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 June 30, 2011, which was filed with the Securities and Exchange Commission ("SEC") on August 17, 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 June 30, 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 June 30, 2011 financial statements are summarized as follows:

Balance Sheet as of June 30, 2011:

	As Originally
	Reported						As Restated
	June 30,						June 30,
	2011			Adjustments			2011
Assets							(Restated)
Current assets:
Cash	$	89,858		$	600		$	90,458
Accounts receivable, net		201,950			-			201,950
Deferred financing cost, current		2,342			-			2,342
Other current assets		8,852			(600	)		8,252
Total current assets		303,002			-			303,002

Property and equipment, net		201,124			3,164			204,288
Intangible assets, net		355,178			190,001			545,179
Goodwill		253,588			(200,000	)		53,588
Prepaid expense		1,000,000			(1,000,000	)		-

Total assets	$	2,112,892		$	(996,836	)	$	1,106,057


Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued liabilities	$	116,151		$	443		$	116,594
Deferred revenue		204,928			-			204,928
Current maturities of capital lease obligations payable		50,641			-			50,641
Current maturities of long term debt		61,731			-			61,731
Total current liabilities		433,451			443			433,894

Capital lease obligations payable, net of current maturities		52,295			-			52,295
Notes payable, related parties, net of current maturities		558,017			-			558,017
Long term debt, net of current maturities		257,675			36,392			294,067
Total liabilities		1,301,438			36,835			1,338,273

Stockholders' equity (deficit):
Common stock, Class A, $0.01 par value, 60,000,000 shares
authorized, 30,448,294 shares issued and outstanding		304,483			-			304,483
Common stock, Class 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		(1,786,389	)		(43,670	)		(1,848,658	)
Total stockholders' equity (deficit)		(811,454	)		(1,043,670	)		(232,216	)

Total liabilities and stockholders' equity (deficit)	$	2,112,892		$	(1,006,835	)	$	1,106,057

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 June 30, 2011 Amended Report the following adjustments were made:

Statement of Operations for the three months ended June 30, 2011:

	As Originally
	Reported						As Restated
	June 30,						June 30,
	2011			Adjustments			2011
							(Restated)
Revenue	$	282,707		$	(47,000	)	$	235,707

Expenses:
General and administrative		180,798			(3,360	)		177,438
Depreciation and amortization		29,271			3,333			32,604
Total operating expenses		210,069			(27	)		210,042

Net operating income		72,638			(46,973	)		25,665

Other income (expense):
Interest income		12			-			12
Interest expense		(13,882	)		-			(13,882	)
Total other income (expense)		(13,870	)		-			(13,870	)

Net income	$	58,768		$	(46,973	)	$	11,795

Statement of Operations for the six months ended June 30, 2011:

	As Originally
	Reported						As Restated
	June 30,						June 30,
	2011			Adjustments			2011
							(Restated)
Revenue	$	487,129		$	(36,839	)	$	450,290

Expenses:
General and administrative		324,709			6,224			330,933
Depreciation and amortization		52,978			6,666			59,644
Total operating expenses		377,687			12,890			390,577

Net operating income		109,442			(49,729	)		59,713

Other income (expense):
Interest income		27			-			27
Interest expense		(24,820	)		6,226			(18,594	)
Total other income (expense)		(24,793	)		6,226			(18,567	)

Net income	$	84,649		$	(43,503	)	$	41,146

The following adjustments were made on the June 30, 2011 Restated Statement of Cash Flows:

	As Originally
	Reported						As Restated
	June 30,						June 30,
	2011			Adjustments			2011
							(Restated)
Cash flows from operating activities
Net income (loss)	$	84,647		$	(43,501	)	$	41,146
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization		52,978			5,374			58,352
Decrease (increase) in assets:
Accounts receivable		92,582			5			92,587
Increase (decrease) in liabilities:
Accounts payable		(37,787	)		-			(37,787	)
Accrued expenses		-			1,291			1,291
Deferred revenues		(61,963	)		-			(61,963	)
Net cash provided by operating activities		130,457			(36,831	)		93,626

Cash flows from financing activities
Proceeds on capital lease obligations payable		-			36,381			36,381
Payments on capital lease obligations payable		(72,541	)		-			(72,541	)
Proceeds from notes payable, related parties		66,530			-			66,530
Repayment of notes payable, related parties		(74,601	)		-			(74,601	)
Net cash used in financing activities		(80,612	)		36,381			(43,781	)

Net increase (decrease) in cash		49,845			-			49,845
Cash - beginning		40,013			600			40,613
Cash - ending	$	89,858		$	600		$	90,458

Supplemental disclosures:
Interest paid	$	13,882		$	-		$	13,882
Income taxes paid	$	-		$	-		$	-