BPO Management Services Announces Financial Results for Second Quarter 2009

Revenue Increases 68% in Second Quarter 2009

ANAHEIM, Calif., Aug. 17 /PRNewswire-FirstCall/ -- BPO Management Services
Inc., (OTC Bulletin Board: HAXS), a full-service healthcare and business
process outsourcing company focused on serving the middle-market, today
announced its financial results for the second quarter 2009, ended June 30,
2009. The income statement reflects the merger of BPO Management Services and
Healthaxis, Inc., which was completed on December 30, 2008 and the
presentation of the Company's Canadian operations as discontinued operations
as of June 30, 2009.

Operational Highlights

-- Revenue for the second quarter ended June 30, 2009 increased 68% to
$6.6
million from $3.9 million. Revenue for the six months ended June 30,
2009 increased by 82% to $13.5 million, compared to $7.4 million for
the
same period last year. The higher revenues in 2009 were due primarily
to
the addition of Healthcare segment from the Healthaxis merger.
-- The Company has fully integrated operations from its merger with
Healthaxis.
-- The Company divested its Canadian operations and eliminated its
Enterprise Content Management Division (ECM) in July, 2009. Operating
results of the divested operations are shown in the financial
statements
as discontinued operations. The Canadian subsidiary was sold on July
31,
2009. The divestiture eliminates operations that no longer fit with
the
Company's corporate strategy, and allows it to focus on its core
strengths in information technology outsourcing and managed
applications
and business process services for healthcare benefits administration,
finance and accounting, and human resources.
-- With the divestiture of the Canadian operations, the Company's
revenues that are now derived from long-term contracts exceed 95% of
total revenue. This exceeds the Company's goal of 90% of revenues
derived from such revenue streams.
-- During the second quarter of 2009, the Company largely completed a
previously announced organizational restructuring and consolidation of
all financial and related back-office functions to enhance financial
management activities and to lower administrative costs. The Company
also re-organized its operational delivery structure by combining its
Healthcare and Human Resources divisions and by putting operational
control for all businesses under a single executive. Accordingly, the
Company was able to refine its management structure and to reduce
personnel and other expenditures. The changes resulted in a second
quarter "restructuring" charge of approximately $382,000. On
an annualized basis, the actions described above and other corporate
cost reductions are expected to lower annual operating costs by
approximately $2.0 million. The Company believes that the lower costs
will be reflected more clearly in its third quarter and in future
periods. Management believes that organizational improvements combined
with expected revenue growth will drive profitability in the coming
quarters.
-- Selling, General & Administrative expenses for the second quarter of
2009 were 37% of total revenue, compared to 44% for the second quarter
of 2008. A trend of lower SG&A costs as a percentage of revenues is
expected to continue because of the restructuring changes implemented
and the Company's belief that such costs will not increase
significantly with organic revenue growth. The Company continues to
focus its efforts on internal cost-efficiencies and ongoing expense
reduction.

-- The Company continues to experience a healthy demand for its services,
from both new customer prospects and existing customer scope expansion
projects, and as a result has been moving several opportunities
towards
a successful close. As a result, the Company remains optimistic
concerning the potential to experience rapid organic growth,
particularly in its ITO business unit, in the coming quarters.

Patrick Dolan, chief executive officer of BPOMS, said, "We took steps to
further align our operations with our core competencies and reduce our go
forward expense structure. Included in this was our strategic realignment,
which resulted in approximately $2 million per year in expense reductions. In
addition, we made the strategic decision to divest our Canadian operations to
further narrow our focus to our core competencies, including recurring revenue
from long-term contracts with customers. BPOMS continues to be strategically
aligned with middle-market companies who are searching for proven solutions to
improving internal operations, while simultaneously lowering costs. We have
now successfully built a scalable, robust BPO delivery platform for ITO, and
are providing key vertical solutions in healthcare, financial services and
human resources. Most importantly, these solutions are anchored by industry
recognized intellectual property, and delivered by a high availability,
on-demand Tier 1 like infrastructure with additional capacity, and a
multi-shore delivery capability. We have a strong pipeline of opportunities
throughout our organization but particularly in our ITO division and as the
economy continues to recover, we are well-positioned for long-term growth and
success."

