10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

For the transition period from ____________ to ______________

Commission file number: 333-139117

EPAZZ, Inc.

(Exact name of registrant as specified in its charter)

Illinois	36-4313571
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

205 W. Wacker Drive. Suite 1320

Chicago, IL 60606

(Address of principal executive offices)

(312) 955-8161

(Registrant's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [_]

Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]	Accelerated filer [_]
Non-accelerated filer [_]	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

Yes [_] No [X]

The number of shares of the issuer’s Class A common stock outstanding as of September 29, 2014, was 7,213,383,508 shares, par value $0.0001 per share.

EPAZZ, INC.

FORM 10-Q

Quarterly Period Ended June 30, 2014

		Page
INDEX
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I. FINANCIAL INFORMATION		2
Item 1.	Financial Statements	2
	Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013	2
	Statements of Operations for the Three and Six Months ended June 30, 2014 and 2013 (Unaudited)	3
	Statements of Cash Flows for the Three and Six Months ended June 30, 2014 and 2013 (Unaudited)	4
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	58
PART II. OTHER INFORMATION		59
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61
SIGNATURES		63

1

EPAZZ, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2014			2013
Assets	(Unaudited)
Current assets:
Cash	$	101,871		$	208,567
Accounts receivable, net		71,762			25,248
Other current assets		65,396			106,114
Total current assets		239,029			339,929
Property and equipment, net		130,973			113,410
Intangible assets, net		476,418			374,162
Goodwill		1,149,041			255,460
Total assets	$	1,995,461		$	1,082,961
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Dividends payable	$	11,000		$	11,000
Accounts payable		312,005			258,163
Accrued expenses		55,193			45,298
Accrued expenses, related parties		47,681			28,741
Deferred revenue		496,510			322,130
Lines of credit		86,544			73,232
Current maturities of capital lease obligations payable		4,987			17,421
Current maturities of notes payable, related parties ($841,618 currently in default)		930,868			397,368
Convertible debts, net of discounts of $1,112 and $105,300, respectively ($119,275 currently in default)		151,163			115,128
Current maturities of long term debts		612,898			354,786
Total current liabilities		2,708,849			1,623,267
Capital lease obligations payable, net of current maturities		3,174			–
Notes payable, related parties		–			85,000
Convertible debts, net of discounts of $-0- and $4,283, respectively		–			42,166
Long term debts, net of current maturities		1,039,472			857,143
Total liabilities		3,751,495			2,607,576
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, 2,924,722,200 shares issued and outstanding at June 30, 2014		292,472			–
Common stock, Class A, $0.0001 par value, 6,000,000,000 shares authorized, 6,796,730,730 and 3,468,358,708 shares issued and outstanding, respectively		679,673			346,836
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			1,050
Additional paid in capital		9,240,766			6,429,493
Stockholders' payable, consisting of 19,000,000 shares of Series C Convertible Preferred Stock and 28,875,000 shares of Class A Common Stock at June 30, 2014		26,353			–
Stockholders' receivable, consisting of -0- and 20,000,000 shares of Class A Common Stock, respectively		–			(800,000	)
Accumulated deficit		(11,997,598	)		(7,501,994	)
Total stockholders' equity (deficit)		(1,756,034	)		(1,524,615	)
Total liabilities and stockholders' equity (deficit)	$	1,995,461		$	1,082,961

See accompanying notes to financial statements.

2

EPAZZ, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Revenue	$	327,525		$	279,119		$	580,077		$	487,129
Expenses:
General and administrative		278,446			166,403			570,139			287,634
Salaries and wages		108,502			1,555,081			2,444,999			1,771,234
Depreciation and amortization		51,398			67,385			97,555			144,160
Bad debts (recoveries)		(5,250	)		45			(5,262	)		(8,740	)
Total operating expenses		433,096			1,788,914			3,107,431			2,194,288
Net operating loss		(105,571	)		(1,509,795	)		(2,527,354	)		(1,707,159	)
Other income (expense):
Interest income		1			–			55			–
Interest expense		(501,712	)		(143,543	)		(1,017,777	)		(262,958	)
Loss on debt modifications, related parties		(172,864	)		(14,240	)		(172,864	)		(96,032	)
Change in derivative liabilities		15,915			–			(777,664	)		–
Total other income (expense)		(658,660	)		(157,783	)		(1,968,250	)		(358,990	)
Net loss	$	(764,231	)	$	(1,667,578	)	$	(4,495,604	)	$	(2,066,149	)
Weighted average number of common shares
outstanding - basic and fully diluted		5,939,090,272			2,045,979,796			4,783,826,881			1,666,897,778
Net loss per share - basic and fully diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

See accompanying notes to financial statements.

3

EPAZZ, INC.

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended
	June 30,
	2014			2013
Cash flows from operating activities
Net loss	$	(4,495,604	)	$	(2,066,149	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debts (recoveries)		(5,262	)		(8,740	)
Depreciation and amortization		25,949			56,837
Amortization of intangible assets		71,606			87,324
Amortization of deferred financing costs		233,277			19,905
Amortization of discounts on convertible debts		495,683			128,612
Loss on debt modifications, related parties		172,864			96,032
Loss on default provisions of convertible debt		77,375			–
Change in fair market value of derivative liabilities		777,664			–
Stock based compensation issued for services		37,500			–
Stock based compensation issued for services, related parties		2,243,402			1,522,000
Decrease (increase) in assets:
Accounts receivable		1,130			(29,759	)
Other current assets		42,835			1,743
Increase (decrease) in liabilities:
Accounts payable		44,656			41,662
Accrued expenses		20,085			(2,914	)
Accrued expenses, related parties		54,002			10,536
Deferred revenues		(74,059	)		(30,252	)
Net cash used in operating activities		(276,897	)		(173,163	)
Cash flows from investing activities
Cash acquired in merger		736			–
Purchase of equipment		(43,512	)		(1,697	)
Acquisition of subsidiaries		(482,945	)		–
Net cash used in investing activities		(525,721	)		(1,697	)
Cash flows from financing activities
Payments on capital lease obligations payable		(9,260	)		(9,713	)
Proceeds from notes payable, related parties		675,152			203,950
Repayment of notes payable, related parties		(82,879	)		(119,167	)
Proceeds from convertible notes		–			30,000
Repayment of convertible notes		(1,500	)		(27,500	)
Proceeds from long term debts		345,696			271,095
Repayment of long term debts		(231,287	)		(172,719	)
Net cash provided by financing activities		695,922			175,946
Net increase (decrease) in cash		(106,696	)		1,086
Cash - beginning		208,567			46,101
Cash - ending	$	101,871		$	47,187
Supplemental disclosures:
Interest paid	$	187,563		$	106,869
Income taxes paid	$	–		$	–
Non-cash investing and financing activities:
Acquisition of subsidiary in exchange for debt	$	312,000		$	–
Value of shares issued for conversion of debt	$	533,360		$	120,160
Value of shares issued for conversion of debt, related parties	$	112,183		$	100,239
Discount on beneficial conversion feature of convertible debt	$	35,028		$	33,000
Discount on derivatives	$	422,240		$	–
Deferred financing costs	$	235,394		$	32,076
Value of derivative adjustment due to debt conversions	$	1,199,904		$	–
Dividends payable declared	$	–		$	18,000

See accompanying notes to financial statements.

4

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation and Consolidation

The interim condensed consolidated financial statements of Epazz, Inc. (“Epazz” or the “Company”), an Illinois corporation, included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to not make the information presented misleading.

