 |   |   | Change |   |
|                                                  |   |                              |     |   |   |   |   |   |   |   |   |   |
| Revenues                                              |   | $                                 | 528,839  |   |   | $ | 972,835 |   |   | $ | (443,996 | ) |
|                                                  |   |                              |     |   |   |   |   |   |   |   |   |   |
| Operating expenses :                                  |   |                              |     |   |   |   |   |   |   |   |   |   |
| Cost of services provided                             |   |                              | 218,602  |   |   |   | 282,011 |   |   |   | (63,409 | ) |
| Selling, general and administrative                   |   |                              | 483,464  |   |   |   | 719,564 |   |   |   | (236,100 | ) |
| Depreciation and amortization                         |   |                              | 27,157   |   |   |   | 130,579 |   |   |   | (103,422 | ) |
|                                                  |   |                              |     |   |   |   |   |   |   |   |   |   |
| Total operating expenses                              |   | $                                 | 729,223  |   |   | $ | 1,132,154 |   |   | $ | (402,931 | ) |
|                                                  |   |                              |     |   |   |   |   |   |   |   |   |   |
| Loss from operations before interest and income taxes |   | $                                 | (200,384 | ) |   | $ | (159,319 | ) |   | $ | (41,065 | )  |

|                                                      |   | For the six months ended June 30, |      |
|-----------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                      |   | 2009                              |      |   | 2008 |   |   | Change |   |
| Operating expenses :                                      |   |                              |      |   |   |   |   |   |   |
| Selling, general and administrative                       |   | $                                 | 1,506,864 |   |   | $ | 1,170,614 |   |   | $ | 336,250 |   |
| Research and development                                  |   |                              | -         |   |   |   | - |   |   |   | - |   |
| Depreciation and amortization                             |   |                              | 129,009   |   |   |   | 129,179 |   |   |   | (170 | ) |
| Stock based compensation                                  |   |                              | 18,333    |   |   |   | 414,184 |   |   |   | (395,851 | ) |
| Restructuring costs                                       |   |                              | 382,207   |   |   |   | - |   |   |   | 382,207 |   |
|                                                      |   |                              |      |   |   |   |   |   |   |   |   |   |
| Total operating expenses before interest and income taxes |   | $                                 | 2,036,413 |   |   | $ | 1,713,977 |   |   | $ | 322,436 |   |

----

|                   |   | For the six months ended June 30, |    |
|------------------------|--------|-----------------------------------|---------|
|                   |   | 2009                              |    |   | 2008 |   |   | Change |   |
| Interest expense:      |   |                              |    |   |   |   |   |   |   |
| Related parties        |   | $                                 | 39,166  |   |   | $ | 53,705 |   |   |   | (14,539 | ) |
| Other, net             |   |                              | 236,024 |   |   |   | 41,076 |   |   |   | 194,948 |   |
|                   |   |                              |    |   |   |   |   |   |   |   |   |   |
| Total interest expense |   | $                                 | 275,190 |   |   | $ | 94,781 |   |   | $ | 180,409 |   |

----

----

  

 but has allowed the Company to continue to borrow on the revolving line and has not demanded repayment in full of the obligations to the bank.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.” 

----

| Exhibit Number |  Description                                                                                                                                                                                          |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           |                                                                                                                                                                                                       |
| 10.1           | Employment Separation Agreement dated as of May 6, 2009 between the Company, Former BPOMS and Donald W. Rutherford (2)                                                                                     |
|           |                                                                                                                                                                                                       |
| 10.2           | Employment Agreement dated as of October 15, 2008 between the Former BPOMS and John M. Carradine (2)                                                                                                       |
|           |                                                                                                                                                                                                       |
| 10.3           | Employment Agreement dated as of October 15, 2008 between the Former BPOMS and Ronald K. Herbert (2)                                                                                                       |
|           |                                                                                                                                                                                                       |
| 10.4           | Second Amendment to the BPO Management Services, Inc., 2007 Stock Incentive Plan dated May 13, 2009 (1)                                                                                                    |
|           |                                                                                                                                                                                                       |
| 31.1           | Certification of Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1) |
|           |                                                                                                                                                                                                       |
| 31.2           | Certification of Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)           |
|           |                                                                                                                                                                                                       |
| 32             | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)                          |

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

| (2) | Incorporated by reference to Current Report on Form 8-K filed May 8, 2009. |
|-----|----------------------------------------------------------------------------|

----

  

| Date: August 14, 2009 | BPO MANAGEMENT SERVICES, INC.                                                      |
|-----------------------|------------------------------------------------------------------------------------|
|                  |                                                                               |
|                  | By: /s/  Patrick A. DolanChief Executive Officer(principal executive officer) |

|   | By: /s/  Ronald K. HerbertChief Financial Officer(principal financial officer) |
|--------|-------------------------------------------------------------------------------------|

----

| ExhibitNumber | Description                                                                                                                                                                                            |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                                                                                                                                                   |
| 10.1          | Employment Separation Agreement dated as of May 6, 2009 between the Company, Former BPOMS and Donald W. Rutherford                                                                                     |
|          |                                                                                                                                                                                                   |
| 10.2          | Employment Agreement dated as of October 15, 2008 between the Former BPOMS and John M. Carradine                                                                                                       |
|          |                                                                                                                                                                                                   |
| 10.3          | Employment Agreement dated as of October 15, 2008 between the Former BPOMS and Ronald K. Herbert                                                                                                       |
|          |                                                                                                                                                                                                   |
| 10.4          | Second Amendment to the BPO Management Services, Inc., 2007 Stock Incentive Plan dated May 13, 2009                                                                                                    |
|          |                                                                                                                                                                                                   |
| 31.1          | Certification of Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|          |                                                                                                                                                                                                   |
| 31.2          | Certification of Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002           |
|          |                                                                                                                                                                                                   |
| 32            | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                          |

----