Note 5 - Asset Purchase Acquisitions

Asset Purchase Acquisition - Igenti, Inc., February 1, 2010

On February 1, 2010, the Company entered into a Software Product Asset Purchase Agreement (the "Software Rights Agreement") with Igenti, Inc., a Florida corporation ("Igenti") to acquire the rights to Igenti's AutoHire software, domain names, permits, customers, contracts, know-how, equipment, software programs, receivables totaling approximately $10,000 and the intellectual property of Igenti associated therewith (the "AutoHire Software"). The Company did not purchase or assume any of Igenti's liabilities in connection with the Software Rights Agreement. The purchase price for the AutoHire Software was $170,000, of which $120,000 was paid in cash and $50,000 was paid in the form of a promissory note (the "Igenti Note"). The Igenti Note does not bear interest and is payable in monthly installments of $417 per month beginning on May 5, 2010, and ending on May 5, 2012 (the "Maturity Date"), at which time the remaining amount of the Igenti Note, $40,000 is due and payable. The payment of the Igenti Note is secured by all of the subscription agreements of customers relating to the AutoHire Software entered into prior to February 1, 2010. Igenti also guaranteed the Company that the Company will receive at least $173,700 (the "Guaranteed Amount") in subscription cash receipts from the AutoHire Software during the twelve month period after the sale ending on February 1, 2011. The guaranteed amount was received during the twelve month period. The balance of the Igenti note was $-0- as of December 31, 2011.

In connection with the Software Rights Agreement, the Company also entered into a Consulting Agreement and Non-Compete Agreement (the "Consulting Agreement") with the owner of Igenti, Jim McArdle. Pursuant to the Consulting Agreement, Epazz agreed to engage Mr. McArdle as a consultant in connection with the AutoHire Software for a period of six months following the closing of the Software Rights Agreement at the rate of $2,963 per month, and Mr. McArdle agreed to provide consulting services. We terminated the Consulting Agreement prior to the expiration of six months from the effective date of the Software Rights Agreement, pursuant to the terms therein.

Asset Purchase Acquisition - K9 Bytes, Inc., October 26, 2011

On October 26, 2011, we, through a newly-formed wholly-owned Illinois subsidiary, K9 Bytes, Inc. ("K9 Bytes"), entered into an Asset Purchase Contract and Receipt Agreement with K9 Bytes, Inc., a Florida corporation ("K9 Florida" and the "Purchase Contract"). Pursuant to the Purchase Contract, we purchased all of K9 Florida's assets, including all of its intellectual property, its business trade name, website (k9bytessoftware.com), furniture, fixtures, equipment and inventory, and goodwill in consideration for an aggregate of $205,000, of which $5,000 was paid in cash at the closing, $169,250 was financed using a small business loan and $30,750 was paid by way of a Balloon Installment Promissory Note (the "K9 Note"). We did not purchase and K9 Florida agreed to retain and be responsible for any and all liabilities of K9 Florida. We agreed to indemnify and hold K9 Florida harmless against, among other things, any claims and liability associated with the future operations of the assets purchased pursuant to the Purchase Contract and K9 Florida agreed to indemnify and hold us harmless against any misrepresentations made by K9 Florida in the Purchase Contract; any failure of K9 Florida to perform any required term or condition of the Purchase Contract and any debts or other obligations of K9 Florida not specifically assumed pursuant to the Purchase Contract in excess of $2,000.

K9 Bytes focuses on core application areas related to pet care: pet boarding, daycare, grooming, training, and other pet care services (including dog walking and pet sitting). K9 Bytes products also include retail inventory and point of sale capabilities; including credit and debit card processing, collar printers, digital signature tablets, and biometric/fingerprint identification hardware.

This acquisition was accounted for as a business combination under the purchase method of accounting, given that substantially all of the Company's assets and ongoing operations were acquired. The purchase resulted in $87,244 of goodwill. According to the purchase method of accounting, the Company recognized the identifiable assets acquired and liabilities assumed as follows:

	October 26,
	2011
Consideration:
Cash paid at closing	$	5,000
Small business loan(1)		169,250
Seller financed note payable(2)		30,750
Fair value of total consideration exchanged	$	205,000

Fair value of identifiable assets acquired assumed:
Accounts receivable	$	25,483
Inventories supplies		1,000
Equipment		1,273
Technology-based intangible assets		42,000
Customer base		11,000
Trade name		22,000
Non-compete agreement		15,000
Total fair value of assets assumed		117,756
Consideration paid in excess of fair value (Goodwill)(3)	$	87,244