These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2013 and notes thereto included in the Company's 10-K annual report. The Company follows the same accounting policies in the preparation of interim reports.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the following entities, all of which are under common control and ownership:

	State of		Abbreviated
Name of Entity(2)	Incorporation	Relationship(1)	Reference
Epazz, Inc.	Illinois	Parent	Epazz
IntelliSys, Inc.	Wisconsin	Subsidiary	IntelliSys
Professional Resource Management, Inc.	Illinois	Subsidiary	PRMI
Desk Flex, Inc.	Illinois	Subsidiary	DFI
K9 Bytes, Inc.	Illinois	Subsidiary	K9 Bytes
MS Health, Inc.	Illinois	Subsidiary	MS Health
Terran Power, Inc.(5)	Illinois	Subsidiary	Terran
Telecorp Products, Inc.	Michigan	Subsidiary	Telecorp
Jadian, Inc.	Illinois	Subsidiary	Jadian
FlexFridge, Inc.(3)	Illinois	Subsidiary(4)	FlexFridge

______________

⁽¹⁾All subsidiaries, with the exception of FlexFridge, are wholly-owned subsidiaries.

⁽²⁾All entities are in the form of Corporations.

⁽³⁾Formerly Z Fridge, Inc. and Cooling Technology Solutions, Inc.

⁽⁴⁾FlexFridge, Inc. was spun-off on November 21, 2013, and distributed on a 1:10 basis to shareholders of record on September 15, 2013. Epazz has a controlling financial interest in FlexFridge. As such, FlexFridge is consolidated within these financial statements pursuant to Accounting Standards Codification (“ASC”) 810-10. There has been no material activity within FlexFridge to date.

⁽⁵⁾Entity formed for prospective purposes, but has not incurred any income or expenses to date.

The condensed consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. All significant inter-company transactions have been eliminated in the preparation of these financial statements. The parent company, Epazz and subsidiaries, IntelliSys, PRMI, DFI, K9 Bytes, MS Health, Terran, Telecorp, Jadian and FlexFridge will be collectively referred to herein as the “Company”, or “Epazz”. The Company's headquarters are located in Chicago, Illinois and substantially all of its customers are within the United States.

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.

Segment Reporting

FASB ASC 280-10-50 requires annual and interim reporting for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. All of the Company’s software products are considered operating segments, and will be aggregated into one reportable segment given the similarities in economic characteristics among the operations represented by the common nature of the products, customers and methods of distribution.

Reclassifications

Certain amounts in the financial statements of the prior year have been reclassified to conform to the presentation of the current year for comparative purposes.

5

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company had debt instruments that required fair value measurement on a recurring basis.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit of five to fifteen years. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No material impairments of intangible assets have been identified during any of the periods presented. Amortization expense on intangible assets totaled $71,606 and $87,324 for the six months ended June 30, 2014 and 2013, respectively.

Goodwill

The Company evaluates the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit's carrying amount, including goodwill. The fair value of the reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies' data. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. The Company's evaluation of goodwill completed during the year ended December 31, 2013 resulted in no impairment losses.

Beneficial Conversion Features

From time to time, the Company may issue convertible notes that may contain an imbedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

Derivative Liability

The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. We analyzed the derivative financial instruments (the Convertible Note and tainted Warrant), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

6

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Basic and Diluted Net Earnings per Share

Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. There were no outstanding potential common stock equivalents for the periods presented. As such, basic and diluted earnings per share resulted in the same figure for the six months ending June 30, 2014 and 2013.

Stock-Based Compensation

Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, are to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Common stock issued for services and compensation was $2,280,902 and $1,522,000 for the six months ended June 30, 2014 and 2013, respectively.

Revenue Recognition

The Company designs and sells various software programs to business enterprises including, among others, hospitals, pet stores, and Government and post-secondary institutions. Prior to shipment, each software product is tested extensively to meet Company specifications. The software is shipped fully functional via electronic delivery, but some installation and setup is required. No other entities sell the same or largely interchangeable software.

Installation is a standard process, outlined in the owner's manual, consisting principally of setup, calibrating, and testing the software. A purchaser of the software could complete the process using the information in the owner's manual, although it would probably take significantly longer than it would take the Company’s technicians to perform the tasks. Although other vendors do not install the Company’s software, they do provide largely interchangeable installation services for a fee. Historically, the Company has never sold the software without installation. Most installations are performed by the Company within 7 to 24 days of shipment and are included in the overall sales price of the software. In addition, the customer must pay for support contracts and training packages, depending on their desired level of service. The Company is the only manufacturer of the software and it only sells software on a standalone basis directly to the end user.

The sales price of the arrangement consists of the software, installation, and training and support services, which the customer is obligated to pay in full upon delivery of the software. In addition, there are no general rights of return involved in these arrangements. Therefore, the software is accounted for as a separate unit of accounting.

The Company does not have vendor-specific objective evidence of selling price for the software because it does not sell the software separately (without installation services and support contracts). In addition, third-party evidence of selling price does not exist as no vendor separately sells the same or largely interchangeable software. Therefore, the Company uses its best estimate of selling price when allocating such arrangement consideration.

In estimating its selling price for the software, the Company considers the cost to produce the software, profit margin for similar arrangements, customer demand, effect of competitors on the Company’s software, and other market constraints. When applying the relative selling price method, the Company uses its best estimate of selling price for the software, and third-party evidence of selling price for the installation. Accordingly, without considering whether any portion of the amount allocable to the software is contingent upon delivery of the other items, the Company allocates the selling price to the software, support, and installation.

The Company doesn’t currently provide product warranties, but if it does in the future it will provide for specific product lines and accrue for estimated future warranty costs in the period in which the revenue is recognized.

7

Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.

In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-10 is not expected to have a material impact on our financial position or results of operations.

Note 2 – Going Concern

As shown in the accompanying condensed consolidated financial statements, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $11,997,598, and as of June 30, 2014, the Company’s current liabilities exceeded its current assets by $2,469,820 and its total liabilities exceeded its total assets by $1,756,034. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 3 – Subsidiary Formation

Formation of Subsidiary – Terran Power, Inc., September 19, 2013

On September 19, 2013, the Board of Directors, consisting solely of Shaun Passley, Ph.D., the Company’s majority shareholder, approved the formation of a new wholly-owned subsidiary of the Company named Terran Power, Inc. The Company plans to file a non-provisional patent application to develop a mobile power device that allows iPhone and other smartphone users to power up their phone on the go without needing an outlet or a second battery, however, as of the date of this filing there has been no activity and, as such, there are no revenues or expenses.

8

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Subsidiary Formation – FlexFridge, Inc., March 4, 2013

On March 4, 2013, the Board of Directors of Epazz, Inc. (the “Company”), consisting solely of Shaun Passley, Ph.D., the Company’s majority shareholder, approved the formation of a new wholly-owned subsidiary of the Company named Cooling Technology Solutions, Inc., which was later renamed, Z Fridge, Inc., and ultimately again renamed as, FlexFridge, Inc. (“FlexFridge”) on May 29, 2014. The Company has filed a non-provisional patent application for its Project Flex product, which consists of a patent pending foldable mini-fridge. On November 21, 2013, the Company was spun off to shareholders of record on September 15, 2013, whereby shareholders of Epazz, Inc. received one (1) share of FlexFridge in exchange for each ten (10) shares held of Epazz, Inc. Epazz has a controlling financial interest in FlexFridge. As such, FlexFridge is consolidated within these financial statements pursuant to Accounting Standards Codification (“ASC”) 810-10. There has been no material activity within FlexFridge to date.

