UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549




FORM
      10-QSB





(Mark
      One)





xQUARTERLY
      REPORT UNDER SECTION
      13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




FOR
      THE QUARTERLY
      PERIOD ENDED JUNE 30, 2007





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





TRANSITION
      PERIOD FROM _______________ to _______________





Commission
      file number: 0-28560





BPO
      MANAGEMENT SERVICES, INC.


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




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




1290
      N
      HANCOCK STREET, ANAHEIM HILLS, CA 92630


(Address
      of principal executive offices)





(714)
      974-2670


(Issuer's
      telephone number, including area code)





NOT
      APPLICABLE


(Former
      name, former address and former fiscal year,


if
      changed since last report)





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





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





The
      number of shares outstanding of the registrant's only class of common stock,
      $.01 par value, was 9,004,368 on August 1, 2007.Transitional Small Business
      Disclosure Format (Check one).Yes o
      No x





1


PART
                  IFINANCIAL
                  INFORMATIONPageItem
                  1. Financial Statements
              
              
              3Condensed
                  Consolidated Statements of Operations for the three and six months
                  endedJune
                  30, 2007 and 2006 (unaudited)
              
              
              3Condensed
                  Consolidated Balance Sheet as of June 30, 2007 (unaudited)
              
              
              4Condensed
                  Consolidated Statements of Cash Flows for the six months ended
                  June
                  30,2007
                  and 2006 (unaudited)
              
              
              5Notes
                  to Condensed Consolidated Financial Statements (unaudited)
              
              
              7Item
                  2. Management's Discussion and Analysis or Plan of
                  Operation
              
              
              23Item
                  3. Controls and Procedures
              
              
              23PART
                  IIOTHER
                  INFORMATIONItem
                  1. Legal Proceedings
              
              
              34Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              
              
              34Item
                  3. Defaults Upon Senior Securities
              
              
              34Item
                  4. Submission of Matters to a Vote of Security Holders
              
              
              34Item
                  5. Other Information
              
              
              34Item
                  6. Exhibits
              
              
              34Signatures
              
              
              35Exhibits
                  Attached to this Quarterly Report on Form 10-QSB
              
              
              36




2




PART
        I --
        FINANCIAL INFORMATION
 
 ITEM
        1.
        FINANCIAL STATEMENTS




BPO
                  MANAGEMENT SERVICES, INC. AND SUBSIDIARIESCONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)THREE
                  MONTHS ENDED
              
              SIX
                  MONTHS ENDEDJUNE
                  30,
              
              JUNE
                  30,2007
              
              2006
              
              2007
              
              2006Revenues:Enterprise
                  content management
              
              $
              1,352,273
              
              $
              727,952
              
              $
              2,362,044
              
              $
              1,797,330IT
                  outsourcing services
              
              
              1,000,608
              
              
              428,483
              
              
              1,980,913
              
              
              869,598Human
                  resource outsourcing servicing
              
              
              3,299
              
              
              111,306
              
              
              13,817
              
              
              222,681Total
                  revenues
              
              
              2,356,180
              
              
              1,267,741
              
              
              4,356,774
              
              
              2,889,609Operating
                  expenses:Cost
                  of services provided
              
              
              971,014
              
              
              545,475
              
              
              1,873,487
              
              
              965,115Selling,
                  general and administrative
              
              
              2,309,092
              
              
              1,291,576
              
              
              4,152,679
              
              
              2,946,218Research
                  and development
              
              
              27,355
              
              
              -
              
              
              93,366
              
              
              -Share-based
                  compensation
              
              
              92,744
              
              
              19,977
              
              
              146,743
              
              
              39,953Total
                  operating expenses
              
              
              3,400,266
              
              
              1,857,028
              
              
              6,266,276
              
              
              3,951,286Loss
                  from operations
              
              
              (1,044,026
              )
              
              (589,287
              )
              
              (1,909,502
              )
              
              (1,061,677
              )Interest
                  expense (income)Related
                  parties
              
              
              26,926
              
              
              -
              
              
              62,597
              
              
              -Amortization
                  of related party debt discount
              
              
              163,940
              
              
              -
              
              
              594,029
              
              
              -Other
                  (net)
              
              
              48,811
              
              
              7,121
              
              
              87,345
              
              
              4,996Other
                  Expense
              
              
              12,253
              
              
              668
              
              
              14
              
              
              911Total
                  interest and other expense
              
              
              251,930
              
              
              7,789
              
              $
              743,985
              
              
              5,907Net
                  loss
              
              $
              (1,295,956
              )
              $
              (597,076
              )
              $
              (2,653,487
              )
              $
              (1,067,584
              )Basic
                  and diluted net loss per share
              
              $
              (0.15
              )
              $
              (0.08
              )
              $
              (0.31
              )
              $
              (0.11
              )Basic
                  and diluted weighted average common
              
              
              8,621,527
              
              
              7,131,277
              
              
              8,623,630
              
              
              9,925,000See
                  accompanying notes to condensed consolidated financial
                  statements.





3




BPO
                  MANAGEMENT SERVICES, INC. AND SUBSIDIARIESCONDENSED
                  CONSOLIDATED BALANCE SHEETJune
                  30, 2007(Unaudited)ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              5,266,044Restricted
                  cash
              
              
              1,948,434Accounts
                  receivable, net of allowance for doubtful accounts of$110,998
              
              
              2,916,262Inventory
                  consisting of finished goods, net of reserves of $0
              
              
              158,442Prepaid
                  expenses and other current assets
              
              
              189,715Total
                  current assets
              
              
              10,478,897Equipment,
                  net of accumulated depreciation of $1,505,767
              
              
              951,810Goodwill
              
              
              9,703,283Intangible
                  assets, net of amortization of $140,670
              
              
              1,010,030Other
                  Assets
              
              
              97,689$
              22,241,708LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilities:Current
                  portion of long-term debt, net of discount of $3,154
              
              $
              277,545Current
                  portion of capital lease obligations
              
              
              92,955Accounts
                  payable
              
              
              2,992,668Accrued
                  expenses
              
              
              1,005,785Accrued
                  interest related party
              
              
              62,384Accrued
                  dividend payable-related party
              
              
              75,186Amount
                  due former shareholders of acquired companies
              
              
              1,886,301Income
                  taxes payable
              
              
              229,506Deferred
                  revenues
              
              
              928,966Related
                  party notes payable
              
              
              1,200,000Severence
                  obligations payable
              
              
              480,015Total
                  current liabilities
              
              
              9,231,311Long-term
                  debt, net of current portion and net of discount of $6,046
              
              
              30,225Capital
                  lease obligations, net of current portion
              
              
              402,345Total
                  liabilities
              
              
              9,663,881Commitments
                  and contingencies (Note 9)Stockholders
                  equity:Convertible
                  preferred stock, Series A, par value $.01; authorized1,608,612
                  shares;1,605,598 shares issued and outstanding
              
              
              16,378Convertible
                  preferred stock, Series B, par value $.01; authorized1,449,204
                  shares;1,449,204 shares issued and outstanding
              
              
              14,492Non-convertible
                  preferred stock, Series C, par value $.01; authorized21,378,000
                  shares; 916,667 shares issued and outstanding
              
              
              9,167Convertible
                  preferred stock, Series D, par value $.01; authorized1,500,000
                  shares;1,458,334 shares issued and outstanding
              
              
              14,583Common
                  stock, par value $.01; authorized 150,000,000 shares;8,619,400
                  shares issued and outstanding
              
              
              90,046Additional
                  paid-in capital
              
              
              19,585,232Accumulated
                  deficit
              
              
              (6,754,193
              )Accumulated
                  other comprehensive loss, foreign currency translation
                  adjustments
              
              
              (397,877
              )Total
                  stockholders ' equity
              
              
              12,577,827$
              22,241,708See
                  accompanying notes to condensed consolidated financial
                  statements.





