Revenues increase 232% for the second quarter vs. Q2 2007

ANAHEIM, Calif., Aug. 14 /PRNewswire-FirstCall/ — BPO Management Services Inc., (OTC Bulletin Board: BPOM - News), a full-service business process outsourcing company focused on serving middle-market enterprises, today announced financial results for the second quarter and first six months of 2008, the period ended June 30, 2008. The financial results represent the Company’s first quarter with positive EBITDA.

Operational Highlights

– Spiegel Brands, Inc., Chicago, the women’s clothing catalog marketer, signed a multi-year contract for its information technology outsourcing solutions.

– Shasun USA, Inc., one of the world’s largest producers of ibuprofen, signed a multi-year contract for its information technology outsourcing solutions.

– BPOMS signed a strategic relationship agreement with Tectura Corp., a leading Microsoft partner and global services company providing Microsoft-based technology solutions. Under the terms of the agreement, BPOMS will make its human resources outsourcing solutions available to Tectura’s North American clients, which are mid-market companies as well as divisions of larger enterprises.

– Deutsche Rentenversicherung Bund and Deutsche Post Real Estate Germany purchased BPOMS’ Enterprise Content Management (ECM) solution eReview.

– Eastman Kodak has honored BPOMS’ enterprise content management division for outstanding revenue generation and overall sales performance during 2007. In addition, for the fourth time, Kodak named BPOMS the top Canadian reseller of KODAK Service & Support, Eastman Kodak’s worldwide service organization.

– BPOMS’ IT outsourcing solutions division was awarded two key certifications: It successfully completed the 2008 SAS 70 Type II evaluation by Eisner, LLP, an independent service auditor, and also TrustWave’s TrustKeeper® Compliance Validation Service to meet the Payment Card Industry Data Security Standards.

– The Company raised $5.6 million in additional financing from the exercise of Warrants to Purchase Shares of BPOMS’ Series D-2 Convertible Preferred Stock.

Financial Results
(in $ thousands)

Q2 2008  Q2 2007   % Change  YTD 2008  YTD 2007  % Change
Revenues         $7,821   $2,356     232.0%   $15,103    $4,357    246.7%
ECM            $4,345   $1,352     221.4%    $8,370    $2,362    254.4%
ITO            $2,883   $1,001     188.0%    $5,761    $1,981    190.8%
HRO              $592       $3  19,633.3%      $973       $14  6,850.0%
Loss from
Operations       $(812) $(1,044)     22.2%   $(2,448)  $(1,910)   (28.2)%
Net Loss          $(976) $(1,296)     24.7%   $(2,703)  $(2,653)    (1.9)%
Income (loss)
from Operations
before non-cash
items              $95    $(885)   110.7%      $(549)  $(1,590)    65.5%

Patrick Dolan, chief executive officer of BPOMS, said, “These results, particularly the achievement of a positive EBITDA during the quarter, are important because they validate the program we had set for our initial building phase, which included three significant acquisitions in the last 12 months and the successful integration of these acquisitions into the BPOMS model. Specifically, the improved operating results are the result of the critical mass we are achieving through the successful integration and consolidation of our recent acquisitions. Additionally, they position us to continue with our aggressive growth plans. We have recorded large sales increases in all three business segments, and during the year our human resources outsourcing component has emerged as the third leg of our service offering with the acquisition of Human Resource Micro-Systems in June of last year. We were able to carefully manage our cost structure to drive leverage through our operations and significantly narrow our operating and net loss. The second quarter demonstrated clearly that we are on track in meeting our financial objectives and well on our way to establishing BPOMS as the dominant provider of BPO services to middle-market enterprises throughout North America.”

Second Quarter 2008 Financial Results

For the second quarter, revenue increased 232.0% to $7.8 million from $2.4 million in the second quarter last year. The growth for the quarter was due to a 221.4% increase in enterprise content management, to $4.3 million compared to $1.4 million in the prior-year second quarter. IT outsourcing services revenue was $2.9 million, an increase of 188.2% compared to revenue of $1.0 million last year. Human Resources outsourcing services revenue was $592,226 compared with $3,299 in the second quarter last year. In the last three years, BPOMS has acquired and integrated 10 companies in three areas of the Business Process Outsourcing (BPO) industry: Enterprise Content Management (ECM), IT Outsourcing Services (ITO) and Human Resource Outsourcing Services (HRO). Acquisitions completed subsequent to June 21, 2007 accounted for 71% of the Company’s revenue during the quarter while revenue from the Company’s organic business or those acquired prior to June 21, 2007 accounted for 29% of revenue.