Note 4 – Mergers and Acquisitions

Zinergy (DBA) formerly Cynergy Software, Asset Purchase

On April 4, 2014, we closed on a March 13, 2014 Asset Purchase Agreement with Cynergy Corporation, an Oklahoma corporation (“Cynergy”). Pursuant to the Purchase Agreement, we purchased substantially all of the intangible assets and certain tangible assets used in connection with Cynergy’s help desk software business, including all of its intellectual property, its business trademarks and copyrights, equipment, computers, software, machinery and accounts receivable in consideration for an aggregate of $75,000, of which $25,000 was paid at the closing, $25,000 was paid within fifteen (15) days after the closing and the remaining $25,000 was paid within forty (40) days after the closing. We did not purchase and Cynergy agreed to retain and be responsible for any and all liabilities of Cynergy Corporation. The acquisition was financed in part with a software financing agreement. The financing agreement has a lien against the software assets of Zinergy.

Zinergy Service Desk Software is very customizable for business processes. Zinergy integrates with just about every other business tool available. Help Desk Support Software, Help Desk Ticketing Software, Customer Support Software, HRIS Ticketing Solution and much more.

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 $65,139 of goodwill. According to the purchase method of accounting, the Company recognized the identifiable assets acquired and liabilities assumed as follows:

	April 4,
	2014
Consideration:
Cash paid at, and prior to, closing	$	75,000
Fair value of identifiable assets acquired assumed:
Software	$	8,035
Trade name		1,826
Total fair value of assets assumed		9,861
Consideration paid in excess of fair value (Goodwill)(1)	$	65,139

_________

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

Management believes the product line of Cynergy, software and other assets acquired will enable the Company to enhance their business model and strengthen its future cash flows to fund operations and take advantage of additional growth opportunities.

Jadian Enterprises, Inc., Asset Purchase Agreement

On May 9, 2014, the Company, through a newly-formed wholly-owned Illinois subsidiary, Jadian Enterprises, Inc. (“Jadian Enterprises”), closed on an Asset Purchase Agreement (“APA”) with Jadian, Inc., a Michigan corporation (“Jadian”). Pursuant to the APA, we purchased substantially all of the intangible assets and certain tangible assets used in connection with Jadian’s software business, including all of its intellectual property, its business trademarks and copyrights, equipment, computers, software, machinery and accounts receivable in consideration for an aggregate of $425,000, of which $207,945 was paid at the closing, $7,055 was settled as a result of certain offsets, including an offset for $40,760 for prepaid maintenance contracts received by the seller prior to Closing, as diminished by a credit for Accounts Receivable of $33,705, and $210,000 was financed by way of a Promissory Note (the “Jadian Note”). The terms of the Jadian Note include interest at 6% per annum, a ten (10) year amortization, full right of offset, no payments of either principal or interest for thirty (30) days after Closing and equal payments of principal and interest commencing thereafter, no prepayment penalty, and a balloon payment consisting of full payment of all amounts due after three (3) years. The Jadian Note is secured by a lien on the assets of Jadian. We did not purchase and Jadian agreed to retain and be responsible for any and all liabilities of Jadian. We did not purchase and Jadian agreed to retain and be responsible for any and all liabilities of Jadian.

9

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company also agreed to provide the seller with additional earn-out rights in connection with the purchase, which provide that the seller will receive up to a maximum of $100,000 per year for the three twelve month periods following the Closing (any delinquent earn-out payment shall bear interest at the rate of 10% per annum until the delinquent amount is paid), based on the gross revenues generated by Jadian during such applicable year based on the following schedule (the “Earn-Out”):

Revenue for the Relevant Year	Earn-Out
$-0- to $500,000	$	–
$500,000 to $600,000	$	25,000
$600,000 to $700,000	$	50,000
$700,000 to $800,000	$	75,000
$800,000 or more	$	100,000

Provided that in no event shall the total amount payable to Jadian Enterprises in connection with the Earn-Out exceed $100,000 per year, or $300,000 in aggregate. Management has determined the probability of having to pay out any of these Earn-Out provisions as Medium and accordingly, has not recorded a contingent liability.

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 $399,865 of goodwill. According to the purchase method of accounting, the Company recognized the identifiable assets acquired and liabilities assumed as follows:

	May 9,
	2014
Consideration:
Cash paid at, and prior to, closing	$	215,000
Seller financed note payable(1)(2)		210,000
Adjustments to cash paid at closing(3)		(7,055	)
		417,945
Fair value of identifiable liabilities acquired:
Deferred revenue		86,423
Fair value of total consideration exchanged	$	504,368
Fair value of identifiable assets acquired assumed:
Accounts receivable	$	42,382
Software		37,180
Trade name		24,941
Total fair value of assets assumed		104,503
Consideration paid in excess of fair value (Goodwill)(4)	$	399,865

⁽¹⁾Consideration included an unsecured $210,000 seller financed note payable (“Jadian Note”), which bears interest at 6% per annum until the maturity date of May 9, 2017, and provides for equal monthly principal and interest payments of $6,389 commencing on June 1, 2014. The Jadian Note includes a balloon payment, consisting of the remaining outstanding balance of principal and interest upon maturity at May 9, 2017. The interest rate shall be 8% per annum with an additional 5% late payment fee upon default.

⁽²⁾The fair value of the seller financed note in excess of the $210,000 principal balance attributable to the deferred payment terms will be amortized to interest expense over the deferred financing period.

⁽³⁾The Company agreed to adjust the purchase price in connection with the Closing by paying an additional $33,705 for the accounts receivable acquired, less $40,760 attributable to deferred revenues recognized on previously collected sales for which services are still pending. The net total of $7,055 was credited as payment at the Closing.

⁽⁴⁾The consideration paid in excess of the net fair value of assets acquired and liabilities assumed has been recognized as goodwill.

10

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Management believes the product line of Jadian, software and other assets acquired will enable the Company to enhance their business model and strengthen its future cash flows to fund operations and take advantage of additional growth opportunities.

The unaudited supplemental pro forma results of operations of the combined entities had the dates of the acquisitions been January 1, 2014 or January 1, 2013 are as follows:

	Combined Pro Forma:
	For the six months ended June 30,
	2014			2013
Revenue:	$	748,952		$	745,071
Expenses:
Operating expenses		3,249,648			2,440,624
Net operating income (loss)		(2,500,696	)		(1,695,553	)
Other income (expense)		(1,972,184	)		(366,946	)
Net income (loss)	$	(4,472,880	)	$	(2,062,499	)
Weighted average number of common shares
Outstanding – basic and fully diluted		4,783,826,881			1,666,897,778
Net income (loss) per share – basic and fully diluted	$	(0.00	)	$	(0.00	)

Stock Purchase Acquisition – Telecorp Products, Inc., February 28, 2014

On February 28, 2014, the Company entered into a Stock Purchase Agreement (the “Telecorp Purchase Agreement”) with Troy Holdings International, Inc., an Ontario Canada corporation (“Troy Holdings”), Telecorp Products, Inc. a Michigan corporation and Troy, Inc., a shareholder and the sole stockholder of Telecorp. Pursuant to the Telecorp Purchase Agreement, the Company purchased 100% of the outstanding shares of Telecorp from Troy Holdings, for an aggregate purchase price of $302,000 (the “Purchase Price”). The Purchase Price was payable as follows:

(a)

The Company paid Troy Holdings $200,000 at the Closing (the “Cash Consideration”) of the Telecorp Purchase Agreement; and

(b)

The Company provided Troy Holdings with a Promissory Note in the amount of $102,000 (the “Telecorp Note”), as adjusted from an original $120,000 by $18,000 of liabilities acquired in excess of the agreed upon limit of $50,000 of liabilities, which provides for six (6) equal monthly payments of $20,000 commencing thirty (30) days after the Closing. The Telecorp Note is non-interest bearing except upon default, in which case the interest rate shall be 10% per annum.

