UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549








FORM
10-Q








ý QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
quarterly period ended: March 31, 2009





o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
transition period from
                       
to
                       
..





Commission
File Number: 0-13591





BPO
MANAGEMENT SERVICES, INC.


(Exact
Name of Registrant as Specified in Its Charter)





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)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.  Yes ý
  No  o




Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for shorter period that the registrant was required to submit and
post such files).    Yes   ̈    No   ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer,” “and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.






Large
      accelerated filer
            o
            Accelerated
      filer
            oNon-accelerated
      filer
            o
            Smaller
      reporting company
            x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  YesoNo ý





The
number of shares outstanding of the registrant’s only class of common stock,
$0.10 par value, was 15,165,586 on May 14, 2009.










PART
      IFINANCIAL
      INFORMATIONPageItem
      1.  Financial Statements
            3Condensed
      Consolidated Statements of Operations and Comprehensive Loss for the three
      months ended March 31, 2009 and 2008 (Unaudited)
            3Condensed
      Consolidated Balance Sheets as March 31,  2009 (Unaudited) and
      December 31, 2008
            4Condensed
      Consolidated Statements of Cash Flows for the three months ended March 31,
      2009 and 2008 (Unaudited)
            5Notes
      to Condensed Consolidated Financial Statements (Unaudited)
            7Item
      2.  Management's Discussion and Analysis of Financial Condition
      and Results of Operations
            17Item
      3.  Quantitative and Qualitative Disclosures About Market
      Risk
            25Item
      4T.  Controls and Procedures
            25PART
      IIOTHER
      INFORMATIONItem
      1.  Legal Proceedings
            26Item
      1-A  Risk Factors
            26Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
            26Item
      3.  Defaults Upon Senior Securities
            26Item
      4.  Submission of Matters to a Vote of Security
      Holders
            26Item
      5.  Other Information
            26Item
      6.  Exhibits
            26Signatures
            27Exhibits
      Attached to this Quarterly Report on Form 10-Q
            28






2




PART I -
FINANCIAL INFORMATION




ITEM 1.
FINANCIAL STATEMENTS




BPO
      MANAGEMENT SERVICES, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
    LOSSFOR
      THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008(UNAUDITED)2009
            
            
            2008Revenues:Enterprise
      content management
            
            $
            3,606,526
            
            
            $
            4,024,352IT
      outsourcing
            
            
            2,750,533
            
            
            
            2,877,624Healthcare
            
            
            3,622,428
            
            
            
            -Human
      resource outsourcing
            
            
            303,186
            
            
            
            380,609Total
      revenues
            
            
            10,282,673
            
            
            
            7,282,585Operating
      expenses:Cost
      of services provided
            
            
            6,696,857
            
            
            
            3,543,352Selling,
      general and administrative
            
            
            3,624,767
            
            
            
            4,333,817Research
      and development
            
            
            141,931
            
            
            
            69,702Depreciation
      and amortization
            
            
            1,123,877
            
            
            
            784,429Share-based
      compensation
            
            
            -
            
            
            
            207,092Total
      operating expenses
            
            
            11,587,432
            
            
            
            8,938,392Loss
      from operations
            
            
            (1,304,759
            )
            
            
            (1,655,807
            )Interest
      expense:Related
      parties
            
            
            20,587
            
            
            
            26,852Other,
      net
            
            
            142,125
            
            
            
            44,961Total
      interest expense
            
            
            162,712
            
            
            
            71,813Net
      loss before income tax expense
            
            
            (1,467,471
            )
            
            
            (1,727,620
            )Income
      tax expense
            
            
            7,800
            
            
            
            -Net
      loss
            
            
            (1,475,271
            )
            
            
            (1,727,620
            )Foreign
      currency translation loss
            
            
            (75,307
            )
            
            
            (197,004
            )Comprehensive
      loss
            
            $
            (1,550,578
            )
            
            $
            (1,924,624
            )Basic
      and diluted net loss per share
            
            $
            (0.10
            )
            
            $
            (0.14
            )Basic
      and diluted weighted average commonshares
      outstanding
            
            
            15,165,586
            
            
            
            12,247,121


See
accompanying notes to condensed consolidated financial
statements.


3




BPO
      MANAGEMENT SERVICES, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETSAS
      OF MARCH 31, 2009 AND DECEMBER 31, 20082009
            
            
            2008(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            1,725,513
            
            
            $
            2,784,155Accounts
      receivable, net of allowance for doubtful accounts of $371,279 and$530,050, respectively
            
            
            6,428,279
            
            
            
            7,425,805Inventory
            
            
            233,125
            
            
            
            181,968Prepaid
      expenses and other current assets
            
            
            1,174,593
            
            
            
            1,304,910Total
      current assets
            
            
            9,561,510
            
            
            
            11,696,838Equipment,
      net
            
            
            8,404,691
            
            
            
            7,735,777Goodwill
            
            
            4,796,850
            
            
            
            4,856,171Intangible
      assets, net
            
            
            5,204,646
            
            
            
            5,500,829Other
      assets
            
            
            979,139
            
            
            
            959,391$
            28,946,836
            
            
            $
            30,749,006LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Current
      portion of lines of credit and long-term debt, net of discount of $2,675and $2,733, respectively
            
            $
            4,110,964
            
            
            $
            3,662,876Current
      portion of capital lease obligations
            
            
            496,234
            
            
            
            394,765Accounts
      payable
            
            
            5,947,561
            
            
            
            5,583,598Accrued
      expenses
            
            
            3,357,071
            
            
            
            3,428,573Accrued
      interest-related party
            
            
            20,587
            
            
            
            -Accrued
      dividend payable
            
            
            1,369,331
            
            
            
            1,369,331Accrued
      dividend payable-related party
            
            
            651,281
            
            
            
            651,281Amount
      due former shareholders of acquired companies
            
            
            400,000
            
            
            
            1,000,000Deferred
      revenues
            
            
            2,857,340
            
            
            
            2,957,139Related
      party notes payable
            
            
            830,246
            
            
            
            930,246Income
      taxes payable
            
            
            162,873
            
            
            
            155,073Other
      current liabilities
            
            
            353,214
            
            
            
            380,362Total
      current liabilities
            
            
            20,556,702
            
            
            
            20,513,244Lines
      of credit and long-term debt, net of current portion and net of discountof $446 and $1,139, respectively
            
            
            2,110
            
            
            
            399,256Capital
      lease obligations, net of current portion
            
            
            811,479
            
            
            
            690,278Other
      long-term liabilities
            
            
            843,415
            
            
            
            862,520Total
      liabilities
            
            
            22,213,706
            
            
            
            22,465,298Commitments
      and contingenciesStockholders'
      equityConvertible
      preferred stock, Series B, par value $1.00;  authorized
      21,105,000shares; 21,103,955 shares issued and
      outstanding
            
            
            21,103,955
            
            
            
            21,103,955Common
      stock, par value $0.10;  authorized 1,900,000,000 shares;15,165,586  shares issued and
      outstanding
            
            
            1,516,559
            
            
            
            1,516,559Additional
      paid-in capital
            
            
            14,687,206
            
            
            
            14,687,206Accumulated
      deficit
            
            
            (30,182,000
            )
            
            
            (28,706,729
            )Accumulated
      other comprehensive income, foreign currency translation
      adjustments
            
            
            (392,590
            )
            
            
            (317,283
            )Total
      stockholders' equity
            
            
            6,733,130
            
            
            
            8,283,708$
            28,946,836
            
            
            $
            30,749,006


See
accompanying notes to condensed consolidated financial
statements.


