19. Restatement

12 Months Ended

Dec. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

19. Restatement

The condensed consolidated financial statements contained in our Quarterly Report on Form 10-Q for the nine months ended September 30, 2014 requires restatement in order to correct errors related to the following:

The company determined that it had not properly accounted for the September 10, 2014 amendment to its articles of incorporation which affected the valuation of various classes of its common and preferred stock. This resulted in an understatement of the amounts recorded for stock based compensation in the third quarter of 2014. On September 10, 2014, an amendment to the corporation’s Articles of Incorporation was approved and accepted with respect to the Series B Preferred stock and Series C Preferred Stock. Per the amendment which was approved and adopted by the company’s board, the corporation shall not without first obtaining the approval, by written consent, as provided by law, of the holders of 2/3rds of the then outstanding shares of Series B Preferred stock or the Series C Preferred Stock, to increase or decrease, other than by redemption or conversion, the total number of authorized shares of the Series B Preferred stock or the Series C Preferred Stock, to effect an exchange, reclassification, or cancellation of all or a part of the Series B Preferred stock or the Series C Preferred Stock, but excluding a stock split, forward split or reverse stock split of the Corporation’s Common Stock, Series B Preferred stock or the Series C Preferred Stock, to effect an exchange, or create a right of exchange, of all or part of the shares of another class of shares into shares of Series B Preferred Stock or Series C Preferred stock, or to alter or change the rights, preferences or privileges of the shares of Series B Preferred Stock so as to affect adversely the shares of such series.

A valuation of the various classes of stock was performed by an independent third party to provide an estimated change in the fair value of each class affected by the amendment. The estimated change to the fair value of the various classes of stock is $721,207.

EPAZZ, INC.

CONSOLIDATED BALANCE SHEETS

	As Originally Reported						AS RESTATED
	September 30, 2014			Adjustments			September 30, 2014
Assets
Current assets:
Cash	$	71,963		$	–		$	71,963
Accounts receivable, net		256,617			–			256,617
Other current assets		131,392			–			131,392
Total current assets		459,972			–			459,972
Property and equipment, net		115,470			–			115,470
Intangible assets, net		451,391			–			451,391
Goodwill		1,355,361			–			1,355,361
Total assets	$	2,382,194		$	–		$	2,382,194
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Dividends payable	$	–		$	–		$	–
Accounts payable		339,540			–			339,540
Accrued expenses		213,022			–			213,022
Accrued expenses, related parties		–			–			–
Deferred revenue		592,408			–			592,408
Lines of credit		83,260			–			83,260
Current maturities of capital lease obligations payable		7,031			–			7,031
Current maturities of notes payable, related parties ($1,066,073 currently in default)		1,186,618			–			1,186,618
Convertible debts, net of discounts of $131,774 and $105,300, respectively ($60,674 currently in default)		152,275			–			152,275
Current maturities of long term debts		809,177			–			809,177
Derivative Liabilities		–			–			–
Total current liabilities		3,383,331			–			3,383,331
Notes payable, related parties		–			–			–
Convertible debts, net of discounts of $0 and $4,283, respectively		–			–			–
Long term debts, net of current maturities		911,467			–			911,467
Total liabilities		4,294,798			–			4,294,798
Stockholders' equity (deficit):
Convertible preferred stock, Series A, $0.0001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding		–			–			–
Convertible preferred stock, Series B, $0.0001 par value, 1,000 shares authorized, 1,000 shares issued and outstanding		–			–			–
Convertible preferred stock, Series C, $0.0001 par value, 3,000,000,000 shares authorized, 2,932,755,533 shares issued and outstanding		294,372			–			294,372
Common stock, Class A, $0.0001 par value, 9,000,000,000 shares authorized, 37,557,842 and 346,836 shares issued and outstanding, respectively		721,338			–			721,338
Convertible common stock, Class B, $0.0001 par value, 60,000,000 shares authorized, 23,000,000 and 10,500,000 shares issued and outstanding, respectively		2,300			–			2,300
Additional paid in capital		9,290,110			721,207			10,011,317
Stockholders' payable, consisting of 19,000,000 shares of Series C Convertible Preferred Stock and 28,875,000 shares of Class A Common Stock		–						–
Stockholders' receivable, consisting of -0- and 20,000,000 shares of Class A Common Stock, respectively		–			–			–
Accumulated deficit		(12,220,724	)		(721,207	)		(12,941,931	)
Total stockholders' equity (deficit)		(1,912,604	)		–			(1,912,604	)
Total liabilities and stockholders' equity (deficit)	$	2,382,194		$	–		$	2,382,194