Additionally, the Company agreed to assume aggregate outstanding Telecorp liabilities of up to $50,000 in connection with the Closing. A total of $68,000 of liabilities was actually acquired, and the resulting $18,000 of excess liabilities was credited as payment against the Telecorp Note. As a result of the Closing, Telecorp became a wholly-owned subsidiary of the Company.

Telecorp developed and sells software to effectively operate contact centers. Telecorp’s solutions work with equipment from the giants of the computer telephony industry, such as Avaya, Cisco and Nortel Networks. In connection with the Stock Purchase Agreement, the shareholders of Telecorp and the Company entered into a Non-Disclosure/Non-Compete Agreement, pursuant to which the shareholders of Telecorp and the Company, each agreed to not for a period of one (1) year, communicate or divulge to, or use for the benefit of itself or any other person, firm, association or corporation, any information in any way relating to the Proprietary Property, in competition with the business of the Company, and pursuant to the agreement, the shareholders of Telecorp agreed not to compete against the Company for one (1) year from the closing of the acquisition.

11

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 $428,577 of goodwill. According to the purchase method of accounting, the Company recognized the identifiable assets acquired and liabilities assumed as follows:

	February 28,
	2014
Consideration:
Cash paid at, and prior to, closing	$	200,000
Seller financed note payable(1)(2)		120,000
Excess liability adjustment to seller financed note payable(3)		(18,000	)
		302,000
Fair value of identifiable liabilities acquired:
Accounts payable and accrued expenses		43,500
Deferred revenue		162,016
Line of credit		24,500
Fair value of total consideration exchanged	$	532,016
Fair value of identifiable assets acquired assumed:
Cash	$	736
Other current assets		823
Technology-based intangible assets		72,490
Trade name		29,390
Total fair value of assets assumed		103,439
Consideration paid in excess of fair value (Goodwill)(4)	$	428,577

⁽¹⁾Consideration included an unsecured $120,000 seller financed note payable (“Telecorp Note”), which provides for six (6) equal monthly payments of $20,000 commencing thirty (30) days after the Closing. The Telecorp Note is non-interest bearing except upon default, in which case the interest rate shall be 10% per annum.

⁽²⁾The fair value of the seller financed note in excess of the $102,000 principal balance attributable to the deferred payment terms will be amortized to interest expense over the deferred financing period.

⁽³⁾The Company agreed to assume aggregate outstanding Telecorp liabilities of up to $50,000 in connection with the Closing. A total of $68,000 of liabilities was actually acquired, and the resulting $18,000 of excess liabilities was credited as payment against the Telecorp Note.

⁽⁴⁾The consideration paid in excess of the net fair value of assets acquired and liabilities assumed has been recognized as goodwill.

Management believes the product line of Telecorp, customer base and other assets acquired will enable the Company to enhance their business model and strengthen its future cash flows to fund operations and take advantage of additional growth opportunities.

12

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The unaudited supplemental pro forma results of operations of the combined entities had the dates of the acquisitions been January 1, 2014 or January 1, 2013 are as follows:

		Combined pro Forma:
		For the six months ended June 30,
		2014		2013
Revenue:		$	668,780	$	775,668
Expenses:
	Operating expenses		3,190,846		2,550,029
Net operating income (loss)			(2,522,066)		(1,774,361)
	Other income (expense)		(1,968,126)		(359,687)
Net income (loss)		$	(4,490,192)	$	(2,134,048)
Weighted average number of common shares
	Outstanding – basic and fully diluted		4,783,826,881		1,666,897,778
Net income (loss) per share – basic and fully diluted		$	(0.00)	$	(0.00)

Note 5 – Related Parties

Debt Financings

From time to time we have received and repaid loans from our CEO and his immediate family members to fund operations. These related party debts are fully disclosed in Note 13 below.

In addition to the debts disclosed in Note 13, we had a convertible note with a related party that is disclosed in Note 14 as follows:

	June 30, 2014		December 31, 2013
Originated April 2, 2014, an unsecured $51,000 convertible promissory note, carried a 15% interest rate, matured on August 1, 2014, (“First Vivienne Passley Note”) owed to Vivienne Passley, a related party. The convertible promissory note was issued in exchange for a promissory note originally issued on August 12, 2013 to the same debt holder, which did not carry conversion terms. The principal and accrued interest was convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.0001 per share. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The debt modification resulted in a loss on debt modifications, related party of $172,864. The assigned principal of $51,000, interest of $4,933 and liquidated damages incurred prior to assignment of $2,500 was subsequently converted to a total of 584,333,745 shares of common stock over various dates from April 2, 2014 to June 17, 2014 in complete satisfaction of the debt.	$	–	$	–

13

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Unsecured $440,849 convertible promissory note due to a related party, carries a 10% interest rate (“Star Convertible Note”), matures on July 2, 2017. The principal and unpaid interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 75% of the average closing price of the Company’s common stock over the five (5) consecutive trading days immediately preceding the date of conversion, or the fixed price of $0.005 per share, whichever is greater. The note carries a fourteen percent (14%) interest rate in the event of default, and the debt holder is limited to owning 9.99% of the Company’s issued and outstanding shares. This note was subsequently amended on March 5, 2013 to change the conversion price to, "equal to the greater of, (a) 50% of the Market Price, or (b) the fixed conversion price of $0.00075 per share". The modification resulted in a loss on debt modification of $81,792. The note holder converted $250,000 of outstanding principal into 50,000,000 shares pursuant to debt conversion on September 15, 2012, $46,000 into 50,000,000 shares pursuant to debt conversion on March 14, 2013, $40,000 into 50,000,000 shares pursuant to debt conversion on April 10, 2013, $26,400 into 80,000,000 shares pursuant to debt conversion on July 9, 2013 and $32,000 into 40,000,000 shares pursuant to debt conversion on August 7, 2013, $18,750 into 125,000,000 shares pursuant to debt conversion on April 7, 2014, $20,000 into 200,000,000 shares pursuant to debt conversion on May 3, 2014, and $15,000, consisting of $7,699 of principal and $7,301 of interest into 150,000,000 shares pursuant to the final debt conversion on May 22, 2014.		–		46,449
Total convertible debts, related parties		–		46,449
Less: unamortized discount on beneficial conversion feature		–		(5,653	)
Convertible debts		–		40,796
Less: current maturities of convertible debts, related parties included in convertible debts		–		–
Long term convertible debts, related parties included in convertible debts	$	–	$	40,796

Changes in Stockholders’ Equity, Related Parties

Dividends Payable

On January 1, 2013, the Company declared and accrued dividends quarterly on its Convertible Series B Preferred Stock pursuant to the recognition of revenues in excess of $1 million during the year ended December 31, 2012. Dividends equal to 1.5% of the Company’s revenues per quarter during the year ending December 31, 2013 accrue quarterly, resulting in a dividend payable of $11,000, which was subsequently paid on September 11, 2014, with the issuance of 110,000,000 shares of Class A Common Stock in lieu of cash.

Shares of Convertible Series C Preferred Stock Issued for Services to Related Parties

On January 17, 2014, the Company issued 600,000,000 shares of the recently designated Series C Convertible Preferred Stock to the Company’s CEO in exchange for 600,000,000 shares of his previously issued Class A Common Stock. The total fair value of the Series C Convertible Preferred Stock was $568,283 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $345,427 due to the difference in the fair value of the Class A Common Stock exchanged.