4




BPO
                  MANAGEMENT SERVICES, INC. AND SUBSIDIARIESCONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWFOR
                  THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006(Unaudited)2007
              
              2006Cash
                  flows used in operating activities:Net
                  loss
              
              $
              (2,653,487
              )
              $
              (1,067,584
              )Adjustment
                  to reconcile net loss from continuing operationsto
                  net cash provided by (used in) operating activities:Depreciation
                  expense
              
              
              68,443
              
              
              42,932Amortization
                  of intangible assets
              
              
              104,668
              
              
              277,655Non-cash
                  compensation expense recognized on issuanceof
                  stock options
              
              
              146,741
              
              
              39,953Amortization
                  of loan discount
              
              
              594,031
              
              
              -Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (167,234
              )
              
              171,806Inventory
              
              
              540
              
              
              -Income
                  tax receivable
              
              
              250,000
              
              
              -Prepaid
                  expenses and other current assets
              
              
              (2,513
              )
              
              -Other
                  assets
              
              
              45,393
              
              
              52,696Accounts
                  payable
              
              
              (366,412
              )
              
              (31,506
              )Accrued
                  expenses
              
              
              348,743
              
              
              -Deferred
                  revenue
              
              
              (178,780
              )
              
              22,115Amount
                  due former shareholders of acquired companies
              
              
              179,579
              
              
              -Income
                  taxes payable
              
              
              (7,725
              )
              
              -Payments
                  of severence liability
              
              
              (293,738
              )
              
              (45,526
              )Net
                  cash used in operating activities
              
              
              (1,931,753
              )
              
              (537,459
              )Cash
                  flows used in investing activities:Purchase
                  of property and equipment, net
              
              
              (303,969
              )
              
              (125,470
              )Purchase
                  obligation payment - Novus
              
              
              (962,571
              )
              
              -Restricted
                  deposit of purchase obligation - DocuCom
              
              
              (1,948,434
              )Cash
                  paid for business combinations, net of cash acquired
              
              
              (2,947,422
              )
              
              (375,593
              )Net
                  cash used in investing activities
              
              
              (6,162,396
              )
              
              (501,063
              )Cash
                  flows from financing activitiesRepayment
                  of bank loans
              
              
              (179,483
              )
              
              -Payment
                  of notes payable
              
              
              -
              
              
              (3,075
              )Assets
                  acquired under capital lease obligations
              
              
              360,090
              
              
              -Repayment
                  of capital lease obligations
              
              
              (46,090
              )
              
              -Proceeds
                  from related party loan
              
              
              400,000
              
              
              -Proceeds
                  from issuance of preferred stock, net of cash paidfor
                  commissions and direct costs
              
              
              12,410,033
              
              
              -Net
                  cash provided by (used in) financing activities
              
              
              12,944,550
              
              
              (3,075
              )Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              (290,555
              )
              
              -Net
                  increase in cash
              
              
              4,559,846
              
              
              (1,041,597
              )Cash
                  and cash equivalents, beginning of period
              
              
              706,197
              
              
              1,232,169Cash
                  and cash equivalents, end of period
              
              $
              5,266,043
              
              $
              190,572See
                  accompanying notes to condensed consolidated financial
                  statements.


5
 
  BPO
                    MANAGEMENT SERVICES, INC. AND SUBSIDIARIESCONDENSED
                    CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)FOR
                    THE SIX MONTHS ENDED JUNE 30, 2007 AND 20062007
                
                2006Supplemental
                    disclosure of cash flow information:Cash
                    paid for:Interest
                
                $
                56,023
                
                $
                4,394Income
                    taxes
                
                $
                -
                
                $
                -Supplemental
                    disclosure of non-cash investing and financingactivities:Acquisition
                    of equipment under capital leases
                
                $
                360,090
                
                $
                -Issuance
                    of warrants
                
                $
                185,187
                
                $
                -Preferred
                    Stock Series A dividend
                
                $
                636
                
                $
                626Business
                    combinations:Net
                    assets acquired
                
                $
                2,393,691
                
                $
                901,885Net
                    liabilities assumed
                
                $
                2,973,910
                
                $
                422,688Common
                    stock issued as consideration for acquisition
                
                $
                400,000See
                    accompanying notes to condensed consolidated financial
                    statements.




6


BPO
      MANAGEMENT SERVICES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2007


(Unaudited)





1. ORGANIZATION
      AND BASIS OF PRESENTATION





ORGANIZATION





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





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





BASIS
      OF
      PRESENTATION





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





2. SUMMARY
      OF
      SIGNIFICANT ACCOUNTING POLICIES





PRINCIPLES
      OF CONSOLIDATION





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




7




COMPANY
              
              INCEPTION/ACQUISITION
                  DATEBPO
                  Management Services, Inc.
              
              Inception
                date: July 26, 2005Adapsys
                  Document Management LP
              
              Acquired:
                July 29, 2005Adapsys
                  LP
              
              Acquired:
                July 29, 2005Digica,
                  Inc.
              
              Acquired:
                January 1, 2006Novus
                  Imaging Solutions, Inc.
              
              Acquired:
                September 30, 2006NetGuru
                  Systems, Inc.
              
              Acquired:
                December 15, 2006Research
                Engineers,
                GmbH
              
              Acquired:
                December 15, 2006DocuCom
                  Imaging Solutions, Inc.
              
              Acquired:
                June 21, 2007Human
                  Resource Micro-Systems, Inc.
              
              Acquired:
                June 29, 2007


USE
      OF
      ESTIMATES





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





FAIR
      VALUE OF FINANCIAL INSTRUMENTS





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





FOREIGN
      CURRENCY TRANSLATION





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





CASH
      AND
      CASH EQUIVALENTS





The
      Company considers all liquid investments with maturities of three months
      or less at the date of purchase to be cash equivalents. The Company
      maintains its cash balances at financial institutions that management
      believes possess high-credit quality. At June 30, 2007, the Company had
      $6,007,867 on deposit that exceeded the United States (FDIC) federal
      insurance limit. At June 30, 2007, the Company has $569,150 (the accounts
      are in Canadian dollars with a value of $602,722 CDN) on deposit that
      exceeded the Canadian (CDIC) insurable limit of $100,000 CDN per entity per
      bank. The Canadian funds insurance is limited to Canadian currency deposits
      only and does provide coverage to money master high interest savings
      accounts (money market accounts) but all accounts are considered in the
      overall limitation per entity per bank.





8


RESTRICTED
      CASH





CDN
      $1,800,000 is payable to the previous shareholders of DocuCom, $900,000 payable
      in three months and $900,000 payable in nine months from the date of the
      acquisition. These payments are guaranteed by a letter of credit for which
      the
      Company deposited as security $1,948,434 which is invested in a certificate
      of
      deposit and is shown on the balance sheet as restricted cash. In addition,
      $500,000 has been deposited in an escrow account for the benefit of the prior
      shareholders of HRMS and is subject to offsets in accordance with the share
      purchase agreement.