4




BPO
      MANAGEMENT SERVICES, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSFOR
      THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008(UNAUDITED)2009
            
            
            2008Cash
      flows from operating acitvities:Net
      loss
            
            $
            (1,475,271
            )
            
            $
            (1,727,620
            )Adjustments
      to reconcile loss from continuing operationsto net cash provided
      by (used in) operating activities:Depreciation
            
            
            858,500
            
            
            
            338,336Amortization
      of intangible assets
            
            
            265,377
            
            
            
            446,093Non-cash
      compensation expense recognized on issuance of stock
    options
            
            
            -
            
            
            
            207,092Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            997,526
            
            
            
            (317,283
            )Inventory
            
            
            (51,157
            )
            
            
            78,886Prepaid
      expenses and other current assets
            
            
            130,317
            
            
            
            (381,479
            )Other
      assets
            
            
            (19,748
            )
            
            
            (9,619
            )Accounts
      payable
            
            
            363,963
            
            
            
            496,242Accrued
      expenses
            
            
            (71,502
            )
            
            
            120,971Accrued
      interest related parties
            
            
            20,587
            
            
            
            26,852Deferred
      revenues
            
            
            (99,799
            )
            
            
            (205,016
            )Income
      tax payable
            
            
            7,800
            
            
            
            (13,000
            )Payments
      of severance liability
            
            
            -
            
            
            
            (68,303
            )Other
      current liabilities
            
            
            (27,148
            )
            
            
            -Other
      long-term liabilities
            
            
            (19,105
            )
            
            
            -Net
      cash provided by (used in) operating activities
            
            
            880,340
            
            
            
            (1,007,848
            )Cash
      flows from investing activities:Purchase
      of equipment, net
            
            
            (1,172,899
            )
            
            
            (447,179
            )Release
      of restricted cash
            
            
            -
            
            
            
            922,888Net
      cash provided by (used in) investing activities
            
            
            (1,172,899
            )
            
            
            475,709Cash
      flows from financing activities:Proceeds
      from bank loans
            
            
            637,806
            
            
            
            1,206,371Repayment
      of bank loans
            
            
            (586,864
            )
            
            
            -Repayment
      of notes issued to former shareholders
            
            
            (600,000
            )
            
            
            (885,827
            )Repayment
      of capital lease obligations
            
            
            (131,845
            )
            
            
            (28,977
            )Repayment
      of notes payable - related party
            
            
            (100,000
            )
            
            
            -Net
      cash provided by (used in) financing activities
            
            
            (780,903
            )
            
            
            291,567Effect
      of exchange rate changes on cash and cash equivalents
      (cumulative)
            
            
            14,820
            
            
            
            133,352Net
      change in cash
            
            
            (1,058,642
            )
            
            
            (107,220
            )Cash
      and cash equivalents, beginning of period
            
            
            2,784,155
            
            
            
            888,043Cash
      and cash equivalents, end of period
            
            $
            1,725,513
            
            
            $
            780,823


See
accompanying notes to condensed consolidated financial
statements.


5




BPO
      MANAGEMENT SERVICES, INC. AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)FOR
      THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008(UNAUDITED)2009
            
            
            2008Supplemental
      disclosure of cash flow information:Cash
      paid for:Interest
            
            $
            142,125
            
            
            $
            54,303Income
      taxes
            
            $
            -
            
            
            $
            -Supplemental
      disclosure of non-cash investing and financingactivities:Acquisition
      of equipment under capital leases
            
            $
            354,515
            
            
            $
            -Issuance
      of warrants
            
            $
            -
            
            
            $
            -Issuance
      of preferred A shares as compensation to officers
            
            $
            -
            
            
            $
            34,077Issuance
      of preferred A shares stock dividend
            
            $
            -
            
            
            $
            341





6


BPO
MANAGEMENT SERVICES, INC. AND SUBSIDIARIES


NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31,
2009








1. 
Organization and Basis of Presentation





Organization




BPO
Management Services, Inc. was incorporated in 1982 in the state of Pennsylvania
and was previously named Healthaxis, Inc.  On December 30, 2008,
Healthaxis Inc. (as used in these Consolidated Financial Statements,
“Healthaxis”) acquired the publicly held BPO Management Services, Inc. (“Legacy
BPOMS”) in a reverse merger and immediately changed its name to BPO Management
Services, Inc., also referred to “BPOMS.”  BPOMS is a provider of
business process outsourcing services providing enterprise content management
(“ECM”) services, information technology outsourcing (“ITO”) services,
Healthcare administrative systems and related services and financial and
accounting outsourcing (“Healthcare”) services and human resource outsourcing
(“HRO”) services to middle market enterprises located primarily in Canada and in
the United States.




For
accounting purposes, the acquisition has been treated as a recapitalization of
Legacy BPOMS as the acquirer. The historical consolidated financial statements
prior to December 30, 2008, are those of the Legacy BPOMS. All share-related
data have been presented giving effect to the recapitalization resulting from
the reverse merger.  References in these Consolidated Financial
Statements to the “Company” or “BPOMS” refer to BPOMS.





Basis of
Presentation





The
accompanying unaudited condensed consolidated financial statements
are prepared on a consistent basis in accordance with accounting
principles generally accepted in the United States (GAAP) for interim
financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals and
consolidation and elimination entries) considered necessary for a fair
presentation have been included. Operating results for the
three  month period ended March 31, 2009 are not necessarily
indicative of the results that may be expected for the year ending December
31, 2009. The interim condensed consolidated financial statements should be read
in conjunction with the Company's consolidated financial statements and
related footnotes included in our Annual Report on Form 10-K for the year
ended December 31, 2008.





2.
 Summary of Significant Accounting Policies





Principles
of Consolidation





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





7




Company
                
                Inception/Acquisition
      DateBPO Management
      Services, Inc. (the "Company") or  ("BPOMS")
                
                Inception
      date:  July 26, 2005Adapsys
      Document Management LP ("ADM")
                
                Acquired:  July
      29, 2005Adapsys
      LP ("ADP")
                
                Acquired:  July
      29, 2005Digica,
      Inc. ("Digica") (1)
                
                Acquired:  January
      1, 2006Novus
      Imaging Solutions, Inc. ("Novus")
                
                Acquired:  September
      30, 2006NetGuru
      Systems, Inc. ("NGSI")
                
                Acquired:  December
      15, 2006Research
      Engineers, GmbH ("GmbH")
                
                Acquired:  December
      15, 2006DocuCom
      Imaging Solutions, Inc. ("DocuCom")
                
                Acquired:  June
      21, 2007Human
      Resource Micro-Systems, Inc. ("HRMS")
                
                Acquired:  June
      29, 2007Blue
      Hill Data Services, Inc. ("Blue Hill")
                
                Acquired:  October
      10, 2007BPO
      Management Services, Ltd. ("BPOMS Ltd") (2)
                
                Amalgamation:
      January 1, 2008Healthaxis
      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.
 (3)
                  Because the merger of Legacy
      BPOMS and Legacy Healthaxis took place at the end of fiscal 2008, the
      operating results for the three months ended March 31, 2009 include
      those of the Healthcare segment, while the operating results for the
      three months ended March 31, 2008 do not include the Healthcare
      segment.
  Going
Concern





The
Company incurred a loss from operations of $1.3 million and a net decline in
cash of $1.1 million for the three months ended March 31, 2009. The Company has
funded its operations from the private placement of shares of its common stock
and preferred stock and through the founders’ bridge loan facility established
in August 2006. To meet the needs of the current business, to fund growth, and
to complete additional acquisitions during the next twelve months, the Company
anticipates raising capital by issuing its securities and/or debt in one or more
private transactions or by way of a strategic merger.




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




Although
the Company expects to meet its operating capital needs by additional equity
and/or debt transactions, or by way of a strategic merger, there can be no
assurance that funds required will be available on terms acceptable to the
Company, if at all. If the Company is unable to raise sufficient funds on
acceptable terms, it may be not be able to complete its business plan. If equity
financing is available to the Company on acceptable terms, it could result in
additional dilution to the Company’s existing stockholders.