On February 7, 2014, the Company issued 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $26,000 short term promissory note. The total fair value of the common stock was $2,385 based on an independent valuation on the date of grant.

On February 21, 2014, the Company issued 10,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $75,000 short term promissory note. The total fair value of the common stock was $9,562 based on an independent valuation on the date of grant.

On February 22, 2014, the Company issued 15,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $100,000 short term promissory note. The total fair value of the common stock was $14,266 based on an independent valuation on the date of grant.

On March 7, 2014, the Company issued 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $30,000 short term promissory note. The total fair value of the common stock was $2,912 based on an independent valuation on the date of grant.

14

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On March 22, 2014, the Company issued 200,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, for providing a personal guaranty on an acquisition loan. The total fair value of the common stock was $127,746 based on an independent valuation on the date of grant.

On March 22, 2014, the Company issued 200,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, for providing a personal guaranty on an acquisition loan. The total fair value of the common stock was $127,746 based on an independent valuation on the date of grant.

On March 22, 2014, the Company issued 1,821,052,632 shares of the Series C Convertible Preferred Stock to the Company’s CEO in exchange for 1,821,052,632 shares, consisting of 1,730,526,316 previously issued and unvested shares of Class A Common Stock and 90,526,316 shares of his previously issued and vested Class A Common Stock. The vesting terms were accelerated commensurate with the exchange. The total fair value of the Series C Convertible Preferred Stock was $1,163,162 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $707,025 due to the difference in the fair value of the Class A Common Stock exchanged.

On March 22, 2014, the Company issued 13,669,568 shares of the Series C Convertible Preferred Stock to L&F Lawn Services, a company owned by our CEO’s family member, a related party, in exchange for 13,669,568 of their previously issued Class A Common Stock. The total fair value of the Series C Convertible Preferred Stock was $8,731 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $5,370 due to the difference in the fair value of the Class A Common Stock exchanged.

On March 22, 2014, the Company issued 60,000,000 shares of the Series C Convertible Preferred Stock to the Company’s CEO in exchange for 60,000,000 shares, consisting of 54,000,000 previously issued and unvested shares of Class A Common Stock and 6,000,000 shares of his previously issued and vested Class A Common Stock. The vesting terms were accelerated commensurate with the exchange. The total fair value of the Series C Convertible Preferred Stock was $38,324 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $23,295 due to the difference in the fair value of the Class A Common Stock exchanged.

Debt Conversions into Class A Common Stock – Related Parties

On April 2, 2014, the Company issued 250,000,000 shares of Class A Common Stock pursuant to the conversion of $25,000 of convertible debt held by Vivienne Passley, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 7, 2014, the Company issued 125,000,000 shares of Class A Common Stock pursuant to the conversion of $18,750 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 3, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 22, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On June 17, 2014, the Company issued 334,333,745 shares of Class A Common Stock pursuant to the conversion of $33,433 of convertible debt held by Vivienne Passley, a related party, which consisted of $26,000 of principal, $4,933 of interest and $2,500 of liquidated damages. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

Convertible Class B Common Stock Issuance for Services

On March 22, 2014, the Company issued 12,500,000 shares of Convertible Class B Common Stock to the Company’s CEO in consideration for providing services. The total fair value of the common stock was $44,737 based on the closing price of the Company’s common stock on the date of grant.

Subscriptions Payable Issued for Shares of Class A Common Stock Granted for Services

On April 23, 2014, the Company granted 3,500,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $35,000 short term promissory note. The total fair value of the common stock was $1,050 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

15

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On April 24, 2014, the Company granted 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $150,000 short term promissory note. The total fair value of the common stock was $3,000 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On May 7, 2014, the Company granted 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $125,000 short term promissory note. The total fair value of the common stock was $2,000 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On May 28, 2014, the Company granted 3,250,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $32,500 short term promissory note. The total fair value of the common stock was $650 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On June 12, 2014, the Company granted 2,125,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $5,000 short term promissory note. The total fair value of the common stock was $213 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

Subscriptions Payable Issued for Shares of Convertible Series C Preferred Stock Granted for Services

On January 15, 2014, the Company granted 5,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $43,000 short term promissory note. The total fair value of the common stock was $6,465 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On February 8, 2014, the Company granted 1,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $13,000 short term promissory note. The total fair value of the common stock was $1,193 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 7, 2014, the Company granted 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $22,000 short term promissory note. The total fair value of the common stock was $1,942 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 26, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $37,500 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 26, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 28, 2014, the Company granted 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $18,750 short term promissory note. The total fair value of the common stock was $1,594 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 28, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,390 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

Equity Based Debt Settlement Financing, Conversions into Class A Common Stock – IBC Funds, LLC

On February 14, 2014, IBC Funds, LLC (“IBC”) filed a Joint Motion for Approval of Settlement Agreement and Stipulation, and Request for Fairness Hearing in the Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County, Florida, Case No. 2014-CA-000899. IBC has contracted with various note holders of the Company to acquire approximately $314,021 of Company debt and subsequently converted the debt to common stock of the Company at 50% of the lowest trading price over the 15 days prior to, and including the conversion request date pursuant to Section 3(a)(10) of the Securities Act of 1933, which allows the exchange of claims, securities, or property for stock when the arrangement is approved for fairness by a court proceeding. In addition, the Company agreed to issue 75,000,000 settlement shares to IBC. The Company has agreed to these terms as the acquisition of these debts and subsequent conversion would alleviate a significant portion of the Company’s liabilities. A fairness hearing was held on February 14, 2014 and the arrangement was approved. A total of 3,040,823,600 shares of Class A Common Stock was issued, in addition to the 75,000,000 settlement shares, in complete satisfaction of the debt, as disclosed in detail below.

16

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Employment Agreement

On September 6, 2012, we entered into an employment agreement with Shaun Passley, Ph.D., our Chief Executive Officer, President, and Chairman of the Board of Directors which had a term of ten (10) years. Compensation pursuant to the agreement calls for a base salary of $180,000 per year; of which $30,000 shall be payable annually in cash and $150,000 shall be payable in shares of the Company’s Common Stock at the rate of $0.006 per share, or 25,000,000 shares per year. In addition, the Company issued 1 billion shares of Class A Common Stock to the Company’s CEO as a bonus in consideration for various services performed, and to be performed over a ten year period beginning on September 6, 2012, provided that all of the shares remain subject to forfeiture until such time, if ever, as we generate annual revenues of at least $10 million, subject to the below termination provisions. The total fair value of the common stock was $6,000,000 based on the closing price of the Company’s common stock on the date of grant, which has been presented as a deduction against additional paid in capital in the equity section of the balance sheet until the terms of the vesting periods are satisfied. The vesting restrictions were subsequently lifted on March 22, 2014 pursuant to the exchange of these shares for Convertible Series C Preferred shares. In the event of the termination of Dr. Passley’s employment agreement for cause by the Company or without good reason by Dr. Passley, any non-vested shares are to be cancelled and he is to be paid any consideration he is owed through the date of termination. In the event of the termination of Dr. Passley’s employment agreement for good reason (as described in the agreement) by Dr. Passley or without cause by the Company, he is due eight additional weeks of compensation and all non-vested shares vest to him immediately. In the event of the termination of Dr. Passley’s employment agreement for any other reason, he is due eight weeks of additional salary and any non-vested shares are to be cancelled.

We do not have an employment or consultant agreement with Craig Passley, our Secretary, however on March 20, 2013, we granted 60 million shares to Craig Passley for services rendered between 2012 and 2021. The shares vest annually over the 10 year period with the first 6 million vesting upon the grant date. The vesting restrictions were subsequently lifted on March 22, 2014 pursuant to the exchange of these shares for Convertible Series C Preferred shares.