REVENUE
      RECOGNITION





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





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





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





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





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




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





9


ALLOWANCE
      FOR DOUBTFUL ACCOUNTS





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





DEFERRED
      REVENUES





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





RESEARCH
      AND DEVELOPMENT





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





INCOME
      TAXES





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





SHARE-BASED
      COMPENSATION





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





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





10




Expected
                Dividend yield
            
            
            --Expected
                volatility
            
            
            123
            %Risk-free
                interest rate
            
            
            4.6%-5.03
            %Expected
                option lives (in years)
            
            
            7Estimated
                forfeiture rate
            
            
            7
            %




For
      the
      three months ended June 30, 2007 and 2006, the Company recognized $92,744,
      and $19,977, respectively, in share-based compensation expense. For the six
      months ended June 30, 2007 and 2006, the Company recognized $146,743 and
      $39,953, respectively, in share-based compensation expense. The Company may
      be required to accelerate, increase or cancel any remaining
      unearned share-based compensation expense if there are any modifications or
      cancellation of the underlying unvested securities. Future share-based
      compensation expense and unearned share-based compensation will increase to
      the extent that we grant additional equity awards to employees or we assume
      unvested equity awards in connection with acquisitions. Share-based
      compensation expense was recorded in selling, general and administrative
      expense.





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





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





SEGMENT
      REPORTING





The
      Company applies the provisions of SFAS No. 131, "Disclosures about Segments
       of an Enterprise and Related Information." SFAS No. 131 requires segments
      to be determined and reported based on how management measures performance
      and makes decisions about allocating resources. See Note 8 "Segment
      and Geographic Data" for a description of and disclosures regarding the
      Company's significant reportable segments.





RETIREMENT
      PLANS





The
      Company and certain of its United States subsidiaries have qualified cash
      or deferred 401(k) retirement savings plans. The plans cover substantially
      all United States employees who have attained age 21 and have one year of
      service. Employees may contribute up to 15% of their compensation. The
      Company does not make matching contributions to the plan, except in one
      subsidiary, where it matches 100% of the employee contribution up to a
      maximum of 4% of the employee’s salary . For the quarters ended June 30,
      2007 and 2006, the Company contributions to the plan amounted to $6,636 and
      $7,261, respectively. For the six months ended June 30,  2007 and 2006, the
      Company contributions to the plan amounted to $13,101 and $14,518, respectively.
      Certain of its Canadian subsidiaries have defined contribution pension plans
      whereby after a qualification period the company contributes an amount which
      vary from 2% to 8% of the employees annual earnings. For the three months ended
      June 30, 2007 and 2006, the Company contributions to the plan amounted to
      $12,336 and $7,678, respectively. For the six months ended June 30, 2007 and
      2006, the Company contributions to the plan amounted to $20,683 and $22,343,
      respectively.





RECLASSIFICATIONS





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





11




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 June 30, 2007 and 2006, all potentially
      dilutive common stock equivalents amounted to 102,469,199 and 4,645,999
      shares, respectively.





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


THREE
                  MONTHS ENDED
              
              SIX
                  MONTHS ENDEDJUNE
                  30,
              
              JUNE
                  30,2007
              
              2006
              
              2007
              
              2006Numerator:Net
                  loss
              
              $
              (1,295,956
              )
              $
              (597,076
              )
              $
              (2,653,487
              )
              $
              (1,067,584
              )Less:Preferred
                  dividends paid in stock
              
              
              (32,112
              )
              
              -
              
              
              (63,594
              )
              
              -Loss
                  and numerator used in computing basisand
                  diluted loss per share
              
              $
              (1,328,068
              )
              $
              (597,076
              )
              $
              (2,717,081
              )
              $
              (1,067,584
              )Denominator:Denominator
                  for basic and diluted net loss per share-weighted
                  average number of common sharesoutstanding
              
              
              8,621,527
              
              
              7,131,277
              
              
              8,623,630
              
              
              9,925,000Basic
                  and diluted net loss per share
              
              
              (0.15
              )
              
              (0.08
              )
              
              (0.32
              )
              
              (0.11
              )




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
              
              SIX
                  MONTHS ENDEDJUNE
                  30,
              
              JUNE
                  30,2007
              
              2006
              
              2007
              
              2006Options
                  to purchase shares of common stock
              
              
              2,487,002
              
              
              1,978,990
              
              
              2,487,002
              
              
              1,978,990Warrants
                  to purchase shares of common stock
              
              
              95,436,953
              
              
              49,003
              
              
              95,436,953
              
              
              49,003Shares
                  of convertible preferred stock - Series A
              
              
              1,637,710
              
              
              1,168,806
              
              
              1,637,710
              
              
              1,168,806Shares
                  of convertible preferred stock - Series B
              
              
              1,449,200
              
              
              1,449,200
              
              
              1,449,200
              
              
              1,449,200Shares
                  of convertible preferred stock - Series D
              
              
              23,333,341
              
              
              -
              
              
              23,333,341
              
              
              -Total
              
              
              124,344,206
              
              
              4,645,999
              
              
              124,344,206
              
              
              4,645,999


COMPREHENSIVE
      INCOME (LOSS)





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





12





IMPACT
      OF
      RECENTLY ISSUED ACCOUNTING STANDARDS





ACCOUNTING
      FOR UNCERTAINTY IN INCOME TAXES





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




FAIR
      VALUE MEASUREMENTS





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





3. BUSINESS
      COMBINATIONS





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




The
      purchase price consisted of cash in the amount of Cdn$961,097 (approximately
      US$910,000), at closing on June 21, 2007. The purchase agreement also provided
      that the Company pay the selling shareholders Cdn$900,000 (approximately
      US$840,000) three months after closing and Cdn$900,000 (approximately
      US$840,000) nine months after closing. The Company secured the subsequent
      payments through a bank-issued irrevocable standby letter of credit in favor
      of
      the selling shareholders in the aggregate amount of Cdn$1,800,000 (approximately
      US$1.68 million). The letter of credit was securitized by the deposit of
      $1,948,434 that is shown on the balance sheet as restricted cash.





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




13


Cash
                  and cash equivalents
              
              $
              -Accounts
                  receivable
              
              
              1,579,611Acquired
                  contracts
              
              
              -Other
                  current assets
              
              
              172,888Property,
                  plant and equipment
              
              
              204,419Other
                  assets
              
              
              -Goodwill
              
              
              3,592,996Total
                  assets acquired
              
              
              5,549,914Note
                  payable to bank
              
              
              420,610Accounts
                  payable and other accrued liabilities
              
              
              2,247,173Estimated
                  termination liability
              
              
              -Total
                  liabilities assumed
              
              
              2,667,783Net
                  assets acquired
              
              $
              2,882,131




The
      purchase price and costs associated with the DocuCom acquisition exceeded the
      Company's preliminary allocation of the fair value of net assets acquired by
      $3,592,996, which was assigned to goodwill. The amount ultimately assigned
      to
      goodwill is not expected to be deductible for United States income tax, state
      income tax or Canadian income tax purposes.





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




14




Unaudited
                  Pro Forma Statement of Operations For the Twelve Months Ended December
                  31,
                  2006:BPOMS
              
              DocuCom
              
              Pro
                  FormaRevenues
              
              $
              4,711,139
              
              $
              13,066,960
              
              $
              17,778,099Net
                  Income (Loss)
              
              $
              (3,300,186
              )
              $
              (355,249
              )
              $
              (3,655,435
              )Basic
                  and diluted loss percommon
                  share
              
              $
              (0.39
              )
              $
              -
              
              $
              (0.43
              )Basic
                  and diluted weighted averagecommon
                  shares outstanding
              
              
              8,496,119
              
              
              -
              
              
              8,496,119Unaudited
                  Pro Forma Statement of Operations For the Six Months Ended June
                  30,
                  2007:BPOMS
              
              
              DocuCom
              
              
              Pro
                  FormaRevenues
              
              $
              4,356,774
              
              $
              7,134,492
              
              $
              11,491,266Net
                  Income (Loss)
              
              $
              (2,653,487
              )
              $
              (36,290
              )
              $
              (2,689,777
              )Basic
                  and diluted loss percommon
                  share
              
              $
              (0.31
              )
              $
              -
              
              $
              (0.31
              )Basic
                  and diluted weighted averagecommon
                  shares outstanding
              
              
              8,623,630
              
              
              -
              
              
              8,623,630




On June
      29,
      2007, the Company purchased 100% of the issued and outstanding capital stock
      of Human
      Resource Micro-Systems, Inc. ,
      a
      California corporation (“HRMS”). The aggregate purchase price was $2,000,000, of
      which amount the Company paid the selling shareholders $1,100,000 and issued
      them 384,968 shares of the Company’s restricted common stock valued at $400,000
      (based upon the
      volume-weighted average closing bid price of the common stock during the ten
      consecutive trading days immediately preceding the closing) .
      The
      Stock Purchase Agreement provided that the selling shareholders be paid the
      remaining $500,000 12 months after closing through an escrow account, subject
      to
      offset with respect to any claims for indemnity by the Company under the terms
      of the Stock Purchase Agreement.