The
report of the Company's independent registered public accounting firm dated
March 31, 2009 contained in the Company's consolidated financial statements as
of and for the year ended December 31, 2008 included a paragraph that explains
that the Company had incurred recurring operating losses, a working capital
deficit and an accumulated deficit of $28.7 million as of December 31, 2008. The
report concluded that these matters, among others, raised substantial doubt
about the Company's ability to continue as a goingconcern.




8


Use of
Estimates





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




The
consolidated financial statements include certain amounts that are based on
management's best estimates and judgments. The most significant estimates are:
allocation of the purchase price in a business combination and the related
valuation of identifiable intangible assets and the determination of their
useful lives, valuation of goodwill arising from a business combination, the
allowance for uncollectible accounts receivable, estimation of useful lives of
fixed assets, test for impairment of goodwill, estimation of the severance
liability, valuation of stock options and warrants issued, allocation of equity
unit purchase price between preferred and common share and the determination of
the valuation reserves on the United States and Canadian income tax assets.
These estimates may be adjusted as more current information becomes available,
and any adjustment could be significant.




Fair
Value of Financial Instruments





Statement
of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair
Value Of Financial Instruments," requires management to disclose
the estimated fair value of certain assets and liabilities defined by SFAS
No. 107 as financial instruments. At March 31, 2009, management believed
the carrying amounts of cash and cash equivalents, receivable and payable
amounts, and accrued expenses approximated fair value because of the short
maturity of these financial instruments. The Company also believed that the
carrying amounts of its capital lease obligations and notes payable
approximated their fair value, as the interest rates approximated a rate
that the Company could have obtained under similar terms at the balance
sheet date.





On
January 1, 2008, the Company adopted FASB Statement No. 157, “Fair
Value Measurements” (SFAS No. 157) which defines fair value, establishes a
framework for measuring fair value, and requires additional disclosures about
fair value measurements. The criterion that is set forth in SFAS No. 157 is
applicable to fair value measurement where it is permitted or required under
other accounting pronouncements. SFAS No. 157 defines fair value as
the exit price, which is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on
inputs of observable and unobservable market data that a market participant
would use in pricing the asset or liability. The use of observable inputs is
maximized where available and the use of unobservable inputs is minimized for
fair value measurement. As a means to illustrate the inputs used, SFAS
No. 157 establishes a three-tier fair value hierarchy that prioritizes
inputs to valuation techniques used for fair value measurement.





●
            Level
      1 consists of observable market data in an active market for identical
      assets or liabilities.●
            Level
      2 consists of observable market data, other than that included in Level 1,
      that is either directly or indirectly
  observable.


●
            Level
      3 consists of unobservable market data. The input may reflect the
      assumptions of the Company of what a market participant would use in
      pricing an asset or liability. If there is little available market data,
      then the Company’s own assumptions are the best available
      information.




In the
case of multiple inputs being used in a fair value measurement, the lowest level
input that is significant to the fair value measurement represents the level in
the fair value hierarchy in which the fair value measurement is
reported.





Foreign
Currency Translation





The
financial condition and results of operations of the Company’s foreign
subsidiaries are accounted for using the local currency as the functional
currency. Assets and liabilities of the subsidiaries are translated into U.S.
dollars (the reporting currency) at the exchange rate in effect at
the  period-end. Statements of operations accounts are translated at
the average rate of exchange prevailing during the respective periods.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in accumulated other comprehensive (loss) in the
consolidated statements of stockholders’ equity and comprehensive loss. Gains
and losses resulting from foreign currency transactions are included in
operations and were not material for the three months ended March 31, 2009
and 2008.





9


Cash and
Cash Equivalents





The
Company considers all liquid investments with maturities of three months or less
at the date of purchase to be cash equivalents.  The Company
maintains its cash balances at financial institutions that management believes
possess high-credit quality.  At March 31, 2009, the Company had $877,038
on deposit that exceeded the United States (FDIC) federal insurance
limits.   At March 31, 2009, the Company had no accounts on deposit
that exceeded the Canadian (CDIC) insurable limits.




Goodwill




The
Company, upon its inception, adopted the provisions of SFAS No. 142 “Goodwill
and Other Intangible Assets.” SFAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually. SFAS No. 142 also requires that
intangible assets with estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 144.  “Accounting for the
Impairment or Disposal of Long-Lived Assets,”, SFAS No. 142 required the Company
to perform an assessment of whether there was an indication that goodwill was
impaired as of the date of adoption.




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




In
December 2008, the Company assessed the fair value of its reporting segments by
considering their projected cash flows, using risk-adjusted discount rates and
other valuation techniques and determined that there was impairment to goodwill.
As of March 31, 2009 and December 31, 2008, the Company’s goodwill balance was
$4,796,850 and $4,856,171, respectively.




Impairment
or Disposal of Long-Lived Assets




The
Company accounts for its long-lived assets under SFAS No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized in the amount by
which the carrying amount of the asset exceeds the fair value of the asset. SFAS
No. 144 requires companies to separately report discontinued operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, abandonment, or in a distribution to owners) or is classified as
held for sale. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.





Revenue
Recognition





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





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





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




10


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





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




Revenues
from providing certain IT services are recognized primarily on a time and
materials basis, with time at a marked-up rate and materials and other
reasonable expenses at cost, once the services are completed and no significant
obligations remain. Certain IT services contracts are fixed price contracts
where progress toward completion is measured by mutually agreed upon
pre-determined milestones for which the Company recognizes revenue upon
achieving such milestones. Fixed price IT contracts are typically for a short
duration of one to twelve months. Service contracts are also for periods of up
to twelve months. The Company did not have any fixed price contracts at March
31, 2009. Fees for certain services are variable based on an objectively
determinable factor such as usage. Those factors are included in the written
contract such that the customer's fee is determinable. The customer's fee is
negotiated at the onset of the arrangement.




Concentration
of Risk




The
Company is subject to credit risk primarily through its accounts receivable
balances. The Company does not require collateral for its accounts receivable
balances. For the three months ended March 31, 2009 and 2008, no single customer
accounted for 10% of the Company’s consolidated net sales.




Deferred
Revenues





The
Company defers revenues for its maintenance contracts and for its collaborative
software sales that are not considered earned. The Company recognizes revenues
and selling costs when the maintenance contracts are sold, and provides for
contract cancellations based on historical experience. The Company defers its
collaborative software sales revenues if it invoices or receives payment prior
to the completion of a project, and then recognizes these revenues upon
completion of the project when no significant obligations remain.





Research
and Development





The
Company's research and development ("R&D") costs consist mainly of
software developers' salaries. The Company follows the provisions of SFAS
No. 86 to capitalize software development costs when technological
feasibility has been established and to stop capitalization when the
product is available for general release to customers. The Company expenses
development costs when they are related to enhancement of existing software
products. The Company capitalized software development costs of approximately
$140,700 and $167,000 during the three months ended March 31, 2009 and 2008,
respectively.





Income
Taxes





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





Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes (“FIN 48”), an interpretation of
FASB Statement No. 109 (“SFAS 109”). FIN 48 prescribes a model for the
recognition and measurement of a tax position taken or expected to be taken in a
tax return, and provides guidance on derecognition, classification, interest and
penalties, disclosure and transition. Implementation of FIN 48 did not result in
a cumulative effect adjustment to retained earnings. Due to our net losses in
2009 and 2008, adoption of FIN 48 did not have a material impact on our
financial position, results of operations or cash flows.





11


Comprehensive
Income (Loss)





The
Company applies the provisions of SFAS No. 130, “Reporting Comprehensive
Income,” which establishes rules for the reporting and display of comprehensive
income (loss) and its components. SFAS No. 130 requires changes in foreign
currency translation adjustments, which are reported separately in stockholders’
equity, to be included in other comprehensive income (loss).




Segment
Reporting





The
Company applies the provisions of SFAS No. 131, "Disclosures about
Segments   of an Enterprise and Related Information." SFAS No.
131 requires segments to be determined and reported based on how management
measures performance and makes decisions about allocating resources. See
Note 5 "Segment and Geographic Data" for a description of and disclosures
regarding the Company's significant reportable segments.