Amendments to Employment Agreement

On August 16, 2013, the Company amended Shaun Passley, Ph.D.’s employment agreement to increase the cash portion of his compensation from $30,000 per year to $100,000 in the initial year of the agreement only. All other terms remain in effect, and the shares of stock awarded as a bonus as previously disclosed were granted in addition to the stock based compensation outlined in the original agreement.

Note 6 – Fair Value of Financial Instruments

Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

The Company does not have any financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

17

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following schedule summarizes the valuation of financial instruments at fair value on a non-recurring basis in the balance sheets as of June 30, 2014 and December 31, 2013:

	Fair Value Measurements at June 30, 2014
	Level 1		Level 2			Level 3
Assets
Cash	$	101,871	$	–		$	–
Intangible assets		–		–			476,418
Goodwill		–		–			1,149,041
Total assets		101,871		–			1,625,459
Liabilities
Lines of credit		–		86,544			–
Capital leases		–		8,161			–
Notes payable, related parties		–		930,868			–
Convertible debts, net of discount of $1,112		–		151,163			–
Long term debts, including current maturities		–		1,652,370			–
Total Liabilities		–		2,829,106			–
	$	101,871	$	(2,829,106	)	$	1,625,459

	Fair Value Measurements at December 31, 2013
	Level 1		Level 2			Level 3
Assets
Cash	$	208,567	$	–		$	–
Intangible assets		–		–			374,162
Goodwill		–		–			255,460
Total assets		208,567		–			629,622
Liabilities
Lines of credit		–		73,232			–
Capital leases		–		17,421			–
Long term debts		–		1,211,929			–
Notes payable, related parties		–		482,368			–
Convertible debts, net of discount of $109,583		–		157,294			–
Total Liabilities		–		1,942,244			–
	$	208,567	$	(1,942,244	)	$	629,622

There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the six months ended June 30, 2014 and the year ended December 31, 2013.

Level 2 liabilities consist of various debt arrangements, and Level 3 assets consist of intangible assets and goodwill. Fair value adjustments related to the measurement of intangible assets of $-0- and $276,282 were necessary during the six months ended June 30, 2014 and December 31, 2013, respectively.

Note 7 – Other Current Assets

As of June 30, 2014 and December 31, 2013, other current assets included the following:

	June 30,		December 31,
	2014		2013
Deferred financing costs	$	47,980	$	44,986
Other receivable		38		51,250
Security deposits		17,378		9,878
	$	65,396	$	106,114

The Company recognized $233,277 and $19,905 of amortization expense related to the deferred financing costs during the six months ended June 30, 2014 and 2013, respectively.

18

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8 – Property and Equipment

Property and Equipment consists of the following at June 30, 2014 and December 31, 2013, respectively:

	June 30,			December 31,
	2014			2013
Furniture and fixtures	$	23,279		$	2,187
Computers and equipment		182,074			325,105
Software		15,660			67,986
Assets held under capital leases		17,855			134,800
		238,868			530,078
Less accumulated depreciation and amortization		(107,895	)		(416,668	)
	$	130,973		$	113,410

Depreciation and amortization expense totaled $25,949 and $56,837 for the six months ended June 30, 2014 and 2013, respectively.

A total of $334,722 of fully depreciated assets no longer in service was disposed of on March 31, 2014. No proceeds were received on disposal, resulting in no gain or loss on disposal during the six months ending June 30, 2014.

Note 9 – Intangible Assets

Intangible assets consisted of the following at June 30, 2014 and December 31, 2013, respectively:

	Useful		June 30,			December 31,
Description	Life		2014			2013
Technology-based intangible assets - IntelliSys		5 Years	$	200,000		$	200,000
Technology-based intangible assets - K9 Bytes		5 Years		42,000			42,000
Technology-based intangible assets – MS Health		5 Years		124,000			124,000
Technology-based intangible assets – Telecorp		5 Years		72,490			–
Technology-based intangible assets – Cynergy		5 Years		8,035			–
Technology-based intangible assets – Jadian		5 Years		37,180			–
Contracts – MS Health		6 Years		258,000			258,000
Trade name - K9 Bytes		5 Years		22,000			22,000
Trade name - Telecorp		5 Years		29,390			–
Trade name - Cynergy		5 Years		1,826			–
Trade name - Jadian		5 Years		24,941			–
Other intangible assets – MS Health		2 Years		18,000			18,000
Other intangible assets - K9 Bytes		2 Years		26,000			26,000
Total intangible assets				863,862			690,000
Less: accumulated amortization				(387,444	)		(315,838	)
Intangible assets, net			$	476,418		$	374,162

Amortization expense on intangible assets totaled $71,606 and $87,324 for the six months ended June 30, 2014 and 2013, respectively.

Note 10 – Convertible Settlement

On February 14, 2014, the Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County, Florida approved the February 12, 2014, Settlement Agreement, entered into between the Company and IBC Funds, LLC (“IBC”) whereby a total of $314,021 of outstanding debts that were acquired by IBC from various creditors, including $288,071 of outstanding debts previously owed to related parties was sold and assigned to IBC. In satisfaction of the outstanding debts acquired by IBC, we agreed to issue IBC shares of our common stock at a 50% discount to the lowest trading price during the fifteen (15) trading days preceding the share request (“Settlement Shares”) in various tranches in an aggregate amount equal to the claim amount of $314,021 until such time as the debts were satisfied. A total of 3,040,823,600 Settlement Shares were subsequently issued pursuant to the Settlement Agreement, in addition to 75,000,000 shares that were issued in consideration pursuant to the settlement agreement. IBC is precluded from owning more than 9.99% of the Company’s common stock in aggregate at any given time. The net proceeds, less the 50% discount retained by IBC, received from the sale of the Settlement Shares in the market were used to satisfy the Company’s outstanding obligations that were acquired by IBC. The convertible settlements liability was fully converted as of June 30, 2014.

19

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 11 – Lines of Credit

Lines of credit consisted of the following at June 30, 2014 and December 31, 2013, respectively:

	June 30,			December 31,
	2014			2013
Line of credit of $50,000 from PNC bank, originating on February 16, 2012. The outstanding balance on the line of credit bears interest at an introductory rate of 4.25% for the first year, subject to renewal thereafter. Payments of $739 are due monthly.	$	49,908		$	49,508
Line of credit of $20,000 from US Bank, originating on June 8, 2012. The outstanding balance on the line of credit bears interest at 9.75%, maturing on June 5, 2019. Payments of $500 are due monthly.		16,351			18,087
Line of credit of $40,000 from Dell Business Credit available for the purchase of Dell products, such as computer and software equipment. The outstanding balance on the line of credit bears interest at a rate of 26.99%. Variable payments are due monthly.		–			5,637
Line of credit of $25,000 from Bank of America. The outstanding balance on the line of credit bears interest at a rate of 4.25%. Variable payments are due monthly. A total of $24,500 was acquired with the acquisition of Telecorp.		20,285			–
Total line of credit		86,544			73,232
Less: current portion		(86,544	)		(73,232	)
Line of credit, less current portion	$	–		$	–

Note 12 – Capital Lease Obligations Payable

The Company leases certain equipment under agreements that are classified as capital leases as follows:

Lease #1 - Commenced on March 12, 2010 with monthly lease payments of $2,455 and two months paid in advance, and the remaining payments paid over the following 46 months.

Lease #2 – Commenced on January 12, 2012 with monthly lease payments of $480 over the next 48 months, and a bargain purchase price of $1 at the end of the lease.