The  HRMS
      product delivers customizable software solutions for domestic and global
      mid-market organizations seeking to optimize their human resources service
      delivery and is being integrated
      with the Company’s existing human
      resources outsourcing services based in San Francisco, California in order
      to
      broaden the Company’s HRO offering to its customers. Since HRMS was purchased at
      the end of the reporting period, its results of operations have not been
      included in the condensed consolidated statements of operations of BPOMS. The
      following table presents the preliminary allocation of the acquisition price,
      including professional fees and other related acquisition costs, to the assets
      acquired and liabilities assumed, based on their fair values as of the date
      of
      acquisition:





15




Current
                  assets
              
              $
              434,834Property,
                  plant and equipment
              
              
              1,939Other
                  non-current assets
              
              
              -Goodwill
              
              
              2,026,465Identifiable
                  intangible assets
              
              
              -Total
                  assets acquired
              
              
              2,463,238Current
                  liabilities
              
              
              306,127Other
                  non-current liabilities
              
              
              -Long-term
                  debt
              
              
              -Total
                  liabilities assumed
              
              
              306,127Net
                  assets acquired
              
              $
              2,157,111


Acquired
      identifiable intangible assets in the amount of $0 were assigned to customer
      contracts pending valuation. The purchase price and costs associated with the
      HRMS acquisition exceeded the Company's allocation of the fair value of net
      assets acquired by $2,026,465, which was assigned to goodwill. The amount
      ultimately assigned to goodwill is not expected to be deductible for United
      States income tax purposes.





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





16
 
  Unaudited
                    Pro Forma Statement of Operations For the Twelve Months Ended
                    December 31,
                    2006:BPOMS
                
                HRMS
                
                Pro
                    FormaRevenues
                
                $
                4,711,139
                
                $
                1,229,598
                
                $
                5,940,737Net
                    Income (Loss)
                
                $
                (3,300,186
                )
                $
                35,583
                
                $
                (3,264,603
                )Basic
                    and diluted loss percommon
                    share
                
                $
                (0.39
                )
                $
                0.09
                
                $
                (0.37
                )Basic
                    and diluted weighted averagecommon
                    shares outstanding
                
                
                8,496,119
                
                
                384,968
                
                
                8,881,087Unaudited
                    Pro Forma Statement of Operations For the Six Months Ended June
                    30,
                    2007:BPOMS
                
                
                HRMS
                
                
                Pro
                    FormaRevenues
                
                $
                4,356,774
                
                $
                682,361
                
                $
                5,039,135Net
                    Income (Loss)
                
                $
                (2,653,487
                )
                $
                (3,189
                )
                $
                (2,656,676
                )Basic
                    and diluted loss percommon
                    share
                
                $
                (0.32
                )
                $
                (0.01
                )
                $
                (0.31
                )Basic
                    and diluted weighted averagecommon
                    shares outstanding
                
                
                8,238,662
                
                
                384,968
                
                
                8,623,630





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





4. DEBT





SHORT-TERM
      RELATED PARTY DEBT





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





17


Notes
                  payable to 2 officers, who are also significantshareholders,
                  secured by all assets of the Company,bearing
                  an annual interest rate of 9%
              
              $
              1,200,000Long-term
                  debt, including capital lease obligations, consisted of the
                  followingat
                  June 30, 2007:a.        
                  Credit
                  facility from Bank of Nova Scotia, securedby
                  assets of the Company, variable annual interestrate
                  of 7% at June 30, 2007
              
              $
              130,968b.        
                  Note
                  payable to a former owner of an acquired
                  subsidiary,secured
                  by the Company's main operating account andrelated
                  proceeds, which has not been perfected, bearingan
                  annual interest rate of 10%
              
              
              125,000c.        
                  Loan
                  from Business Development Bank of Canada,expiring May 21, 2010, variable annual interestrate of 11.25% at June 30, 2007
              
              
              55,203d.       
                  Collateralized
                  loan payable to Chrysler Financial,expiring March 2008, fixed interest rate of 13.9%
              
              
              5,808e.       
                  Capital
                  lease obligations maturing at dates rangingfrom November 30, 2009 to December 31, 2011, securedby the leased assets
              
              
              618,308Total
                  long-term debt before unamortized discountand
                  inputed interest
              
              
              935,287Less:
                  Imputed interest and unamortized discount
              
              
              (132,217
              )Long-term
                  debt
              
              
              803,070Less:
                  current portion
              
              
              370,500$
              432,570
  RELATED
      PARTY NOTES PAYABLE





In
      August
      2006 the Company entered into an agreement with two individuals who are
      officers, directors, and significant shareholders for a bridge loan not to
      exceed $3,000,000. From the inception of that agreement through January 30,
      2007
      a total of $2,740,000 was advanced to the Company. The loan agreement provided
      for principal and accrued and unpaid interest were due and payable April 30,
      2007. The loan agreement is unsecured. The unpaid principal of $1,200,000 and
      accrued and unpaid interest of $122,251 as of June 30, 2007 are due and payable
      on demand. The amount due under the loan agreement has both a face and stated
      value of $1,200,000 as of June 30, 2007. The stated fixed interest rate is
      9.00%
      per annum for the three and six month periods ended June 30, 2007. For financial
      reporting purposes the effective interest rate yield was 55% and 105% per annum
      for the three and six month periods ended June 30, 2007. The loan agreement
      was
      not in effect during either the three or six month periods ending June 30,
      2006





Common
      share purchase warrants (collectively the Warrants) to purchase one share
      of the Company’s common stock, par value $0.01 per share (the Common Stock), at
      an exercise price of $0.035 per share that are exercisable on issuance were
      granted in conjunction with the loan agreement. The total funds borrowed from
      the related parties amounted to $2,740,000. The associated Warrants are
      exercisable for 707,704 shares of common stock. The Warrants, which expire
      seven
      years after issuance, were assigned a value of $834,717, estimated using the
      Black-Scholes valuation model. The following assumptions were used to determine
      the fair value of the Warrants using the Black-Scholes valuation model: a term
      of seven years, risk-free rate range of 4.16% - 5.03%, volatility of 125%,
      and
      dividend yield of zero. In accordance with EITF No. 00-27, *Application
      of Issue No. 98-5 to Certain Convertible Instruments* ,
      the
      values assigned to the Warrants was allocated based on their relative fair
      values. The discount on the loan agreement for the Warrants was accreted to
      interest expense, using the effective interest method, over the initial term
      of
      the loan agreement (original loan agreement due date was April 30, 2007) Total
      interest expense recognized relating to the accretion of the Warrants discount
      for the three and six month periods ending June 30, 2007 was $163,940 and
      $594,030, respectively. There was no interest expense related to the accretion
      of the Warrant discount for the three and six month periods ending June 30,
      2006.