Second Quarter 2009 Financial Results
For the second quarter, total revenue increased 68% to $6.6 million from $3.9
million for the same period last year. The higher revenue resulted primarily
from the addition of the Healthcare business segment, which was acquired
through the Healthaxis, Inc. merger on December 30, 2008. The revenue increase
was partially offset by a decrease in our base business due largely to a
decline in ITO and HRO professional services, and from a net drop in data
center revenues. The lower data center revenues result from the loss of legacy
customers who had decided to move their operations to a new environment some
time ago. In addition to a reduced amount of professional services, HRO
revenues were also lower in 2009 because maintenance revenues on historical
versions of the Company's software systems are declining, and the increased
revenues from SaaS based sales are not yet sufficient to offset the decline.

Total operating expenses for the quarter were $8.8 million, compared to total
operating expenses of $4.3 million during the second quarter last year. The
higher operating expenses resulted primarily from the addition of the
Healthcare segment, but also resulted from corporate restructuring charges of
$382,000, the bankruptcy of two customers which resulted in an increase in the
allowance for bad debts of $323,000, and nonrecurring ITO costs to support new
customer implementations. The cost increases were partially offset by cost
reduction efforts across all segments.

The loss from operations for the quarter was $2.2 million, compared to
$425,000 in the prior-year second quarter. The second quarter operating loss
includes non-cash expenses, including depreciation and amortization of $1.0
million and the aforementioned bad debt and restructuring charges. These items
do not impact the operating cash flows of the business and are not expected to
negatively impact future operating results. Management believes this is
evidenced by the fact that the Company generated positive cash flow from
operations of approximately $1.3 million for the six months ended June 30,
2009. The net loss for the quarter was $5.0 million, which includes a loss
from discontinued operations of $2.7 million, compared to a net loss of
$931,000 in the second quarter last year.

Year-to-Date Financial Results
Revenue for the first six months of 2009 was $13.5 million, an increase of 82%
compared to the $7.4 million for the first half of 2008. The higher revenue
was primarily due to the addition of the Healthcare business segment,
partially offset by decreases in professional services revenues in both HRO
and ITO, combined with a net drop in data center revenues. Total operating
expenses for the quarter were $17.0 million, compared to total operating
expenses of $9.1 million during the first quarter last year. The operating
expense increase results from the addition of the Healthcare segment combined
with aforementioned restructuring and bad debt charges, and nonrecurring ITO
costs to ramp new customers. As in the second quarter, the increases were
partially offset by cost reductions across all business segments.

The loss from operations for the first six months of 2009 was $3.50 million,
compared to $1.70 million in the prior-year period. Including the loss from
discontinued operations of $2.7 million, the net loss for the six-month period
was $6.50 million, compared to a net loss of $2.70 million last year.

About BPO Management Services, Inc.
BPO Management Services (BPOMS) is a healthcare and business process
outsourcing (BPO) service provider that offers a diversified range of
on-demand services, including claims processing, human resources, information
technology, and enterprise content management, to support the back-office
business functions of the middle-market 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, which are available for review at http://www.sec.gov under "Search
for Company Filings."

Company Contact:
BPO Management Services, Inc.
Patrick Dolan, Chairman & CEO
patrick.dolan@bpoms.com

BPO MANAGEMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Unaudited)

Three months ended Six months ended
June 30, June 30,
---------- ----------
2009 2008 2009 2008
---- ---- ---- ----
Revenues:
IT outsourcing
services $2,848,147 $3,308,739 $5,833,864 $6,450,543
Healthcare 3,489,384 - 7,111,812 -
Human resource
outsourcing
servicing 225,653 592,226 528,839 972,835
------- ------- ------- -------

Total revenues 6,563,184 ,900,965 13,474,515 7,423,378

Operating
expenses:
Cost of services
provided 4,745,799 1,782,555 9,496,167 3,274,170
Selling, general
and administrative 2,482,060 1,741,587 4,824,648 4,172,982
Research and
development 118,908 77,335 224,760 147,037
Depreciation and
amortization 1,031,846 518,116 2,013,615 1,115,891
Share-based
compensation 18,333 207,092 18,333 414,184
Restructuring
costs 382,207 - 382,207 -
------- --- ------- ---

Total operating
expenses 8,779,153 4,326,685 16,959,730 9,124,264
--------- --------- ---------- ---------