The cost of equipment under capital leases is included in the Balance Sheets as property and equipment and was $17,855 and $134,800 at June 30, 2014 and December 31, 2013, respectively. Accumulated amortization of the leased equipment was $8,928 and $116,292 at June 30, 2014 and 2013, respectively. Amortization of assets under capital leases is included in depreciation and amortization expense.

The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of June 30, 2014, are as follows:

Twelve Months
Ending
June 30,	Amount
2015	$	5,757
2016		3,311
Total minimum payments	$	9,068
Less: amount representing interest		(907	)
Present value of net minimum lease payments		8,161
Less: Current maturities of capital lease obligations		(4,987	)
Long-term capital lease obligations	$	3,174

20

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 13 – Notes Payable, Related Parties

Notes payable, related parties consist of the following at June 30, 2014 and December 31, 2013, respectively:

	June 30,		December 31,
	2014		2013
On various dates, the Company’s CEO advanced and repaid short term loans to the Company. A total of $77,879 and $209,380 was advanced and repaid during the six months ending June 30, 2014 and the year ending December 31, 2013, respectively.	$	–	$	–
Originated June 30, 2014, an unsecured $20,000 promissory note payable, including a $3,500 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on December 30, 2014. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.		20,000		–
Originated June 12, 2014, an unsecured $21,250 promissory note payable, including a $4,250 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on October 12, 2014. In addition, a loan origination fee consisting of 2,125,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.		21,250		–
Originated June 3, 2014, an unsecured $5,000 promissory note payable, including a $1,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carried a 15% interest rate, matures on December 3, 2014. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.		5,000		–
Originated June 3, 2014, a $25,000 unsecured promissory note payable, including a $4,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carried a 15% interest rate, matures on December 3, 2014. The note also carries a liquidated damages fee of $1,000 upon default, which was amended and removed on September 19, 2014.		25,000		–
Originated May 28, 2014, an unsecured $32,500 promissory note payable, including a $7,500 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on September 28, 2014. In addition, a loan origination fee consisting of 3,250,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.		32,500		–
Originated May 7, 2014, a $125,000 unsecured promissory note payable, including a $25,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on August 7, 2014. In addition, a loan origination fee consisting of 10,000,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $12,500 upon default, which was amended and removed on September 19, 2014.		125,000		–
Originated April 24, 2014, a $150,000 unsecured promissory note payable, including a $30,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on June 26, 2014. In addition, a loan origination fee consisting of 10,000,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $10,000 upon default, which was amended and removed on September 19, 2014.		150,000		–

21

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Originated April 23, 2014, an unsecured $35,000 promissory note payable, including a $7,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on August 23, 2014. In addition, a loan origination fee consisting of 3,500,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.	35,000	–
Originated March 28, 2014, an unsecured $25,000 promissory note payable, including a $5,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 28, 2014. In addition, a loan origination fee consisting of 3,000,000 shares of Convertible Series C Preferred Stock valued at $2,390 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.	25,000	–
Originated March 28, 2014, an $18,750 unsecured promissory note payable, including a $3,750 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 28, 2014. In addition, a loan origination fee consisting of 2,000,000 shares of Convertible Series C Preferred Stock valued at $1,594 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $7,000 upon default, which was amended and removed on September 19, 2014.	18,750	–
Originated March 26, 2014, a $37,500 unsecured promissory note payable, including a $7,500 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 26, 2014. In addition, a loan origination fee consisting of 3,000,000 shares of Convertible Series C Preferred Stock valued at $2,928 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $1,500 upon default, which was amended and removed on September 19, 2014.	37,500	–
Originated March 26, 2014, an unsecured $25,000 promissory note payable, including a $5,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 26, 2014. In addition, a loan origination fee consisting of 3,000,000 shares of Convertible Series C Preferred Stock valued at $2,928 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.	25,000	–
Originated March 7, 2014, an unsecured $30,000 promissory note payable, including a $6,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 7, 2014. In addition, a loan origination fee consisting of 3,000,000 shares of Convertible Series C Preferred Stock valued at $2,912 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $1,500 upon default, which was amended and removed on September 19, 2014.	30,000	–
Originated March 7, 2014, a $22,000 unsecured promissory note payable, including a $7,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 7, 2014. In addition, a loan origination fee consisting of 2,000,000 shares of Convertible Series C Preferred Stock valued at $1,942 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $7,000 upon default, which was amended and removed on September 19, 2014.	22,000	–

22

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Originated February 22, 2014, a $100,000 unsecured promissory note payable, including a $25,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on April 30, 2014. In addition, a loan origination fee consisting of 15,000,000 shares of Convertible Series C Preferred Stock valued at $14,266 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $35,000 upon default, which was amended and removed on September 19, 2014.	100,000	–
Originated February 21, 2014, an unsecured $75,000 promissory note payable, including a $15,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on April 30, 2014. In addition, a loan origination fee consisting of 10,000,000 shares of Convertible Series C Preferred Stock valued at $9,562 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $25,000 upon default, which was amended and removed on September 19, 2014.	75,000	–
Originated February 8, 2014, an unsecured $13,000 promissory note payable, including a $3,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on March 30, 2014. In addition, a loan origination fee consisting of 1,000,000 shares of Convertible Series C Preferred Stock valued at $1,193 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.	13,000	–
Originated February 7, 2014, a $26,000 unsecured promissory note payable, including a $6,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on March 30, 2014. In addition, a loan origination fee consisting of 2,000,000 shares of Convertible Series C Preferred Stock valued at $2,385 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.	26,000	–
Originated January 15, 2014, an unsecured $43,000 promissory note payable, including a $10,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on March 20, 2014. In addition, a loan origination fee consisting of 5,000,000 shares of Convertible Series C Preferred Stock valued at $6,465 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.	43,000	–
Originated November 1, 2013, unsecured promissory note payable owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on March 7, 2014. In addition, a loan origination fee of $25,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carries a liquidated damages fee of $2,500 upon default. As disclosed in Note 10, pursuant to a settlement agreement, dated February 12, 2014, the $125,000 note, along with $8,264 of accrued interest, was sold and assigned to IBC Funds, LLC and was subsequently converted to stock as part of a court order on February 14, 2014 under Section 3(a)(10) of the Securities Act of 1933.	–	125,000
Originated October 15, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on June 12, 2015. In addition, a loan origination fee of $3,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.	18,000	18,000