18


The
      loan
      agreement provided that if the Company required additional equity in order
      to
      meet certain surplus requirements needed to accomplish the reverse merger with
      netGuru; it could offer the related parties the opportunity to convert a portion
      of the outstanding loan agreement amount then payable at an aggregate conversion
      price equal to 50% of the fair value of the common stock at the adjusted closed
      market price on the day immediately preceding the conversion of the loan
      agreement amounts. A total of $1,540,000 was converted into 916,667 shares
      of
      the Company’s Series C preferred stock in December 2006 (conversion price of
      $1.68 per share of Series C preferred stock is based on a adjusted closing
      price
      of the common stock on the day immediately preceding the conversion of $3.36).
      Under the loan agreement, the Series C Preferred stock is redeemable, in whole
      or in part, at the option of the Company at an initial redemption price of
      125%
      of the amount so converted. Pursuant to the terms of the Company's Series D
      preferred stock equity financing, the consent of the holders of such shares
      is
      required prior to the Company redeeming any of the Series C preferred stock.
      The
      Company incurred a $82,200 loan fee of 3% of the total amount borrowed under
      the
      loan agreement which was paid to the related parties.




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





A. CREDIT
      FACILITY FROM BANK OF NOVA SCOTIA





Adapsys
      LP has a credit facility with Bank of Nova Scotia. The credit facility is
      an operating line of credit with a maximum availability of
      approximately $300,000, secured by all present and future personal property
      of the Company and carries an annual interest rate of Canadian prime rate
      plus 1%, which amounted to 7% at June 30, 2007. The credit facility is
      subject to two covenants, the borrowing base covenant and the tangible net
      worth covenant. The borrowing base covenant limits the Company's operating
      loans not to exceed the lesser of $300,000 or the operating limit of the
      borrowing base, defined as an amount equivalent to 75% of the Company's
      certain accounts receivables less security interest or charges or specific
      payables which have or may have priority over the bank's security. The
      tangible net worth covenant requires the Company to maintain a tangible net
      worth in excess of approximately $429,000. Tangible net worth is defined by
      the bank as stockholders' equity less amounts due from related parties,
      investment in affiliates and intangible assets as defined by the bank. At
      June 30, 2007, the Company was not in compliance with the tangible net
      worth or the borrowing base covenants, and had an outstanding balance
      of approximately $130,968.





B. NOTE
      PAYABLE
      TO A FORMER OWNER OF AN ACQUIRED SUBSIDIARY





In
      conjunction with the reverse merger with NetGuru, Inc. in December 2006, a
      note
      in the amount of $125,000 was issued to the former owner, secured by the
      Company’s main operating account and related proceeds, which has not been
      perfected, bearing an annual interest rate of 10% and which was repaid in July
      2007.




C. TERM
      LOAN
      FROM BUSINESS DEVELOPMENT BANK OF CANADA





ADM
      has a
      term loan with the Business Development Bank of Canada that expires on May
      21, 2010. The interest rate on this loan is bank's floating rate plus
      3.25% and monthly principal re-payments are approximately $1,433. At June
      30, 2007, the annual rate of interest on this loan was 11.25% and the
      balance outstanding was approximately $55,203. The loan is secured by a
      general security agreement from ADM and joint and several personal
      guarantees in the amount of approximately $43,000 by two former principals
      of ADM who were also the Company's 5% shareholders. The Company issued a
      7-year warrant to purchase 5,435 shares of the Company's common stock at an
      exercise price of $0.03 per share to each of these shareholders in return
      for their loan guarantees. The warrants, valued at approximately $11,049,
      were recorded as a discount to the term loan. The value of the warrants is
      being amortized to interest expense over the term of the loan. Unamortized
      discount at June 30, 2007 was approximately $9,209.





19




D. LOAN
      PAYABLE
      TO CHRYSLER FINANCIAL





Digica
      has a loan payable to Chrysler Financial collateralized by a vehicle with a
      net book value of $10,500. The loan has a fixed annual interest rate of
      13.9% and matures in March 2008. At June 30, 2007, the loan balance was
      $5,808.





E. CAPITAL
      LEASES





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





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




Long-Term
              
              Capital
                  LeaseDebt
              
              Obligations2008
              
              $
              277,545
              
              $
              140,8982009
              
              
              15,769
              
              
              140,3502010
              
              
              14,456
              
              
              135,6772011
              
              
              -
              
              
              134,2562012
              
              
              -
              
              
              67,128Thereafter
              
              
              -
              
              
              -Total
                  minimum payments
              
              $
              307,770
              
              $
              618,309Less:
                  amount representing interest
              
              
              
              
              
              (123,009
              )Present
                  value of minimum capital lease payments
              
              
              
              
              $
              495,300


5. CAPITAL
      STOCK





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





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





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





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





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





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





20


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





The
      Company intends to use the proceeds to complete previously announced
      acquisitions, fund additional growth in accordance with its business plan,
      and
      for general working capital requirements.





6. CONCENTRATION
      OF SALES AND CREDIT RISK





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





7. DEFERRED
      REVENUES





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





8. SEGMENT
      AND
      GEOGRAPHIC DATA





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





o
            Enterprise content management
              (ECM)o
            Information Technology services outsourcing
              (ITO) 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 are:





21


Three
                  Months Ended
              
              Six
                  Months EndedJune
                  30,
              
              June
                  30,2007
              
              2006
              
              2007
              
              2006Net
                  revenuesECM
              
              $
              1,206,791
              
              $
              727,952
              
              $
              2,362,044
              
              $
              1,797,330ITO
              
              
              1,146,090
              
              
              428,483
              
              
              1,980,913
              
              
              869,598HRO
              
              
              3,299
              
              
              111,306
              
              
              13,817
              
              
              222,681Consolidated
              
              $
              2,356,180
              
              $
              1,267,741
              
              $
              4,356,774
              
              $
              2,889,609Operating
                  lossECM
              
              $
              (138,148
              )
              $
              (216,983
              )
              $
              (503,721
              )
              $
              (273,483
              )ITO
              
              
              (169,140
              )
              
              (83,936
              )
              
              (185,784
              )
              
              (187,234
              )HRO
              
              
              (77,694
              )
              
              (258,258
              )
              
              (148,510
              )
              
              (538,211
              )Corporate
              
              
              (659,044
              )
              
              (30,110
              )
              
              (1,071,487
              )
              
              (62,749
              )Consolidated
              
              $
              (1,044,026
              )
              $
              (589,287
              )
              $
              (1,909,502
              )
              $
              (1,061,677
              )Depreciation
                  and amortization expenseECM
              
              $
              17,336
              
              $
              6,100
              
              $
              39,168
              
              $
              14,326ITO
              
              
              35,823
              
              
              7,497
              
              
              64,962
              
              
              37,410HRO
              
              
              2,561
              
              
              -
              
              
              5,159
              
              
              -Corporate
              
              
              62,222
              
              
              577
              
              
              115,355
              
              
              5,197Consolidated
              
              $
              117,942
              
              $
              14,174
              
              $
              224,644
              
              $
              56,933





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




Three
                  Months Ended
              
              Six
                  Months EndedJune
                  30,
              
              June
                  30,2007
              
              2006
              
              2007
              
              2006Net
                  revenuesNorth
                  America
              
              $
              2,127,584
              
              $
              1,267,741
              
              $
              4,011,895
              
              $
              2,889,609Europe
              
              
              228,596
              
              
              -
              
              
              344,879
              
              
              -Consolidated
              
              $
              2,356,180
              
              $
              1,267,741
              
              $
              4,356,774
              
              $
              2,889,609At
              
              
              AtJune
                  30,
              
              
              December
                  31,Long-Lived
                  Assets
              
              
              2007
              
              
              2006North
                  America
              
              $
              10,633,088
              
              $
              5,638,220Europe
              
              
              -
              
              
              25,874Consolidated
              
              $
              10,633,088
              
              $
              5,664,094
  9. COMMITMENTS
      AND CONTINGENCIES





Financial
      Results, Liquidity and Management's Plan activities





22


The
      Company has incurred net losses in the six month period ended June 30,
      2007 of $2,653,487 and a negative cash flow from operations of $1,931,753
      over the same period. The Company has been able to obtain operating capital
      through a private debt funding source, the sale of shares of its common
      stock and through the exercise of warrants to purchase shares of its common
      stock. Management's plans include the continued development
      and implementation of its business plan.