Reclassifications





Certain
reclassifications have been made to the prior period consolidated financial
statements to conform to the current presentation.





Retirement
Plans





The
Company and certain of its United States subsidiaries have qualified cash
or deferred 401(k) retirement savings plans. The plans cover substantially
all United States employees who have attained age 21 and have one year of
service. Employees may contribute up to 15% of their compensation. The
Company matches 100% of the employee contribution up to a maximum of 4% of
the employee’s salary.  Certain of its Canadian subsidiaries have
defined contribution pension plans whereby after a qualification period the
Company contributes an amount which varies from 2% to 8% of the employees annual
earnings.  For the three months ended March 31, 2009 and 2008, the
Company contributions to the plans amounted to $62,760 and $47,648,
respectively.





Accounting
for Defined Benefit Pension and Other Postretirement Plans





In
September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of SFAS No. 87,
88, 106, and 132(R).” SFAS No. 158 requires the full recognition, as an asset or
liability, of the overfunded or underfunded status of a company-sponsored
postretirement benefit plan. SFAS No. 158 is effective for the Company beginning
January 1, 2007. The adoption of SFAS No. 158 did not have a material impact on
our financial position, results of operations or cash flows.





Basic and
Diluted Loss Per Share





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





We
incurred a net loss in each period presented, and as such, did not
include the effect of potentially dilutive common stock equivalents in the
diluted net loss per share calculation, as their effect would be
anti-dilutive for all periods. Potentially dilutive common stock
equivalents would include the common stock issuable upon the conversion of
preferred stock and the exercise of warrants and stock options that have
conversion or exercise prices below the market value of our common stock at
the measurement date. As of March 31, 2009 and 2008, all potentially dilutive
common stock equivalents amounted to 27,865,670 and 126,377,323 shares,
respectively.




12


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


Three
      Months Ended March 31,2009
            
            
            2008Numerator:Net
      loss
            
            $
            (1,475,271
            )
            
            $
            (1,727,620
            )Less:Preferred
      dividends paid in stock
            
            
            -
            
            
            
            34,077Loss
      and numerator used in computing basisand diluted loss per
      share
            
            $
            (1,475,271
            )
            
            $
            (1,761,697
            )Denominator:Denominator
      for basic and diluted net loss per share-weighted average number
      of common sharesoutstanding
            
            
            15,165,586
            
            
            
            12,247,121Basic
      and diluted net loss per share
            
            $
            (0.10
            )
            
            $
            (0.14
            )





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


Three
      Months Ended March 31,2009
            
            
            2008Options
      to purchase shares of common stock
            
            
            4,571,847
            
            
            
            5,002,954Warrants
      to purchase shares of common stock
            
            
            2,189,868
            
            
            
            83,221,275Shares
      of convertible preferred stock - Legacy BPOMS Series A
            
            
            -
            
            
            
            1,703,874Shares
      of convertible preferred stock - Legacy BPOMS Series B
            
            
            -
            
            
            
            1,449,204Shares
      of convertible preferred stock - Legacy BPOMS Series D
            
            
            -
            
            
            
            23,333,344Shares
      of convertible preferred stock - Legacy BPOMS Series D-2
            
            
            -
            
            
            
            11,666,672Shares
      of convertible preferred stock - Series B
            
            
            21,103,955
            
            
            
            -Total
            
            
            27,865,670
            
            
            
            126,377,323




Impact of
Recently Issued Accounting Standards





In April
2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly" ("FSP FAS 157-4"), to address
challenges in estimating fair value when the volume and level of activity for an
asset or liability have significantly decreased.  This FSP emphasizes that
even if there has been a significant decrease in the volume and level of
activity for the asset or liability and regardless of the valuation technique(s)
used, the objective of a fair value measurement remains the same.  Fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction (that is, not a forced liquidation or
distressed sale) between market participants at the measurement date under
current market conditions.  This FSP is effective for interim and annual
reporting periods ending after June 15, 2009.  We have concluded that FSP
FAS 157-4 will not have an impact on our consolidated financial statements upon
adoption.





In April
2009, the FASB issued FSP FAS 115-2 and 124-2, "Recognition and Presentation of
Other-Than-Temporary Impairments" ("FSP FAS 115-2 and 124-2").  This FSP
amends the other-than-temporary impairment guidance in U.S. GAAP for debt
securities to make the guidance more operational and to improve the presentation
and disclosure of other-than-temporary impairments on debt and equity securities
in the financial statements.  This FSP does not amend existing recognition
and measurement guidance related to other-than-temporary impairments of equity
securities.  This FSP is effective for interim and annual reporting periods
ending after June 15, 2009.  We have concluded that FSP FAS 115-2 and 124-2
will not have an impact on our disclosures upon adoption.





13


In April
2009, the FASB issued FSP FAS 107-1 and ABP 28-1, "Interim Disclosure about Fair
Value of Financial Instruments" ("FSP FAS 107-1 and ABP 28-1").  This FSP
amends FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments, " to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements.  This FSP also amends APB Opinion No. 28, "Interim
Financial Reporting," to require those disclosures in summarized financial
information at interim reporting periods.  This FSP is effective for
interim reporting periods ending after June 15, 2009.  We have concluded
that FSP FAS 107-1 and ABP 28-1 will not have a material impact on our
consolidated financial statements upon adoption.





3.  Business
Combinations





On
December 30, 2008, the Company completed a reverse merger with Healthaxis, in
which it exchanged its outstanding common and preferred series shares for the
outstanding common and preferred shares of Healthaxis.  The following
table summarizes estimated fair values of the assets acquired and liabilities
assumed from Healthaxis at the date of acquisition:





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




An
acquired identifiable intangible asset in the amount of $1,600,000 was assigned
to customer contracts.  The purchase price and costs associated with
the reverse merger of Healthaxis exceeded the Company’s allocation of the fair
value of net assets acquired by $2,282,064, which was assigned to
goodwill.  The amount assigned to goodwill is not expected to be
deductible for United States income tax, state income tax or Canadian income tax
purposes.




The
following unaudited pro forma information presents the combined results of
operations of the Company as though the merger with Healthaxis had been
consummated on January 1, 2008. The pro forma financial information does
not necessarily reflect the actual results of operations had the merger been
consummated at the beginning of the period or which may be attained in the
future.




14




Unaudited
      Pro Forma Statement of Operations For the Three Months Ended March 31,
      2008:BPOMS
            
            
            Healthaxis
            
            
            Pro
      FormaRevenues
            
            $
            7,282,585
            
            
            $
            4,004,000
            
            
            $
            11,286,585Net
      loss
            
            $
            (1,727,620
            )
            
            $
            (542,000
            )
            
            $
            (2,269,620
            )Basic
      and diluted loss percommon share
            
            $
            (0.14
            )
            
            $
            (0.07
            )
            
            $
            (0.15
            )Basic
      and diluted weighted averagecommon shares
      outstanding
            
            
            12,247,121
            
            
            
            8,325,857
            
            
            
            15,165,586





4. 
Lines of Credit and Long-Term Debt





Blue Hill
bank borrowing agreements contain covenants pertaining to maintenance of various
ratios.  At March 31, 2009, the Company was in breach of these
covenants.  Under the terms of the agreements, the bank may call the
loans if the Company is in violation of any restrictive covenant.  As
of May 15, 2009, the bank has not waived the ratio requirement, and accordingly
the entire amount of the loans, $1,506,064, including the long-term portion of
approximately $953,000, has been included in current liabilities.





