Note 3 - Correction of Errors

On April 13, 2012, Epazz, Inc. restated its Form 10-Q/A (the "First Amendment") to its Interim Report for the Interim period ended March 31, 2011, which was filed with the Securities and Exchange Commission ("SEC") on May 23, 2011 (the "Original Report") in response to certain issues set forth in our Quarterly Report on Form 10-Q filed with the SEC on November 22, 2010 (the "Form 10-Q"). The consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2010 and the Quarterly Reports on Form 10-Q for the three months ended March 31, 2011, the six months ended June 30, 2011 and nine months ended September 30, 2011 required restatement in order to correct errors related to the following (which reports have previously been restated):

The Company determined that it had not properly recorded the September 30, 2010 acquisition of its subsidiary, IntelliSys. Subsequently, the balance sheet has been adjusted to properly reflect the Goodwill that should have been recognized when the acquisition was initially recorded. Intangible assets, retained earnings and the Consolidated Statement of Operations have also been adjusted to correct related recording errors originally recorded at the time of the acquisition. The Company also determined that it had omitted accrued expenses that should have been recorded on the balance sheet dated March 31, 2011. Accounts payable and accrued expenses have been adjusted to correct this omission.

The Company also determined that it did not properly record stock issued in exchange for services rendered. Accordingly, the stock transaction, which was originally recorded to prepaid expense, has been reclassified to the Company's equity account.

The effect on the Company's previously issued March 31, 2011 financial statements are summarized as follows:

Balance Sheet as of March 31, 2011:

	As Originally
	Reported						As Restated
	March 31,						March 31,
	2011			Adjustments			2011
Assets							(Restated)
Current assets:
Cash	$	105,378		$	-		$	105,378
Accounts receivable, net		134,514			1			134,515
Deferred financing cost, current		2,955			-			2,955
Other current assets		8,852			-			8,252
Total current assets		251,699			1			251,700

Property and equipment, net		222,382			3,163			225,546
Intangible assets, net		400,544			155,368			555,912
Goodwill		-			53,588			53,588
Prepaid expense		1,000,000			(1,000,000	)		-

Total assets	$	1,874,626		$	(787,880	)	$	1,086,746


Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued liabilities	$	108,667		$	20,776		$	129,443
Deferred revenue		210,257			-			210,257
Current maturities of capital lease obligations payable		54,224			-			54,224
Current maturities of long term debt		81,607			-			81,607
Total current liabilities		454,755			20,776			475,531

Capital lease obligations payable, net of current maturities		52,295			-			52,295
Notes payable, related parties, net of current maturities		552,060			-			552,060
Long term debt, net of current maturities		257,675			-			257,675
Total liabilities		1,316,785			20,776			1,337,561

Stockholders' equity (deficit):
Common stock, Series A, $0.01 par value, 60,000,000 shares
authorized, 30,448,294 shares issued and outstanding		304,483			-			304,483
Common stock, Series B, $0.01 par value, 60,000,000 shares
authorized, 2,500,000 shares issued and outstanding		25,000			-			25,000
Additional paid in capital		2,268,360			-			2,268,360
Stockholders' receivable		-			(1,000,000	)		(1,000,000	)
Accumulated deficit		(2,040,002	)		191,344			(1,848,658	)
Total stockholders' equity (deficit)		557,841			(801,986	)		(250,815	)

Total liabilities and stockholders' equity (deficit)	$	1,874,626		$	(787,880	)	$	1,086,746

When the acquisition of Intellisys was originally recorded, it erroneously included pre-acquisition activity. An adjustment was made to correct this error in the most recently restated reports. On the March 31, 2011 Amended Report the following adjustments were made:

Statement of Operations as of March 31, 2011:

	As Originally
	Reported						As Restated
	March 31,						March 31,
	2011			Adjustments			2011
							(Restated)
Revenue	$	206,183		$	-		$	206,183

Expenses:
General and administrative		145,671			4			145,675
Depreciation and amortization		23,706			3,333			27,039
Total operating expenses		169,377			3,337			172,714

Net operating income		36,806			(3,337	)		33,469

Other income (expense):
Interest income		15			-			15
Interest expense		(10,937	)		-			(10,937	)
Total other income (expense)		(10,922	)		-			(10,922	)

Net income	$	26,884		$	(3,337	)	$	22,547

The following adjustments were made on the March 31, 2011 Restated Statement of Cash Flows:

	As Originally
	Reported						As Restated
	March 31,						March 31,
	2011			Adjustments			2011
							(Restated)
Cash flows from operating activities
Net income (loss)	$	25,884		$	(3,337	)	$	22,547
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization		23,706			3,337			27,043
Decrease (increase) in assets:
Accounts receivable		160,018			-			160,018
Increase (decrease) in liabilities:
Current liabilities and deferred revenues		(81,132	)		-			(81,132	)
Net cash provided by operating activities		128,476			-			128,476
Cash flows from financing activities
Proceeds from long term debt, related parties		37,265			-			37,265
Repayment of long term debt, related parties		(51,294	)		-			(51,294	)
Repayment of long term debt and capital leases		(49,082	)		-			(49,082	)
Net cash used in financing activities		(63,111	)		-			(63,111	)

Net increase (decrease) in cash		65,365			-			65,365
Cash - beginning		40,013			-			40,013
Cash - ending	$	105,378		$	-		$	105,378

Supplemental disclosures:
Interest paid	$	10,937		$	-		$	10,937
Income taxes paid	$	-		$	-		$	-