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





AMOUNT
      DUE FORMER SHAREHOLDERS OF ACQUIRED COMPANIES





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




OPERATING
      LEASES





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





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





For
      the
      twelve months ending June 30:


2008
              
              $
              601,9912009
              
              
              405,8862010
              
              
              258,5572011
              
              
              116,2422012
              
              
              2,749Thereafter
              
              
              229$
              1,385,654




For
      the
      three months June 30, 2007 and 2006 rent expense was $158,415 and $62,075,
      respectively. For the six months ended June 30, 2007 and 2006 rent expense
      was $308,633 and 246,178, respectively.





LITIGATION





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





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





FORWARD-LOOKING
      STATEMENTS





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





23




o
            Our
                ability to continue as a going
                concern;


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


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


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


o
            Our
                ability to hire and retain qualified
                personnel;


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


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


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




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





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





OVERVIEW





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





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





Our
      primary business offerings are:





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


o
            Information
                technology services outsourcing or "ITO";
                and


o
            Human
                resources outsourcing or "HRO".





CRITICAL
      ACCOUNTING POLICIES





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





o
            revenue
                recognition;


o
            allowance
                for doubtful accounts receivable;
                and


o
            impairment
                of long-lived assets, including
                goodwill.





24




REVENUE
      RECOGNITION





We
      derive
      revenues from:





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


o
            IT
                outsourcing services; and


o
            Human
                resources outsourcing services.





We
      recognize revenues when the following criteria are met:





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


o
            Delivery
                has been completed and no significant obligations
                remain;


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


o
            Collection
                is reasonably assured.





PERSUASIVE
      EVIDENCE OF AN ARRANGEMENT





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





DELIVERY
      HAS OCCURRED OR SERVICES HAVE BEEN PERFORMED





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





THE
      FEE
      FOR THE ARRANGEMENT IS FIXED OR DETERMINABLE





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





COLLECTIBILITY
      IS REASONABLY ASSURED





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





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





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





25


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





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





ALLOWANCE
      FOR DOUBTFUL ACCOUNTS RECEIVABLE





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





IMPAIRMENT
      OF LONG-LIVED ASSETS INCLUDING GOODWILL





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





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





We
      assessed the fair value of its three reporting units by considering
      their projected cash flows, using risk-adjusted discount rates and other
      valuation techniques and determined that there was no impairment to
      goodwill. As of June 31, 2007, our goodwill account balance was
      $9,889,709.





CONSOLIDATED
      RESULTS OF OPERATIONS -


THREE
      MONTHS ENDED JUNE 30, 2007 VS. THREE MONTHS ENDED JUNE 30, 2006





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





26


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





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


COMPANY
                
                INCEPTION/ACQUISITION
                    DATEBPO
                    Management Services, Inc.
                
                Inception
                  date: July 26, 2005Adapsys
                    Document Management LP
                
                Acquired:
                  July 29, 2005Adapsys
                    LP
                
                Acquired:
                  July 29, 2005Digica,
                    Inc.
                
                Acquired:
                  January 1, 2006Novus
                    Imaging Solutions, Inc.
                
                Acquired:
                  September 30, 2006NetGuru
                  Systems, Inc.
                
                Acquired:
                  December 15, 2006Research
                  Engineers, GmbH
                
                Acquired:
                  December 15, 2006DocuCom
                    Imaging Solutions, Inc.
                
                Acquired:
                  June 21, 2007Human
                    Resource Micro-Systems, Inc.
                
                Acquired:
                  June 29, 2007
 Net
        Revenues





The
      following table presents our net revenues by operating segment:


Three
                  Months Ended
              
              Six
                  Months EndedJune
                  30,
              
              June
                  30,2007
              
              2006
              
              2007
              
              2006Net
                  revenuesECM
              
              $
              1,352,273
              
              $
              727,952
              
              $
              2,362,044
              
              $
              1,797,330%
                  of total net
              
              
              57.4
              %
              
              57.4
              %
              
              54.2
              %
              
              62.2
              %revenuesITO
              
              
              1,000,608
              
              
              428,483
              
              
              1,980,913
              
              
              869,598%
                  of total net revenues
              
              
              42.5
              %
              
              33.8
              %
              
              45.5
              %
              
              30.1
              %revenuesHRO
              
              
              3,299
              
              
              111,306
              
              
              13,817
              
              
              222,681%
                  of total net revenuesrevenues
              
              
              0.1
              %
              
              8.8
              %
              
              0.3
              %
              
              7.7
              %Total
                  net revenues
              
              $
              2,356,180
              
              $
              1,267,741
              
              $
              4,356,774
              
              $
              2,889,609




Total
      net
      revenues increased by $1,088,439 or 86% to $2,356,180 during the three
      months ended June 30, 2007 from $1,267,741 during the same period in
      the prior year. Total net revenues increased by $1,467,165 or 51% to
      $4,356,774 during the six months ended June 30, 2007 from $2,889,609 during
      the same period in the prior year. Our total net revenues primarily
      consisted of net revenues from (1) enterprise content management, (2) IT
      Outsourcing services and (3) human resource outsourcing
      services.





ENTERPRISE
      CONTENT MANAGEMENT ("ECM")





Net
      revenue from ECM products and services during the three months ended June
      30, 2007 increased by $478,836 or 66% to $1,206,791 from $727,952
      during the three months ended June 30, 2006. During the six months
      ended June 30, 2007 net revenue increased by $419,232 or 23% to $2,216,562
      from $1,797,330 during the same period in the prior year. Net revenue in
      the ECM business segment in fiscal 2007 also includes net revenue from Novus
      Imaging Solutions, Inc. ("Novus") which was acquired in October 2006 and
      net revenues from netGuru, Inc. ("netGuru"), which was acquired in December
      2006. The ECM segment includes our ECM solutions group and our
      collaborative software products and related services. The majority of our
      ECM solutions group services and our collaborative software revenue are
      generated from service-oriented projects where the revenue is recognized
      only upon the completion of specific project deliverables. The timing of
      these projects and the completion and recognition of revenue from various
      size projects creates variability in our ECM solutions group
      services revenues and collaborative software net revenues between quarters
      and fiscal years.





27


In
      addition, the Company completed the acquisition of DocuCom on June 21, 2007.
      The
      results of DocuCom operations from June 21 to June 30, 2007 have little impact
      on the results of this segment, but are expected to increase revenues of
      this segment in succeeding periods.





IT
      OUTSOURCING SERVICES ("ITO")





Net
      revenue from ITO during the three months ended June 30, 2007 increased by
      $717,607 or 167% to $1,146,090 from $428,483 during the three months ended
      June 30, 2006. During the six months ended June 30, 2007 net revenue
      increased by $1,256,797 or 145% to $2,126,395 from $869,598 during the same
      period in the prior year. Increases were primarily due to the additional
      revenues from NetGuru Systems, Inc. acquired in December 2006 in conjunction
      with the reverse merger with NetGuru Inc.