5. 
Segment and Geographic Data





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




o
            Enterprise
      content management (ECM)o
            Information
      Technology services outsourcing (ITO)o
            Healthcare
      administrative systems and related services and financial and accounting
      outsourcing services or (Healthcare) ando
            Human
      resources outsourcing (HRO)





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




The
significant components of worldwide operations by reportable
operating segment for the three months ended March 31, 2009 and 2008,
respectively, are:




15




For
      the three months endedMarch
      31,2009
            
            
            2008Net
      revenuesECM
            
            $
            3,606,526
            
            
            $
            4,024,352ITO
            
            
            2,750,533
            
            
            
            2,877,624Healthcare
            
            
            3,622,428
            
            
            
            -HRO
            
            
            303,186
            
            
            
            380,609Consolidated
            
            $
            10,282,673
            
            
            $
            7,282,585Operating
      income (loss)ECM
            
            $
            (27,105
            )
            
            $
            (399,346
            )ITO
            
            
            (509,474
            )
            
            
            (49,589
            )Healthcare
            
            
            141,927
            
            
            
            -HRO
            
            
            (98,613
            )
            
            
            (194,037
            )Corporate
            
            
            (811,494
            )
            
            
            (1,012,835
            )Consolidated
            
            $
            (1,304,759
            )
            
            $
            (1,655,807
            )Depreciation
      and amortization expenseECM
            
            $
            146,780
            
            
            $
            193,025ITO
            
            
            464,143
            
            
            
            419,876Healthcare
            
            
            434,169
            
            
            
            -HRO
            
            
            13,861
            
            
            
            107,290Corporate
            
            
            64,924
            
            
            
            64,238Consolidated
            
            $
            1,123,877
            
            
            $
            784,429




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


For
      the three months endedMarch
      31,2009
            
            
            2008Net
      revenuesNorth
      America
            
            $
            10,075,601
            
            
            $
            7,134,487Europe
            
            
            207,072
            
            
            
            148,098Consolidated
            
            $
            10,282,673
            
            
            $
            7,282,585At
            
            
            AtMarch
      31,
            
            
            December
      31,Long-Lived
      Assets
            
            2009
            
            
            2008North
      America
            
            $
            19,356,171
            
            
            $
            19,036,053Europe
            
            
            29,155
            
            
            
            15,515Consolidated
            
            $
            19,385,326
            
            
            $
            19,052,168




16


6.  Subsequent
Event




On May 6,
2009 the Company entered into an agreement with the Company’s Chief Financial
Officer. Under the terms of the agreement, his employment with the Company
terminated effective as of the close of business on May 15, 2009. The Company is
required to pay severance pay of $83,333.50 plus interest on the unpaid balance
thereof calculated at 10% per annum payable equally over twelve months and has
granted a security interest in certain assets to secure payment of these
amounts.  In addition, his options to purchase the Company’s common
stock have been extended and will be exercisable for a period of twenty-four
months after the termination date.




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





Forward-Looking
Statements





This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).  These forward-looking statements are
based on our current expectations, assumptions, estimates, and projections about
us and our industry and generally include the plans and objectives of management
for future operations, including plans and objectives relating to our future
economic performance.  You can identify certain forward-looking
statements by our use of forward-looking terminology such as the words “may,”
“will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,”
“forecasts,” “projects,” “should,” “could,” “seek,” “pro forma,” “goal,”
“continues,” “anticipates,” or similar expressions.  These
forward-looking statements include, in particular, statements about our plans,
strategies, and prospects under this heading, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” and under the
heading “Business.”  These forward-looking statements necessarily
depend upon assumptions and estimates that may prove to be
incorrect.  Although we believe that the assumptions and estimates
reflected in the forward-looking statements are reasonable, we cannot guarantee
that we will achieve our plans, intentions, or expectations.  The
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results to differ in significant ways from
any future results expressed or implied by the forward-looking
statements.  Some of these risks, uncertainties and other factors are
identified under the heading “Risk Factors,” and you should carefully consider
such risks, uncertainties and other factors before deciding to invest or
maintain an investment in shares of our stock.  Any of the factors
referenced under the heading “Risk Factors” or elsewhere could cause our future
financial results, including our net income (loss) or growth in net income
(loss) to differ materially from prior results, which in turn could, among other
things, cause the price of our common stock to fluctuate
substantially.




Overview




On
December 30, 2008, Healthaxis Inc., a Pennsylvania corporation incorporated in
1982 (“Legacy Healthaxis”), completed a merger resulting in BPO Management
Services, Inc., a Delaware corporation (“Legacy BPOMS”), becoming a wholly-owned
subsidiary of Healthaxis (the “Merger”).  Legacy Healthaxis changed
its name to “BPO Management Services, Inc.” upon the closing of the Merger
(“BPOMS”).  Immediately following the closing of the Merger, Legacy
BPOMS’ pre-Merger shareholders held approximately 75% of BPOMS’ shares, and
Legacy Healthaxis’ pre-Merger shareholders retained approximately 25% of BPOMS’
shares, all on a fully diluted, as-converted basis.  Notwithstanding
the fact that Legacy Healthaxis was the legal acquirer under the Merger and
remains the registrant for SEC reporting purposes, the Merger was accounted for
as a reverse acquisition with Legacy BPOMS as the accounting
acquirer.  BPOMS has accounted for the Merger as a purchase business
combination, using Legacy BPOMS’ historical financial information and accounting
policies and applying fair value estimates to the acquired assets, liabilities
and commitments of Legacy Healthaxis as of December 30, 2008.




The
financial information contained in this report reflects the Merger as if Legacy
BPOMS had issued consideration to Legacy Healthaxis shareholders.  As
a result, financial information derived from the Consolidated Statements of
Operations and Consolidated Statements of Cash Flows included with this report
for the three months ended March 31, 2008 reflects the consolidated financial
results of Legacy BPOMS alone, while financial information derived from the
Consolidated Statements of Operations and Consolidated Statements of Cash Flows
for the three months ended March 31, 2009 reflects the post-merger consolidated
financial results of BPOMS.  Financial information derived from the
Consolidated Balance Sheet at December 31, 2008 reflects the consolidated assets
and liabilities of Legacy BPOMS and Legacy Healthaxis at December 31, 2008,
while financial information derived from the Consolidated Balance Sheet at March
31, 2009 reflects the post-merger consolidated assets and liabilities of
BPOMS.  Please see Note 3 in the Notes to Consolidated Financial
Statements for additional discussion of the Merger and a pro forma presentation
of financial results for the combined companies for the three months ended March
31, 2008.




17


Legacy
BPOMS was incorporated in 1981 under the name Research Engineers, Inc., changed
its name to netGuru, Inc. in 2000 and to BPO Management Services, Inc. on
December 15, 2006 immediately following its reverse merger with privately-held
BPO Management Services, Inc. (“Private BPOMS”).  Private BPOMS was
incorporated in July 2005. On December 15, 2006, Private BPOMS acquired all of
the outstanding common stock of publicly-held NetGuru, Inc. in a reverse
merger. Private BPOMS was the accounting acquirer.




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




Our
primary business offerings are:




●
            Document
      and data management solutions, also known as enterprise content management
      or “ECM”;●
            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”




Our
business plan for 2009 includes continuing our efforts to integrate the newly
acquired Healthcare operations with the operations of Legacy BPOMS, to achieve
financial synergies and to continue our efforts to grow all of our lines of
business organically.  Our longer term strategy continues to rely
heavily on growth through strategic acquisitions.  Our business and
strategic plans for 2009 are likely to be negatively impacted by the current
severe financial crises and resulting poor business environment.  In
the current environment, customers and prospects are likely to delay or avoid
making decisions on whether to outsource business process functions, making
sales extremely difficult to close.  The financial health of some of
our customers may also be at risk and we may see declines in volume as some
customers scale back their operations or cease activities that rely on our
services.  The current crises in the capital markets will also have a
negative impact on our plans for strategic growth and may limit our options for
raising needed additional capital as described below under the caption “Liquidity and
Capital Resources.”




Consolidated
Results of Operations




Legacy
BPOMS began operations in July 26, 2005 and merged with netGuru, Inc. on
December 15, 2006 in a reverse merger.  For accounting purposes, the
acquisition was treated as a recapitalization of Legacy BPOMS with Legacy BPOMS
as the acquirer. The historical statements of operations included in this annual
report for the three months ended March 31, 2008, are those of Legacy
BPOMS.