(1)Consideration included partial proceeds obtained from a $235,000 Small Business Association ("SBA") loan, carrying a term of ten (10) years; maturing on October 26, 2021, bearing interest at the prime rate plus 2.75% per annum, adjusted quarterly; and payable in monthly installments (beginning in December 2011) of $2,609 per month. The loan is guaranteed by the Company and personally guaranteed by Shaun Passley, the Company's Chief Executive Officer; and is secured by all of the assets of K9 Bytes, Inc., the Illinois corporation and wholly-owned subsidiary formed to house the acquired assets and the Company, 100% of the outstanding capital of the K9 subsidiary, and a life insurance policy on Mr. Passley's life in the amount of $235,000.

(2)Consideration included an unsecured $30,750 seller financed note payable, bearing 6% per annum and is payable in monthly installments of $333 per month starting in November 2011 and ending on October 26, 2014, at which time the then remaining balance of the K9 Note is due ($23,017, assuming no additional payments other than those scheduled).

(3)The consideration paid in excess of the net fair value of assets acquired and liabilities assumed has been recognized as goodwill.

The K9 Note accrues interest at 6% per annum and is payable in monthly installments of $333 per month starting in November 2011 and ending on October 26, 2014, at which time the then remaining balance of the K9 Note ($23,017, assuming no additional payments other than those scheduled) is due. The repayment of the K9 Note is secured by all of the securities of K9 Bytes, which owns all of the assets purchased as a result of the Purchase Contract, provided that Third Party Lender, as a result of the SBA Loan described below, has a first priority security interest to such securities. The K9 Note is also personally guaranteed by Shaun Passley, our Chief Executive Officer.

We raised the funds paid to K9 Florida in connection with the Purchase Contract through a $235,000 Small Business Association loan obtained by K9 Sub from a loan from a third party lender (the "Third Party Lender" and the "SBA Loan"). The SBA Loan has a term of ten (10) years; bears interest at the prime rate plus 2.75% per annum (currently 6%), adjusted quarterly; is payable in monthly installments (beginning in December 2011) of $2,609 per month; is guaranteed by the Company and personally guaranteed by Shaun Passley, the Company's Chief Executive Officer; and is secured by all of the assets of K9 Sub and the Company, 100% of the outstanding capital of K9 Sub which is held by the Company, and a life insurance policy on Mr. Passley's life in the amount of $235,000. A total of approximately $10,000 of the amount borrowed under the SBA Loan was used to pay closing fees in connection with the loan, $169,250 was used to pay K9 Florida the cash amount due pursuant to the terms of the Purchase Contract and the remainder of such loan amount was made available for working capital for the Company and K9 Bytes.

K9 Florida agreed to subordinate the K9 Note to Third Party Lender's rights under the SBA Loan. Additionally, Mr. Passley agreed to subordinate the amount he is owed by the Company to the repayment of the SBA Loan.

In connection with the Purchase Contract, the owner of K9 Florida and the Company (through K9 Sub) entered into a Consulting Agreement, pursuant to which the owner of K9 Florida agreed to provide part-time consulting services to the Company for a period of four weeks following closing and provide additional consulting services as requested by the Company for up to an additional 30 days at the rate of $75 per hour. The owner of K9 Florida and the Company also entered into an Agreement Not to Compete, pursuant to which such owner agreed not to compete against the Company for three years and four weeks from the closing of the Purchase Contract.

The unaudited supplemental pro forma results of operations of the combined entity had the date of the acquisition been January 1, 2011 or January 1, 2010 are as follows:

	Combined Pro Forma:
	For the years ended
	December 31,
	2011			2010

Revenue:	$	939,982		$	1,090,981

Expenses:
Operating expenses		1,184,463			900,754

Net operating income (loss)		(244,481	)		190,227

Other income (expense)		(142,294	)		(43,260	)

Net income (loss)	$	(386,775	)	$	146,967

Weighted average number of common shares
Outstanding - basic and fully diluted		30,477,933			16,064,732

Net income (loss) per share - basic and fully diluted	$	(0.01	)	$	0.01

Management believes the product line of K9 Bytes, customer base and other assets acquired will enable the Company to enhance their business model and enable the Company to take advantage of opportunities in the competitive software development industry.