HUMAN
      RESOURCE OUTSOURCING SERVICES ("HRO")





During
      the second quarter of fiscal 2007, net revenues from HRO declined 97% to
      $3,299 from $111,306 during the second  quarter of fiscal 2006 and 94% to
      $13,817 from $222,681 during the six months ended June 30, 2007. The HRO segment
      prior to the HRMS acquisition consisted consists of a small
      project/consulting group that delivered HRO related services to our clients
      on a project basis. While no significant projects were undertaken during the
      three and six months ended June 30, 2007, we have developed a pipeline of HRO
      related opportunities which we estimate will bring increased revenues in
      future periods. The acquisition of HRMS which took place June 29, 2007, is
      expected to form the cornerstone of our HRO offering in the future and bring
      increasing revenues to this segment in succeeding periods.





OPERATING
      EXPENSES





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





28




Three
                    Months Ended
                
                Six
                    Months EndedJune
                    30,
                
                June
                    30,2007
                
                2006
                
                2007
                
                2006Net
                    revenuesECM
                
                $
                1,352,273
                
                $
                727,952
                
                $
                2,362,044
                
                $
                1,797,330%
                    of total net
                
                
                57.4
                %
                
                57.4
                %
                
                54.2
                %
                
                62.2
                %revenuesITO
                
                
                1,000,608
                
                
                428,483
                
                
                1,980,913
                
                
                869,598%
                    of total net revenues
                
                
                42.5
                %
                
                33.8
                %
                
                45.5
                %
                
                30.1
                %revenuesHRO
                
                
                3,299
                
                
                111,306
                
                
                13,817
                
                
                222,681%
                    of total net revenuesrevenues
                
                
                0.1
                %
                
                8.8
                %
                
                0.3
                %
                
                7.7
                %Total
                    net revenues
                
                $
                2,356,180
                
                $
                1,267,741
                
                $
                4,356,774
                
                $
                2,889,609


SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES





Selling,
      general and administrative ("SG&A") expenses increased by $1,017,516
      (79%) to $2,309,092 during the second quarter of fiscal 2007
      from $1,291,576 during the second quarter of fiscal 2006 primarily due to
      higher professional fees and higher intangible amortization expense from
      the assets acquired in the previous year, and higher business integration
      expense associated with the consolidation of the newly acquired business
      operations. Additionally, SG&A expenses in the second quarter of fiscal
      2007 included those of Novus and DocuCom in the amount of $242,266 and of
      entities acquired from netGuru in the amount of $304,364 that were not
      present in the second quarter of 2006 since they were acquired in the
      fourth quarter ended December 2006 and DocuCom was acquired in June
      2007.





Selling,
      general and administrative ("SG&A") expenses increased by $1,206,461
      (41%) to $4,152,679 during the first six months of fiscal 2007
      from $2,946,218 during the first six months of fiscal 2006 primarily due to
      higher professional fees and higher intangible amortization expense from
      the assets acquired in the previous year, and higher business integration
      expense associated with the consolidation of the newly acquired business
      operations. Additionally, SG&A expenses in the first six months of
      fiscal 2007 included those of Novus and DocuCom in the amount of $435,987
      and of entities acquired from netGuru in the amount of $532,714 that were
      not present in the first six months of 2006 since they were acquired in the
      fourth quarter ended December 2006 and DocuCom was acquired in June
      2007.





RESEARCH
      AND DEVELOPMENT EXPENSES





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





SHARE-BASED
      COMPENSATION EXPENSE





We
      recorded share-based compensation expense of $92,744 in the second quarter
      of
      fiscal 2007 compared to $19,977 in the same period in the prior year. We
      recorded share-based compensation expense of $146,743 in the first six months
      of
      fiscal 2007 compared to $39,953 in the same period in the prior year. Grants
      of
      employee stock options are recognized as expense in the Company’s financial
      statements based on their respective grant date fair values and are charged
      to
      compensation expense based on awards that are ultimately expected to
      vest.





29





OPERATING
      LOSS BY SEGMENT





Operating
      loss in the ECM segment decreased to $138,148 in the second quarter of
      fiscal 2007 from $216,983 second quarter of 2006 primarily due to higher margin
      project revenues in the second quarter 2007, along with higher
      business integration expenses and an increase in the ratio of lower margin
      third party product sales during the second quarter of fiscal 2006. The
      increase in operating loss in the ITO segment to $169,140 in the second
      quarter of fiscal 2007 from $83,936 in the second quarter of fiscal 2006 is
      primarily due to higher revenues from acquired entities and organic growth
      in the ITO segment during the second quarter of fiscal 2007 compared to the
      same period in the prior year. The decrease in operating loss in the HRO
      segment is primarily due to decrease in salaries in the second quarter of
      fiscal 2007 compared to the second quarter of fiscal 2006. Corporate
      expenses increased to $659,044 in the second quarter of fiscal 2007 from
      $30,110 in the second quarter of 2006 primarily due to additional employees
      in the corporate headquarters, increased professional fees, intangible
      amortization expense and share-based compensation expense. The following
      table details the operating loss by segment:




Three
                  Months Ended June 30,2007
              
              %
                  of Total
              
              2006
              
              %
                  of TotalOperating
                  lossECM
              
              $
              (138,148
              )
              
              13.2
              %
              $
              (216,983
              )
              
              36.8
              %ITO
              
              
              (169,140
              )
              
              16.2
              %
              
              (83,936
              )
              
              14.2
              %HRO
              
              
              (77,694
              )
              
              7.4
              %
              
              (258,258
              )
              
              43.8
              %Corporate
              
              
              (659,044
              )
              
              63.1
              %
              
              (30,110
              )
              
              5.1
              %Consolidated
              
              $
              (1,044,026
              )
              
              100.0
              %
              $
              (589,287
              )
              
              100.0
              %
  Operating
      loss in the ECM segment increased to $503,721 in the first six months of
      fiscal 2007 from $273,483 in the second quarter of 2006 primarily due to higher
      margin project revenues in the second quarter 2007, along with higher
      business integration expenses and an increase in the ratio of lower margin
      third party product sales during the first six months of fiscal 2006. The
      operating loss in the ITO segment of $185,784 in the first six months of fiscal
      2007 is little changed from $187,234 in the same period in the prior year.
      The decrease in operating loss in the HRO segment is primarily due to
      decrease in salaries in the first six months of fiscal 2007 compared to the
      first six months of fiscal 2006. Corporate expenses increased to $1,071,487
      in the first six months of fiscal 2007 from $62,749 in the first six months
      of 2006 primarily due to additional employees in the corporate
      headquarters, increased professional fees, intangible amortization expense
      and share-based compensation expense. The following table details the
      operating loss by segment:




Six
                  Months Ended June 30,2007
              
              %
                  of Total
              
              2006
              
              %
                  of TotalOperating
                  lossECM
              
              $
              (503,721
              )
              
              26.4
              %
              $
              (273,483
              )
              
              25.8
              %ITO
              
              
              (185,784
              )
              
              9.7
              %
              
              (187,234
              )
              
              17.6
              %HRO
              
              
              (148,510
              )
              
              7.8
              %
              
              (538,211
              )
              
              50.7
              %Corporate
              
              
              (1,071,487
              )
              
              56.1
              %
              
              (62,749
              )
              
              5.9
              %Consolidated
              
              $
              (1,909,502
              )
              
              100.0
              %
              $
              (1,061,677
              )
              
              100.0
              %
  OTHER
      EXPENSE (INCOME)





The
      following table presents our other expense (income) and its percentage of
      total net revenues:





30




Three
                  Months Ended
              
              Six
                  Months EndedJune
                  30,
              
              June
                  30,2007
              
              2006
              
              2007
              
              2006Other
                  Expense (Income)Related
                  parties interest
              