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


18


Company
                  
                  Segment
                  
                  Inception/Acquisition
      DateBPO Management
      Services, Inc. (the "Company") or  ("BPOMS")
                  
                  Corporate
                  
                  Inception
      date:  July 26, 2005Adapsys
      Document Management LP ("ADM")
                  
                  ECM
                  
                  Acquired:  July
      29, 2005Adapsys
      LP ("ADP")
                  
                  ECM
                  
                  Acquired:  July
      29, 2005Digica,
      Inc. ("Digica") (1)
                  
                  ITO
                  
                  Acquired:  January
      1, 2006Novus
      Imaging Solutions, Inc. ("Novus")
                  
                  ECM
                  
                  Acquired:  September
      30, 2006NetGuru
      Systems, Inc. ("NGSI")
                  
                  ITO
                  
                  Acquired:  December
      15, 2006Research
      Engineers, GmbH ("GmbH")
                  
                  ECM
                  
                  Acquired:  December
      15, 2006DocuCom
      Imaging Solutions, Inc. ("DocuCom")
                  
                  ECM
                  
                  Acquired:  June
      21, 2007Human
      Resource Micro-Systems, Inc. ("HRMS")
                  
                  HRO
                  
                  Acquired:  June
      29, 2007Blue
      Hill Data Services, Inc. ("Blue Hill")
                  
                  ITO
                  
                  Acquired:  October
      10, 2007BPO
      Management Services, Ltd. ("BPOMS Ltd") (2)
                  
                  ECM
                  
                  Amalgamation:
      January 1, 2008Healthaxis
      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.
 (3)
                    Because the merger of Legacy
      BPOMS and Legacy Healthaxis took place at the end of fiscal 2008, the
      operating results for the three months ended March 31, 2009 include
      those of the Healthcare segment, while the operating results for the
      three months ended March 31, 2008 do not include the Healthcare
      segment.


Operations
Reporting




BPOMS
combines its operating entities into four separate reporting
segments:




●
            Enterprise
      Content Management (“ECM”) comprised of BPOMS Ltd., Web4 division of
      BPOMS, and GmbH,●
            IT
      Outsourcing (“ ITO”) comprised of Blue Hill, Digica (which was merged with
      Blue Hill in January 2008) and NGSI,●
            Healthcare
      comprised of Legacy Healthaxis, and●
            Human
      Resources Outsourcing (“HRO”) comprised of
HRMS.




19





ECM
      OperationsFor
      the three months ended March 31,2009
            
            
            2008
            
            
            ChangeRevenues:
            
            $
            3,606,526
            
            
            $
            4,024,352
            
            
            $
            (417,826
            )Operating
      expenses:Cost
      of services provided
            
            
            2,038,551
            
            
            
            2,312,436
            
            
            
            (273,885
            )Selling,
      general and administrative
            
            
            1,342,448
            
            
            
            1,848,535
            
            
            
            (506,087
            )Research
      and development
            
            
            105,852
            
            
            
            69,702
            
            
            
            36,150Depreciation
      and amortization
            
            
            146,780
            
            
            
            193,025
            
            
            
            (46,245
            )Total
      operating expenses
            
            
            3,633,631
            
            
            
            4,423,698
            
            
            
            (790,067
            )Loss
      from operations beforeinterest
      and income taxes
            
            $
            (27,105
            )
            
            $
            (399,346
            )
            
            $
            (372,241
            )




Sales for
the three months ended March 31, 2009 of $3,606,526 decreased 10.4% from
$4,024,352 for the three months ended March 31, 2008, primarily due to the
difference in the foreign currency translation of approximately $800,000,
partially offset by an increase in hardware sales of approximately
$400,000.   Operating results in Canadian dollars were converted
at 0.8054 for the three months ended March 31, 2009 and at 0.99611 for the
comparable period in 2008.  Cost of services provided of $2,038,551
decreased 11.8% for the three months ended March 31, 2009 from $2,312,436 for
the three months ended March 31, 2008, primarily due to the difference in the
foreign currency translation of approximately $470,000, decrease in costs of
approximately $75,000 due to increased efforts to reduce costs, partially offset
by increased costs of hardware for sale of approximately
$275,000.  Selling, general and administrative expenses of $1,342,448
decreased 27.4% from $1,848,535 for the three months ended March 31, 2008,
primarily due to reductions of staff amounting to approximately $90,400,
reduction in facilities costs of approximately $77,000, a reduction of foreign
currency costs relating to operations of approximately $70,000 and a decrease of
approximately $330,000 related to the difference in foreign currency
translation, which was offset with an increase in consulting fees of
approximately $90,000.  Research and development (“R&D”) expenses
for the three months ended March 31, 2009 of $105,852 increased $36,150 or 51.9%
from $69,702 for the three months ended March 31, 2008, primarily due to
increases in software developers’ wages for development of enhancements to and
integrations with the EReview collaborative software
product.  Depreciation and amortization expenses for the three months
ended March 31, 2009 decreased $46,245 primarily due to the revaluation and
reduction of the intangible assets that took effect at the end of the three
months ended March 31, 2008.




ITO
      OperationsFor
      the three months ended March 31,2009
            
            
            2008
            
            
            ChangeRevenues:
            
            $
            2,750,533
            
            
            $
            2,877,624
            
            
            $
            (127,091
            )Operating
      expenses:Cost
      of services provided
            
            
            1,712,451
            
            
            
            1,477,751
            
            
            
            234,700Selling,
      general and administrative
            
            
            1,083,413
            
            
            
            1,029,586
            
            
            
            53,827Depreciation
      and amortization
            
            
            464,143
            
            
            
            419,876
            
            
            
            44,267Total
      operating expenses
            
            
            3,260,007
            
            
            
            2,927,213
            
            
            
            332,794Loss
      from operations beforeinterest
      and income taxes
            
            $
            (509,474
            )
            
            $
            (49,589
            )
            
            $
            459,885





20


Sales for
the three months ended March 31, 2009 of $2,750,533 decreased 4.4% from
$2,877,624 for the three months ended March 31, 2008 primarily due to the loss
of customers that were acquired and consolidated their IT operations with those
of the acquiror.  Cost of services provided of $1,712,451 increased
15.9% for the three months ended March 31, 2009 from $1,477,751 for the three
months ended March 31, 2008 primarily due to increased costs for software and
licensing fees of approximately $192,000 and increased wages of approximately
$30,000.  Much of these expenses related to the securing of additional
contracts that are anticipated to generate greater revenue as they come on
stream.  Selling, general and administrative expenses of $1,083,413
increased 5.2% from $1,029,586 for the three months ended March 31, 2008
primarily due to broad based increases in expenses of approximately $189,000 at
Blue Hill, partially offset by a decrease of approximately $135,000 at NGSI
primarily due to reduction of staff, outside consultants and facilities
costs.  Depreciation and amortization expenses for the three months
ended March 31, 2009 increased $44,267 primarily due to the acquisition of fixed
assets of approximately $1,142,000,  offset by the reduction of
amortization expense of approximately $153,000 due to the impairment loss of
$2,765,429 on intangible assets recorded at December 31, 2008.




Healthcare
      Operations (1)
            
            For
      Three Months EndedMarch
      31,2009
            
            
            %
      of RevenueRevenues:
            
            $
            3,622,428Operating
      expenses:Cost
      of services provided
            
            
            2,848,931
            
            
            
            78.6
            %Selling,
      general and administrative
            
            
            197,401
            
            
            
            5.4
            %Research
      and development (2)
            
            
            -
            
            
            
            0.0
            %Depreciation
      and amortization
            
            
            434,169
            
            
            
            12.0
            %Total
      operating expenses
            
            
            3,480,501
            
            
            
            96.1
            %Income
      from operations beforeinterest
      and income taxes
            
            $
            141,927
            
            
            
            3.9
            %




(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 March 31,
  2009.
 