Loss from
operations (2,215,969) (425,720) (3,485,215) (1,700,886)
---------- -------- ----------- ---------

Interest expense
Related parties 18,579 26,853 39,166 53,705
Other, net 110,618 21,053 236,024 41,076
------- ------ ------- ------
Total interest
expense 129,197 47,906 275,190 94,781
------- ------ ------- ------

Loss before income
taxes (2,345,166) (473,626) (3,760,405) (1,795,667)

Income tax expense 7,800 - 15,600 44,452

Loss from continuing
operations (2,352,966) (473,626) (3,776,005) (1,840,119)
---------- -------- ---------- ----------

Discontinued
Operations
(Note 3):
Loss from
operations of
discontinued
business (2,686,089) (457,709) (2,738,321) (863,286)
---------- -------- ---------- --------

Net loss (5,039,055) (931,335) (6,514,326) (2,703,405)
---------- -------- ---------- ----------

Foreign currency
translation gain
(loss) 535,642 (46,842) 460,335 (180,194)

Comprehensive loss $(4,503,413) $(978,177) $(6,053,991) $(2,883,599)
=========== ========= =========== ===========

Loss per share -basic and diluted
Loss from
continuing
operations $(0.15) $(0.04) $(0.25) $(0.15)
Loss from
discontinued
operations (0.18) (0.04) (0.18) (0.07)
----- ----- ----- -----
Net loss per share
- basic and diluted $(0.33) $(0.08) $(0.43) $(0.22)
====== ====== ====== ======

Basic and diluted
weighted average
common shares
outstanding 15,165,586 12,671,034 15,165,586 12,457,919
========== ========== ========== ==========

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

2009 2008
---- ----
ASSETS
Current assets:
Cash and cash
equivalents $1,584,771 $2,895,711
Accounts receivable,
net of allowance for doubtful
accounts of $492,186 and
$505,338,respectively 3,998,273 5,408,156
Prepaid expenses and
other current assets 1,021,271 928,647
Current assets held for sale 2,148,025 2,290,630
--------- ---------
Total current assets 8,752,340 11,523,144

Equipment, net 7,378,058 7,170,213
Goodwill 2,282,064 2,282,064
Intangible assets, net 3,878,498 4,192,955
Other assets 801,298 1,244,641
Non-current assets
held for sale 2,392,982 4,447,545
--------- ---------
$25,485,240 $30,860,562
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of lines of credit
and long-term debt $3,099,156 $2,196,652
Current portion of
capital lease obligations 572,301 394,765
Accounts payable 5,337,939 4,687,333
Accrued expenses 2,777,293 2,856,021
Restructuring liability 347,774 -
Accrued interest-related party 39,166 -
Accrued dividend payable 1,369,331 1,369,331
Accrued dividend payable-related
party 651,281 651,281
Amount due former shareholders of
acquired companies - 1,000,000
Deferred revenues 1,989,218 2,091,277
Related party notes payable 830,246 930,246
Other current liabilities 120,000 137,715
Current liabilities associated with
assets held for sale 4,108,277 4,101,437
--------- ---------
Total current liabilities 21,241,982 20,416,058

Lines of credit and long-term debt,
net of current portion - 722,304
Capital lease obligations, net of
current portion 780,568 690,278
Other long-term liabilities 1,205,922 742,520
Non-current liabilities associated
with assets held for sale - 5,694
--- -----
Total liabilities 23,228,472 22,576,854

Commitments and contingencies (Note 9)

Stockholders' equity
Convertible preferred stock, Series B,
par value $1.00; authorized
21,105,000 shares; 21,103,955 shares
issued and outstanding 21,103,955 21,103,955
Common stock, par value $0.10;
authorized 1,900,000,000 shares;
15,165,586 shares issued and
outstanding 1,516,559 1,516,559
Additional paid-in capital 14,714,257 14,687,206
Accumulated deficit (35,221,055) (28,706,729)
Accumulated other comprehensive
income (loss), foreign currency
translation adjustments 143,052 (317,283)
------- --------
Total stockholders' equity 2,256,768 8,283,708
--------- ---------
$25,485,240 $30,860,562
=========== ===========

SOURCE BPO Management Services, Inc.

Patrick Dolan, Chairman & CEO of BPO Management Services, Inc.,
patrick.dolan@bpoms.com