              $
              26,926
              
              $
              -
              
              $
              62,597
              
              $
              -%
                  of total net revenues
              
              
              1.1
              %
              
              0.0
              %
              
              1.4
              %
              
              0.0
              %Other
                  interest, net
              
              $
              212,751
              
              $
              7,121
              
              $
              681,374
              
              $
              4,996%
                  of total net revenues
              
              
              9.0
              %
              
              0.6
              %
              
              15.6
              %
              
              0.2
              %Other
                  income
              
              $
              12,253
              
              $
              668
              
              $
              14
              
              $
              911%
                  of total net revenues
              
              
              0.05
              %
              
              0.1
              %
              
              0.0
              %
              
              0.0
              %Total
                  other expense (income)
              
              $
              251,930
              
              $
              7,789
              
              $
              743,985
              
              $
              5,907%
                  of total net revenues
              
              
              10.7
              %
              
              0.6
              %
              
              17.1
              %
              
              0.2
              %


INTEREST
      EXPENSE, NET





Net
      interest expense increased by $244,141 in the second quarter of fiscal 2007
      to
      $251,930 from net interest expense of $7,789 in the second quarter
      of fiscal 2006 primarily due to $163,939 in amortization of the value of
      warrants issued pursuant to bridge loans, $26,926 in interest expense on
      bridge loans, $19,529 in interest expense related to purchase price payable
      to sellers of Novus.





Net
      interest expense increased by $738,078 in the first six months of
      fiscal 2007 to $743,985 from net interest expense of $5,907 in the first
      six months of fiscal 2006 primarily due to $594,029 in amortization of the
      value of warrants issued pursuant to bridge loans, $50,597 in interest
      expense on bridge loans, $37,848 in interest expense related to purchase
      price payable to sellers of Novus and $12,000 in loan origination
      fees.





INCOME
      TAXES





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




LIQUIDITY
      AND CAPITAL RESOURCES





Our
      principal sources of liquidity at June 30, 2007 consisted of
      $5,266,044  in
      cash
      and cash equivalents. Cash and cash equivalents increased by
      $4,559,847  in
      the
      first six months of fiscal 2007. We incurred net losses from operations of
      $1,909,502 and $1,061,677 and used cash in operations of $1,931,752 and $537,459
      in the first six months of 2007 and 2006, respectively.





The
      primary reasons for cash used in operations during the first six months of
      fiscal 2007 were: net loss of $2,653,487 that included non-cash
      charges related amortization of the loan discount in the amount of
      $594,031, depreciation and amortization expense of $173,111, and
      share-based compensation expense of $146,741. In addition, the timing
      differences in the payment of our current liabilities and collection of our
      current assets also contributed to the cash used in
      operations.





The
      primary reasons for cash used in operations during the first six months of
      fiscal 2006 were: net loss of $1,067,584, depreciation and amortization expense
      of $320,587, and share-based compensation expense of $39,953. In addition,
      the timing differences in the payment of our current liabilities and
      collection of our current assets also contributed to the cash used in
      operations.





Net
      cash
      used in investing activities in the first six months of fiscal 2007 was
      $4,613,962, primarily for purchase of DocuCom, Novus, HRMS and property and
      equipment.





31


Net
      cash
      used in investing activities in the first six months of fiscal 2006 was
      $501,063, primarily for purchase of Digica and $125,470 for the purchase of
      property and equipment.





Net
      cash
      provided by financing activities during the first six months of 2007 was
      $13,344,550 of which $12,410,033 came from the net proceeds from the sale of
      $14,000,000 of preferred shares. In the first six months of fiscal 2007, we
      received $400,000 in cash proceeds from bridge loans and repaid bank debt
      in the amount of $179,483. The bridge loan was provided by Mr. Dolan, our
      chief executive officer and we issued a warrant to purchase 133,333 shares
      of common stock pursuant to the bridge loan agreement.





We
      have
      funded our operations primarily from the private placement of shares of our
      common stock and preferred stock and through the founders bridge loan
      facility established in August 2006. During the next twelve months,
      we anticipate raising capital necessary to grow our business and
      complete additional acquisitions by issuing our equity securities and/or
      debt.




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





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





This
      uncertainty, recurring losses from operations, limited cash resources, and
      an accumulated deficit, among other factors, raised doubt about our ability
      to continue as a going concern and led our independent
      registered





32


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





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




Less
                  Than
              
              
              
              
              
              AfterTotal
              
              1
                  Year
              
              1-3
                  Years
              
              4-5
                  Years
              
              5
                  YearsLong-term
                  debt
              
              $
              182,770
              
              $
              152,545
              
              $
              30,225
              
              $
              -
              
              $
              -Capital
                  lease obligations*
              
              
              495,300
              
              
              95,208
              
              
              214,526
              
              
              185,566
              
              
              -Operating
                  leases
              
              
              1,385,655
              
              
              601,991
              
              
              664,444
              
              
              118,991
              
              
              229Purchase
                  price payable -Novus
                  and DocuCom
              
              
              1,886,301
              
              
              1,886,301
              
              
              -
              
              
              -
              
              
              -Short-term
                  loan payable
              
              
              125,000
              
              
              125,000
              
              
              -
              
              
              -
              
              
              -Bridge
                  loan payable
              
              
              1,200,000
              
              
              1,200,000
              
              
              -
              
              
              -
              
              
              -Total
                  contractual obligations
              
              $
              5,275,026
              
              $
              4,061,045
              
              $
              909,195
              
              $
              304,557
              
              $
              229




*Excludes
      imputed interest of
      $123,009




ITEM
      3.
      CONTROLS AND PROCEDURES





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





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





33


PART
      II
      -- OTHER INFORMATION





ITEM
      1.
      LEGAL PROCEEDINGS





None





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





In
      January 2007, we received cash proceeds of $400,000 from Mr. Patrick Dolan
      as bridge loan. Pursuant to the bridge loan agreement, we issued Mr. Dolan
      a 7-year warrant to purchase 133,333 shares of our common stock. The
      exercise price of the shares is $0.035 and the warrant vested immediately.
      Using the Black-Scholes Merton option valuation model, a volatility of
      125%, risk free rate of 4.75% and the fair value at grant date of $1.40 per
      share, we valued the warrant to be approximately $185,187. The value of the
      warrant was recorded as a discount to the bridge loan and is being
      amortized over the term of the loan. Unamortized loan discount balance at
      June 30, 2007 was $0. In addition to the warrant Mr. Dolan is also entitled
      to a 3% loan guarantee fee, amounting to $12,000, which has been accrued as
      of June 30, 2007.





In
      January 2007, we also issued 309 shares of Series A preferred stock
      as paid-in-kind dividends to Messrs. Dolan and Cortens based on 1,543,251
      shares of Series A preferred stock outstanding as of December 31,
      2006.





ITEM
      3.
      DEFAULTS UPON SENIOR SECURITIES





None





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





None.





ITEM
      5.
      OTHER INFORMATION





None.





ITEM
      6.
      EXHIBITS




Exhibit
              Number
            Description31.1
            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 (2)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 (2)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
              (2)




(1)
      Filed
      as an exhibit to our Current Report on Form 8-K for January 31, 2007, and
      incorporated herein by reference.


(2)
      Attached as an exhibit to this Form 10-QSB.





34





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.


BPO
              MANAGEMENT
              SERVICES, INC.Date:
              August 14, 2007
            By:
            /s/ Donald
              W.
              RutherfordChief
              Financial Officer(principal
              financial officer and duly authorized
              officer)






35




EXHIBITS
      ATTACHED TO THIS QUARTERLY REPORT ON FORM 10-QSB


Exhibit
                Number
              Description31.1
              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 (2)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 (2)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
                (2)
  36