 (2)
              Capitalized
      software development costs of approximately $85,500 for the three months
      ended March 31, 2009





21




HRO
      OperationsFor
      the three months ended March 31,2009
            
            
            2008
            
            
            ChangeRevenues
            
            $
            303,186
            
            
            $
            380,609
            
            
            $
            (77,423
            )Operating
      expenses:Cost
      of services provided
            
            
            96,924
            
            
            
            141,129
            
            
            
            (44,205
            )Selling,
      general and administrative
            
            
            254,935
            
            
            
            296,033
            
            
            
            (41,098
            )Research
      and development
            
            
            36,079
            
            
            
            30,194
            
            
            
            5,885Depreciation
      and amortization
            
            
            13,861
            
            
            
            107,290
            
            
            
            (93,429
            )Total
      operating expenses
            
            $
            401,799
            
            
            $
            574,646
            
            
            $
            (172,847
            )Loss
      from operations beforeinterest and income
    taxes
            
            $
            (98,613
            )
            
            $
            (194,037
            )
            
            $
            (95,424
            )




Sales for
the three months ended March 31, 2009 of $303,186 decreased 20.3% from $380,609
for the three months ended March 31, 2008 primarily due to the loss of customers
utilizing hosting services.  Cost of services provided of $96,924
decreased 31.3% for the three months ended March 31, 2009 from $141,129 for the
three months ended March 31, 2008 primarily due to the reduction of
staff.  Selling, general and administrative expenses of $254,935
decreased 13.8% from $296,033 for the three months ended March 31, 2008
primarily due to reduced overall spending in an effort to reduce continued
losses.  Research and development expenses for the three months ended
March 31, 2009 of $36,079 increased 19.5% from $30,194 for the three months
ended March 31, 2008 due to the continued development of the HR Advocate
product.  Depreciation and amortization expenses for the three months
ended March 31, 2009 decreased $93,429 from $107,290 for the three months ended
March 31, 2008 primarily due to the SFAS 141 revaluation resulting in a
reduction of values previously assigned to fixed assets and intangible assets
during the three months ended March 31, 2008.  Development costs for
the HR Advocate product of $55,190 and $167,100 were capitalized for the three
months ended March 31, 2009 and 2008, respectively.




Corporate
      OperationsFor
      the three months ended March 31,2009
            
            
            2008
            
            
            ChangeOperating
      expenses:Selling,
      general and administrative
            
            $
            746,570
            
            
            $
            741,505
            
            
            $
            5,065Research
      and development
            
            
            -
            
            
            
            -
            
            
            
            -Depreciation
      and amortization
            
            
            64,924
            
            
            
            64,238
            
            
            
            686Stock
      based compensation
            
            
            -
            
            
            
            207,092
            
            
            
            (207,092
            )Total
      operating expenses beforeinterest and income
      taxes
            
            $
            811,494
            
            
            $
            1,012,835
            
            
            $
            (201,341
            )





22


Selling,
general and administrative expenses for the three months ended March 31, 2009 of
$746,570 increased from $741,505 for the three months ended March 31, 2008. The
decrease of costs at BPOMS Corporate of approximately $133,000, which was broad
based, was offset with the allocation of corporate related expenses from the
reverse merger with Legacy Healthaxis of approximately
$138,000.  Stock-based compensation expense became fully vested and
completely expensed as of December 31, 2008, a result of the reverse merger with
Legacy Healthaxis on December 30, 2008.




Interest
      ExpenseFor
      the three months ended March 31,2009
            
            
            2008
            
            
            ChangeInterest
      expense:Related
      parties
            
            $
            20,587
            
            
            $
            26,852
            
            
            $
            (6,265
            )Other,
      net
            
            
            142,125
            
            
            
            44,961
            
            
            
            97,164Total
      interest expense
            
            $
            162,712
            
            
            $
            71,813
            
            
            $
            90,899





Total
interest expense for the three months ended March 31, 2009 of $162,712
increased  $90,899 or 126.6% from $71,813 for the three months ended
March 31, 2008, primarily due to the increased usage of various loan facilities
and the addition of approximately $53,000 in interest expense associated with
the operations of our new Healthcare segment.





Liquidity
and Capital Resources




Overview
of Cash Resources




At
March 31, 2009, our cash and cash equivalents amounted to $1.7 million
compared to $2.8 million at December 31, 2008.  The sources and
uses of cash during 2008 are described more fully in “Analysis of Cash Flows”
below.  The Company’s focus is on becoming consistently profitable and
generating positive cash flow, however in the event that we are unable to
generate cash from operations or raise additional capital, then our business
would be adversely affected.




At March
31, 2009 the Company had borrowing agreements with four financial
institutions:





Two
subsidiaries of Legacy Healthaxis (the “Legacy Healthaxis Subsidiaries”) are
parties to a Loan and Security Agreement (the “LSA”) with Silicon Valley Bank
(“SVB”), with respect to a revolving line and equipment advances. The Legacy
Healthaxis Subsidiaries may borrow (a) up to the lesser of (i) $2 million or
(ii) 80% of eligible accounts receivable subject to certain adjustments and (b)
up to $1 million for equipment purchases. The LSA also provides for certain
treasury management services, including letters of credit, foreign currency
exchange contracts, and various cash management services.  Advances
under the LSA bear interest at SVB’s prime rate (4.0% at March 31, 2009) plus
1.0% for revolving advances or 1.5% for equipment advances. The revolving line
also has an unused line facility fee equal to 0.375% per annum of the average
unused portion of the revolving line.  The LSA contains customary
affirmative and negative covenants, and requires the maintenance of certain
specified Liquidity Ratio, EBITDA, and debt service coverage requirements. The
advances under the LSA are secured by a first priority lien on substantially all
the assets of the Legacy Healthaxis Subsidiaries, including intellectual
property. The revolving line matures June 15, 2009 and the equipment line
matures March 1, 2010. Based on the calculation of the borrowing base as of
March 31, 2009, the Legacy Healthaxis Subsidiaries would have been eligible to
draw up to approximately $1.2 million under the working capital line of
credit.  No availability existed on the equipment line as of March 31,
2009 due to the expiration of the draw period.  At March 31, 2009, the
Legacy Healthaxis Subsidiaries had outstanding balances of $1,050,000 and
$332,472 under the revolving line and equipment line, respectively.




BPOMS Ltd
has a revolving operating line with the Royal Bank of Canada with a maximum
availability of CDN$1,750,000 and carries an annual interest rate of the
Royal Bank of Canada prime rate plus 1.05%, which amounted to 3.55% at March 31,
2009.  The credit facility is secured by a General Security Agreement
signed by DocuCom as well as a guarantee and postponement of claim for $500,000
in the name of Novus Imaging Solutions Inc. (“Novus”), which is also supported
by a General Security Agreement signed by Novus.  The borrowing limit
on the credit facility is 75% of the eligible accounts receivable of the
Company, And based on this borrowing limit BPOMS Ltd would have been eligible to
draw up to approximately $1,401,000 at March 31, 2009.  At March 31,
2009, BPOMS Ltd had an outstanding loan balance of approximately
$1,209,000.





23


BPOMS Ltd
has a term loan with the Business Development Bank of Canada that expires
on May 21, 2010. The interest rate on this loan is the bank's floating rate
plus 3.25% and monthly principal re-payments are approximately $1,433. At
March 31, 2009, the annual rate of interest on this loan was 7.5% and the
balance outstanding was approximately $18,600. The loan is secured by a
general security agreement from ADM and joint and several personal
guarantees in the amount of approximately $43,000 by two former principals
of ADM who were also the Company's 5% shareholders. The Company issued a
7-year warrant to purchase 5,435 shares of the Legacy BPOMS common stock at
an exercise price of $0.03 per share, (converted to 1,341 shares of the
Company’s common stock at $0.14 per share, after giving effect to the
Merger)  to each of these shareholders in return for their loan
guarantees. The warrants, valued at approximately $11,049, were recorded as
a discount to the term loan. The value of the warrants is being amortized
to interest expense over the term of the loan. Unamortized discount at
March 31, 2009 and 2008 was approximately $3,121 and $7,082,
respectively.