EPAZZ, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ending September 30, 2014
	As Originally Reported			Adjustments			As RESTATED
Revenue	$	361,150		$	–		$	361,150
Expenses:
General and administrative		113,308			–			113,308
Salaries and wages		209,667			721,207			930,874
Depreciation and amortization		55,156			–			55,156
Bad debts (recoveries)		30,813			–			30,813
Total operating expenses		408,944			721,207			1,130,151
Net operating loss		(47,794	)		(721,207	)		(769,001	)
Other income (expense):
Interest Income		–			–			–
Interest expense		(194,583	)		–			(194,583	)
Loss on debt modifications, related parties		–			–			–
Other Income / (Expense)		19,251						19,251
Change in derivative liabilities		–			–			–
Total other income (expense)		(175,332	)		–			(175,332	)
Net loss	$	(223,126	)	$	(721,207	)	$	(944,333	)
Weighted average number of common shares outstanding - basic and fully diluted		7,052,068,854			7,052,068,854			7,052,068,854
Net loss per share - basic and fully diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)

EPAZZ, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Nine Months Ending September 30, 2014
	As Originally Reported			Adjustments			As RESTATED
Revenue	$	941,227		$	–		$	941,227
Expenses:
General and administrative		683,447			–			683,447
Salaries and wages		2,654,666			721,207			3,375,873
Depreciation and amortization		152,711			–			152,711
Bad debts (recoveries)		25,551			–			25,551
Total operating expenses		3,516,375			721,207			4,237,582
Net operating loss		(2,575,148	)		(721,207	)		(3,296,355	)
Other income (expense):
Interest income		55			–			55
Interest expense		(1,212,360	)		–			(1,212,360	)
Loss on debt modifications, related parties		(172,864	)		–			(172,864	)
Other Income / (Expense)		19,251						19,251
Change in derivative liabilities		(777,664	)		–			(777,664	)
Total other income (expense)		(2,143,582	)		–			(2,143,582	)
Net loss	$	(4,718,730	)	$	(721,207	)	$	(5,439,937	)
Weighted average number of common shares outstanding - basic and fully diluted		5,563,139,967			5,563,139,967			5,563,139,967
Net loss per share - basic and fully diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)

EPAZZ, INC.

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	As Originally Reported						As RESTATED
	September 30, 2014			Adjustments			September 30, 2014
Cash flows from operating activities
Net loss	$	(4,718,730	)	$	(721,207	)	$	(5,439,937	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debts (recoveries)		25,551			–			25,551
Depreciation and amortization		41,452			–			41,452
Impairment of intangible assets		111,259			–			111,259
Amortization of deferred financing costs		317,789			–			317,789
Amortization of discounts on convertible debts		495,683			–			495,683
Loss on debt modifications, related parties		172,864			–			172,864
Loss on default provisions of convertible debt		77,375			–			77,375
Change in fair market value of derivative liabilities		777,664			–			777,664
Stock based compensation issued for services		93,056			–			93,056
Stock based compensation issued for services, related parties		2,243,402			721,207			2,964,609
Decrease (increase) in assets:
Accounts receivable		1,130			–			1,130
Other current assets		48,035			–			48,035
Increase (decrease) in liabilities:								–
Accounts payable		(395,307	)		–			(395,307	)
Accrued expenses		81,049			–			81,049
Accrued expenses, related parties		57,450			–			57,450
Deferred revenues		270,277			–			270,277
Net cash provided by (used in) operating activities		(300,001	)		–			(300,001	)
Cash flows from investing activities
Cash acquired in merger		736			–			736
Purchase of equipment		(43,512	)		–			(43,512	)
Acquisition of subsidiaries		(582,945	)		–			(582,945	)
Net cash used in investing activities		(625,721	)		–			(625,721	)
Cash flows from financing activities
Payments on capital lease obligations payable		(10,392	)		–			(10,392	)
Proceeds from notes payable, related parties		774,524			–			774,524
Repayment of notes payable, related parties		(82,879	)		–			(82,879	)
Proceeds from convertible notes		–			–			–
Repayment of convertible notes		(1,500	)		–			(1,500	)
Proceeds from long term debts		582,206			–			582,206
Repayment of long term debts		(472,841	)		–			(472,841	)
Net cash provided by financing activities		789,118			–			789,118
Net increase (decrease) in cash		(136,604	)		–			(136,604	)
Cash - beginning		208,567			–			208,567
Cash - ending	$	71,963		$	–		$	71,963
Supplemental disclosures:
Interest paid		187,563			–			187,563
Income taxes paid		–			–			–
Non-cash investing and financing activities:
Acquisition of subsidiary in exchange for debt	$	611,988		$	–		$	611,988
Value of shares issued for conversion of debt	$	533,360		$	–		$	533,360
Value of shares issued for conversion of debt, related parties	$	112,183		$	–		$	112,183
Shares issued for dividend payable	$	11,000		$	–		$	11,000
Discount on derivatives	$	422,240		$	–		$	422,240
Beneficial conversion feature	$	35,028		$	–		$	35,028
Deferred financing costs	$	391,102		$	–		$	391,102
Value of derivative adjustment due to debt conversions	$	1,199,904		$	–		$	1,199,904
Dividends payable declared	$	–		$	–		$	–