Total operating expenses for the quarter were $8.6 million, an increase of 153.9% compared to total operating expenses of $3.4 million during the second quarter last year. Included in the operating expenses was a 317.4% increase in cost of services provided. As a percent of revenue, selling, general and administrative (SG&A) expenses decreased to 46.0% compared to 95.2% in the prior year second quarter, demonstrating strong expense management and the inherent leverage in the Company’s business model.

The loss from operations for the quarter narrowed to $812,286 from $1.0 million in the prior-year second quarter. Included in the operating loss were depreciation and amortization and share-based compensation, which in aggregate totaled $906,838 for the second quarter of 2008 and $159,153 for the second quarter of 2007. Excluding these non-cash expenses, the Company generated $94,552 in operating income during the second quarter, compared to a loss of $884,873 in the second quarter last year.

The net loss for the quarter (exclusive of a gain on foreign currency translation) was $975,784 or $(0.08) per basic and fully diluted share (based on 12.7 million shares) compared to a net loss of $1.3 million, or $(0.15) per basic and fully diluted share (based on 8.6 million shares) in the second quarter last year.

Year-To-Date Financial Results

Revenue for the first six months of 2008 was $15.1 million, an increase of 246.7% compared to the $4.4 million for the first half of 2007. Acquisitions completed subsequent to June 21, 2007 accounted for 73% of the Company’s revenue during the first six months of 2008 while revenue from the Company’s organic business or those acquired prior to June 21, 2007 accounted for 27% of revenue. Total operating expenses increased 180.1% to $17.6 million compared to $6.3 million for the first half of last year. Inclusive in this increase was a 305.5% increase in cost of services provided to $7.6 million from $1.9 million last year. SG&A expenses, as a percent of revenue, decreased to 52.4% from 91.3% in the first half of last year. The loss from operations for the six-month period was $2.4 million, inclusive of 1.9 million in non-cash expenses, compared to a loss from operations of $1.9 million, inclusive of $320,000 in non-cash expenses. Excluding non-cash expenses, the loss from operations for the year-to-date period narrowed to $549,478 from $1.6 million. The net loss for the first six months of 2008 (exclusive of a loss on foreign currency translation) was $2.7 million, or $(0.22) per basic and fully diluted share (based on 12.5 million shares) compared to a net loss of $2.7 million, or $(0.32) per basic and fully diluted share (based on 8.6 million shares).

As of June 30, 2008, BPOMS’ balance sheet showed $4.8 million in cash. The Company’s current ratio was 0.8:1 as of the end of the second quarter. The Company’s shareholder equity increased 9.3% to $19.2 million compared to $17.6 million as of December 31, 2007.

Mr. Dolan continued, “We expect that BPOMS will continue to benefit from the increasing demand for BPO services as middle market enterprises seek the significant economic benefits our services provide. This is especially the case in a weak economy, where middle market enterprises in particular feel its effects, and in this environment our proven return on investment and rapid implementation provide catalysts for additional business. The continuing consolidation of the smaller single-thread providers presents BPOMS with additional opportunities to meet its growth and shareholder value creation objectives through accretive acquisitions that provide us with profitable revenue, new customers in growing market verticals and additional resources with which to grow. We are also targeting certain segments, such as healthcare claims processing, as opportunities to augment our growth objectives.”

About BPO Management Services, Inc.

BPO Management Services (BPOMS) is a business process outsourcing (BPO) service provider that offers a diversified range of on-demand services, including human resources, information technology, and enterprise content management, to support the back-office business functions of middle-market enterprises on an outsourced basis. BPOMS supports middle-market businesses new to the BPO market, established businesses that already outsource, and businesses seeking to maximize return-on-investment from their in-house workforce. For more information, please visit http://www.bpoms.com

Forward-Looking Statements

Certain statements in this press release that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by the use of words such as “anticipate,” “believe,” “expect,” “future,” “may,” “will,” “would,” “should,” “plan,” “projected,” “intend,” and similar expressions. Such forward-looking statements, involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of BPO Management Services, Inc. (the “Company”) to be materially different from those expressed or implied by such forward-looking statements. The Company’s future operating results are dependent upon many factors, including but not limited to: (i) the Company’s ability to obtain sufficient capital or a strategic business arrangement to fund its current operational or expansion plans; (ii) the Company’s ability to build and maintain the management and human resources and infrastructure necessary to support the anticipated growth of its business; (iii) competitive factors and developments beyond the Company’s control; and (iv) other risk factors discussed in the Company’s periodic filings with the Securities and Exchange Commission.

BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended         Six Months Ended
June 30,                  June 30,
2008        2007         2008         2007
Revenues:
Enterprise content
management           $4,345,298   $1,352,273   $8,369,650   $2,362,044
IT outsourcing
services              2,883,235    1,000,608    5,760,859    1,980,913
Human resource
outsourcing services    592,226        3,299      972,835       13,817

Total revenues     7,820,759    2,356,180   15,103,344    4,356,774

Operating expenses:
Cost of services
provided              4,053,105      971,014    7,596,457    1,873,488
Selling, general and
administrative        3,595,767    2,242,683    7,909,328    3,979,568
Research and
development              77,335       27,356      147,037       93,366
Depreciation and
amortization            699,746       66,409    1,484,175      173,111
Share-based
compensation            207,092       92,744      414,184      146,743

Total operating
expenses          8,633,045    3,400,206   17,551,181    6,266,276

Loss from
operations         (812,286)  (1,044,026)  (2,447,837)  (1,909,502)

Interest expense
Related parties           26,853       26,926       53,705       62,597
Amortization of
related party debt
discount                    -        163,940          -        594,029
Other (net)               64,174       48,811      109,136       87,345
Other Expense                  -         12,253          -             14

Total interest
and other expense    91,027      251,930      162,841      743,985

Loss before taxes         (903,313)  (1,295,956)  (2,610,678)  (2,653,487)

Income tax expense          72,471          -         92,727          -

Net loss                  (975,784)  (1,295,956)  (2,703,405)  (2,653,487)

Foreign currency
translation gain (loss)    16,810     (290,555)    (180,194)      10,189

Comprehensive loss       $(958,974) $(1,586,511) $(2,883,599) $(2,643,298)

Basic and diluted net
loss per share             $(0.08)      $(0.15)      $(0.22)      $(0.32)

Basic and diluted
weighted average
common                 12,671,034    8,621,527   12,457,919    8,623,630

BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2008 AND DECEMBER 31, 2007

2008                2007
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents                  $4,763,454          $888,043
Restricted cash                                   -             922,888
Accounts receivable, net of
allowance for doubtful accounts of
$287,713 and $347,797, respectively        5,343,510         4,768,618
Inventory consisting of finished goods        193,944           268,160
Prepaid expenses and other current assets     696,839           417,041
Total current assets                    10,997,747         7,264,750

Equipment, net of accumulated
depreciation of $1,231,300 and
$718,913, respectively                     4,958,824         4,834,941
Goodwill                                   10,031,993         9,029,142
Intangible assets, net of
accumulated amortization of
$1,743,873 and $931,268, respectively      8,012,666         9,898,219
Other assets                                   33,157            38,449
$34,034,387       $31,065,501

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt,
net of discount of $3,307 and
$3,405, respectively                      $1,879,536          $812,156
Current portion of capital lease
obligations                                  271,660           149,653
Accounts payable                            3,455,786         3,540,827
Accrued expenses                            2,348,180         1,927,451
Accrued interest-related party                 27,366            36,672
Accrued dividend payable                      840,458           379,222
Accrued dividend payable-related party        355,843            67,242
Amount due former shareholders of
acquired companies                         1,000,000         2,101,771
Income taxes payable                          222,872           257,091
Deferred revenues                           1,979,760         2,509,885
Related party notes payable                 1,200,000         1,200,000
Severence obligations payable                     -              72,199
Other current liabilities                     317,843               -
Total current liabilities               13,899,304        13,054,169

Long-term debt, net of current portion
and net of discount of $3,031 and
$4,825, respectively                           338,072            24,117
Capital lease obligations, net of
current portion                                567,617           392,942
Other long-term liabilities                      33,115            33,115
Total liabilities                       14,838,108        13,504,343
Commitments and contingencies
Stockholders equity:
Convertible preferred stock, Series
A, par value $.01; authorized
2,308,612 shares; 1,772,710 and
1,703,874 shares issued and
outstanding, respectively                     17,727            17,039
Convertible preferred stock, Series
B, par value $.01; authorized
1,449,204 shares; 1,449,204 shares
issued and outstanding                        14,492            14,492
Non-convertible preferred stock,
Series C, par value $.01; authorized
21,378,000 shares; 916,667 shares
issued and outstanding                         9,167             9,167
Convertible preferred stock, Series
D, par value $.01; authorized
1,500,000 shares; 1,427,084 and
1,458,334 shares issued and
outstanding, respectively                     14,271            14,583
Convertible preferred stock, Series
D-2, par value $.01; authorized
1,500,000 shares; 1,312,500 and
729,167 shares issued and
outstanding, respectively                     13,125             7,292
Common stock, par value $.01;
authorized 150,000,000 shares;
12,671,034 and 12,171,034 shares
issued and outstanding, respectively         126,711           121,711
Additional paid-in capital                 32,007,035        27,499,524
Accumulated deficit                       (13,272,320)      (10,568,915)
Accumulated other comprehensive
income, foreign currency
translation adjustments                      266,071           446,265
Total stockholders ‘ equity             19,196,279        17,561,158
$34,034,387       $31,065,501

Source: BPO Management Services Inc.