Blue Hill
has a credit facility from Comerica Bank which includes a revolving operating
line limited to the lesser of the $1,000,000 maximum availability or 80% of
eligible accounts receivable and carries interest at the daily adjusting LIBOR
rate plus 4.0%, which amounted to 4.5% at March 31, 2009, a $500,000 term loan
amortized over a four year period and bearing interest at the Comerica Bank
prime rate plus 1.25%, which amounted to 4.5% at March 31, 2009, a specific
advance facility for equipment purchases up to a maximum of $500,000 bearing
interest at the Comerica Bank prime rate plus 1.00%, which amounted to 4.25% at
March 31, 2009 and a specific advance facility for equipment purchases up to a
maximum of $700,000 bearing interest at the daily adjusting LIBOR rate plus
6.0%, which amounted to 6.5% at March 31, 2009. The loans are supported by a
general security interest in all the assets of Blue Hill and the operating
facility is also supported by the guaranty of BPOMS and the subordination of
loans of a minimum of $1,400,000, payable by Blue Hill to BPOMS, to Comerica
Bank. At March 31, 2009 Blue Hill had an outstanding balance of $427,817 under
the operating line, $354,167 under the term loan, $50,080 under the equipment
loan and $674,000 under the second equipment loan.  These loan
agreements contain covenants pertaining to maintenance of various
ratios.  At March 31, 2009, the Company was in breach of these
covenants.  Under the terms of the agreement, the bank may call the
loans if the Company is in violation of any restrictive covenant.  As
of May 15, 2009, the bank has not waived the ratio requirement, and accordingly
the entire amount of the loans, $1,506,064, including the long-term portion of
approximately $953,000, has been included in current liabilities.




Analysis
of Cash Flows




Cash provided by operating
activitiesfor the three months ended March 31, 2009 was approximately
$880,340 as compared to cash used in operating activities of approximately
$1,008,000 for the same period in 2008.  The improvement was primarily
the result of a reduction in the net loss of approximately $252,000 and an
improvement between the change in assets and liabilities of approximately
$1,500,000, partially offset with an increase of non-cash items including
depreciation and amortization of approximately $132,000 for the three months
ended March 31, 2009.





Cash used in investing
activities during the three months ended March 31, 2009 was approximately
$1,173,000 as compared to cash provided by investing activities of approximately
$476,000 for the same period in 2008.  During the three months ended
March 31, 2009, the Company’s purchase of equipment amounted to approximately
$1,173,000.  For the three months ended March 31, 2008, cash provided
by investing activities was the release of restricted cash in the amount of
approximately $923,000 offset by the purchase of equipment of approximately
$447,000.




Net cash used in financing
activities during the three months ended March 31, 2009 was approximately
$781,000 as compared to net cash provided by financing activities of
approximately $292,000 for the same period in 2008.  Net cash used in
financing activities for the three months ended March 31, 2009 is the result of
proceeds from bank loans of approximately $638,000, offset by repayment of bank
loans of approximately $587,000, payment of notes issued to former shareholders
of $600,000, repayment of capital lease obligations of approximately $132,000
and repayment of a note payable to a related party in the amount of
$100,000.  Net cash provided by financing activities for the three
months ended March 31, 2008 is the result of proceeds from bank borrowings of
approximately $1,200,000, offset with payments to former shareholders of
approximately $886,000 and capital lease obligation payments of approximately
$29,000.





During
the next twelve months, the Company anticipates raising capital necessary to
grow its business and complete additional acquisitions by issuing its securities
and/or debt in one or more private transactions or by way of a strategic
merger.





24


Our
future capital requirements will depend upon many factors. These factors include
but are not limited to sales and marketing efforts, the development of new
products and services, possible future corporate mergers or strategic
acquisitions or divestitures, the progress of research and development efforts,
and the status of competitive products and services. If our anticipated
financing needs are not met or are unreasonably delayed, we may not have
adequate funds to extinguish all our remaining obligations and fund our current
operations going forward.




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




This
uncertainty, recurring losses from operations, limited cash resources, and an
accumulated deficit, among other factors, raise doubt about our ability to
continue as a going concern and led our independent registered public accounting
firm to include an explanatory paragraph in their report dated March 31, 2009
contained in the Company's consolidated financial statements as of and for the
year ended December 31, 2008. The report concludes that these matters, among
others, raise substantial doubt about the Company's ability to continue as a
going concern.





Item
3.  Quantitative and Qualitative Disclosures About Market Risk





Not
applicable under smaller reporting company scaled disclosure
requirements





Item
4T.  Controls and Procedures




The
Company maintains "disclosure controls and procedures," as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Act of 1934, as amended (the
"Exchange Act"), that are designed to ensure that information required to be
disclosed by the Company in reports it files or submits under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our management including the Company's principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.





The
management of the Company has designed and evaluated the Company's disclosure
controls and procedures. Management recognizes that disclosure controls and
procedures, no matter how well conceived and operated, can provide only
reasonable assurance of achieving the desired control objectives, and the
Company necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible disclosure controls and
procedures.





The
Company's management, including its principal executive officer and principal
financial officer, evaluated the effectiveness of the design and operation of
its disclosure controls and procedures as of March 31, 2009, and concluded that
the disclosure controls and procedures were not effective, because certain
deficiencies involving internal controls constituted a material weakness as
disclosed in the Company's Form 10-K for the year ended December 31, 2008. The
material weaknesses identified did not result in the restatement of any
previously reported consolidated financial statements or any other related
financial disclosure, nor does management believe that it had any effect on the
accuracy of the Company's financial statements for the current reporting
period.





Changes
in Internal Control over Financial Reporting




There has
not been any change in our internal control over financial reporting that
occurred during the quarterly period ended March 31, 2009, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.







25





PART
II - OTHER INFORMATION





Item
1.  Legal Proceedings





We are
not currently a party to any material legal proceedings and we are not aware of
any pending or threatened litigation that would have a material adverse effect
on us or our business.





Item
1-A.  Risk Factors





Not
applicable under smaller reporting company scaled disclosure
requirements.





Item
2.  Unregistered Sales Of Equity Securities And Use Of
Proceeds




None





Item
3.  Defaults Upon Senior Securities





Blue Hill
bank borrowing agreements contain covenants pertaining to maintenance of various
ratios.  At March 31, 2009, the company was in breach of these
covenants.  As of May 15, 2009, the bank has not waived the ratio
requirement.  See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources.”





Item
4.  Submission Of Matters To A Vote Of Security Holders





None.





Item
5.  Other Information





None.





Item
6.  Exhibits




Exhibit
              Number
            Description





31.1
            Certification
      of Chief Executive Officer required by Rule 13a-14(a) of the
      Securities Exchange Act of 1934,as
      amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002 (1)





31.2
            Certification
      of Chief Financial Officer required by Rule 13a-14(a) of the Securities
      Exchange Act of 1934,as
      amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002 (1)





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.






26


SIGNATURES




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








Date:
      May 15, 2009
            BPO
      MANAGEMENT SERVICES, INC.By:
      /s/Patrick A. Dolan
              Chief
      Financial Officer
              (principal
      executive officer)







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






27




EXHIBITS
ATTACHED TO THIS QUARTERLY REPORT ON FORM 10-Q




Exhibit
              Number
            Description





31.1
            Certification
      of Chief Executive Officer required by Rule 13a-14(a) of the
      Securities Exchange Act of 1934, as amended, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of
2002





31.2
            Certification
      of Chief Financial Officer required by Rule 13a-14(a) of the Securities
      Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002





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








28