23

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Originated September 7, 2013, unsecured promissory note payable owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on February 7, 2014. In addition, a loan origination fee of $10,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 6,000,000 shares of Series A Common Stock with a fair market value of $6,600 was granted as consideration for the loan on September 7, 2013 and the shares were subsequently issued on November 13, 2013. As disclosed in Note 10, pursuant to a settlement agreement, dated February 12, 2014, the $65,000 balance of this note, along with $7,528 of accrued interest, was sold and assigned to IBC Funds, LLC and was subsequently converted to stock as part of a court order on February 14, 2014 under Section 3(a)(10) of the Securities Act of 1933.	–	65,000
Originated August 20, 2013, unsecured promissory note payable owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 20, 2014. In addition, a loan origination fee of $5,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 2,500,000 shares of Series A Common Stock with a fair market value of $3,250 was granted as consideration for the loan on August 20, 2013 and the shares were subsequently issued on November 13, 2013. Currently in default.	25,000	25,000
Originated August 12, 2013, unsecured promissory note payable owed to an immediate family member of the Company’s CEO carries a 15% interest rate, matures on February 15, 2014. In addition, a loan origination fee of $6,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 5,000,000 shares of Series A Common Stock with a fair market value of $7,000 was issued as consideration for the loan on August 12, 2013. The note, consisting of $51,000 of principal, $4,933 of accrued interest and $2,500 of liquidated damages, was subsequently sold and assigned to a third party and exchanged for a convertible note on April 2, 2014 and the $58,433 was converted in exchange for 584,333,745 shares of common stock in complete satisfaction of the debt.	–	51,000
Originated July 19, 2013, unsecured promissory note payable owed to an immediate family member of the Company’s CEO carries a 15% interest rate, matures on January 15, 2014. In addition, a loan origination fee of $3,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 2,500,000 shares of Series A Common Stock with a fair market value of $4,250 was issued as consideration for the loan on July 19, 2013. The note, consisting of $23,000 of principal and $1,153 of accrued interest, was subsequently sold and assigned to a third party and exchanged for a convertible note on February 4, 2014.	–	23,000
Originated August 27, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 27, 2014. In addition, a loan origination fee of $2,500 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 1,250,000 shares of Series A Common Stock with a fair market value of $1,500 was granted as consideration for the loan on August 27, 2013 and the shares were subsequently issued on November 13, 2013. As disclosed in Note 10, pursuant to a settlement agreement, dated February 12, 2014, the $12,500 note, along with $3,519 of accrued interest, was sold and assigned to IBC Funds, LLC and was subsequently converted to stock as part of a court order on February 14, 2014 under Section 3(a)(10) of the Securities Act of 1933.	–	12,500
Originated August 7, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 20, 2014. In addition, a loan origination fee of $4,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 2,500,000 shares of Series A Common Stock with a fair market value of $4,250 was granted as consideration for the loan on August 7, 2013 and the shares were subsequently issued on November 13, 2013. Currently in default.	24,000	24,000

24

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Originated August 2, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 17, 2014. In addition, a loan origination fee of $5,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 3,000,000 shares of Series A Common Stock with a fair market value of $5,100 was issued as consideration for the loan on August 2, 2013. Currently in default.		32,000			32,000
Originated July 31, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 15, 2014. In addition, a loan origination fee of $5,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 3,000,000 shares of Series A Common Stock with a fair market value of $4,200 was issued as consideration for the loan on July 31, 2013. The note, consisting of $32,000 of principal and $5,000 of accrued interest, was subsequently sold and assigned to a third party and exchanged for a convertible note on February 19, 2014.		–			32,000
Originated June 12, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 10% interest rate, matures on June 12, 2015. In addition, a loan origination fee of $2,000 was issued as consideration for the loan on June 12, 2013, and is being amortized on a straight line basis over the life of the loan. The note, consisting of $10,000 of principal and $338 of accrued interest, was subsequently sold and assigned to a third party and exchanged for a convertible note on February 4, 2014.		–			10,000
Originated April 12, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 10% interest rate, matures on April 12, 2015. In addition, a loan origination fee of $7,000 was issued as consideration for the loan on April 12, 2013, and is being amortized on a straight line basis over the life of the loan. As disclosed in Note 10, pursuant to a settlement agreement, dated February 12, 2014, the $57,000 note, along with $9,261 of accrued interest, was sold and assigned to IBC Funds, LLC and was subsequently converted to stock as part of a court order on February 14, 2014 under Section 3(a)(10) of the Securities Act of 1933.		–			57,000
Originated October 9, 2012, unsecured promissory note payable owed to a Company owned by an immediate family member of the Company’s CEO carries a 15% interest rate, matures on July 15, 2013. In addition, a loan origination fee, consisting of 144,928 shares of Series A Common Stock with a fair market value of $884 was issued as consideration for the loan on October 9, 2012. Currently in default.		2,000			2,000
Unsecured promissory note payable owed to a Company owned by an immediate family member of the Company’s CEO carries a 15% interest rate, matured on July 31, 2007. Principal of $5,000 was repaid during the first quarter of 2014. Currently in default.		868			5,868
Total notes payable, related parties		930,868			482,368
Less: current portion		(930,868	)		(397,368	)
Notes payable, related parties, less current portion	$	–		$	85,000

The Company recorded interest expense on notes payable to related parties in the amounts of $54,002 and $3,320 during the six months ended June 30, 2014 and 2013, respectively.

25

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 14 – Convertible Debts

Convertible debts consist of the following at June 30, 2014 and December 31, 2013, respectively:

	June 30,		December 31,
	2014		2013
Originated April 2, 2014, an unsecured $51,000 convertible promissory note, carried a 15% interest rate, matured on August 1, 2014, (“First Vivienne Passley Note”) owed to Vivienne Passley, a related party. The convertible promissory note was issued in exchange for a promissory note originally issued on August 12, 2013 to the same debt holder, which did not carry conversion terms. The principal and accrued interest was convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.0001 per share. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The debt modification resulted in a loss on debt modifications, related party of $172,864. The assigned principal of $51,000, interest of $4,933 and liquidated damages incurred prior to assignment of $2,500 was subsequently converted to a total of 584,333,745 shares of common stock over various dates from April 2, 2014 to June 17, 2014 in complete satisfaction of the debt.	$	–	$	–
Originated February 19, 2014, an unsecured $37,700 convertible promissory note, carries a 12% interest rate, matures on February 17, 2015, (“Third Magna Group Note”) owed to Magna Group, LLC, consisting of a promissory note acquired and assigned from Star Financial Corporation, a related party, consisting of $32,000 of principal and $5,700 of accrued interest. The acquired promissory note did not carry conversion terms, and were subsequently exchanged for the convertible note. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty percent (50%) of the lowest trading price of the Company’s common stock for the five (5) days prior to the conversion date, or $0.00004 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The assigned principal and interest of $35,491 was subsequently converted to a total of 377,000,000 shares of common stock over various dates from March 10, 2014 to March 19, 2014 in complete satisfaction of the debt.		–		–
Originated February 4, 2014, an unsecured $35,491 convertible promissory note, carries a 12% interest rate, matures on February 4, 2015, (“Second Magna Group Note”) owed to Magna Group, LLC, consisting of two notes acquired and assigned from Star Financial Corporation, a related party, consisting of a total of $33,000 of principal and $2,491 of accrued interest. The acquired promissory notes did not carry conversion terms, and were subsequently exchanged for the convertible note. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty percent (50%) of the lowest trading price of the Company’s common stock for the five (5) days prior to the conversion date, or $0.00004 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The assigned principal and interest of $35,491 was subsequently converted to a total of 236,606,400 shares of common stock over various dates from February 13, 2014 to February 27, 2014 in complete satisfaction of the debt.		–		–
Unsecured $33,000 convertible promissory note originated on November 13, 2013, including an Original Issue Discount (“OID”) of $3,000, carries a 12% interest rate (“Second JMJ Note”), matures on November 12, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the lowest trading price of the Company’s common stock for the twenty five (25) trading days prior to the conversion date, or $0.00009 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The unamortized OID is $2,604 at December 31, 2013. On July 11, 2014, the Company and JMJ Financial amended this note. The amendment specifies that due to the previously delinquent SEC filings, any future borrowings shall only be made by mutual agreement of both the borrower and lender.		33,000		33,000

26

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Unsecured $35,028 convertible promissory note originated on December 31, 2013, carries an 12% interest rate (“First Magna Group Note”) owed to Magna Group, LLC. Two notes totaling $33,000 of principal and $1,028 of accrued interest were acquired from and assigned by Star Financial on December 31, 2013 prior to being exchanged for the convertible note, including $1,000 of loan origination costs. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty percent (50%) of the lowest trading price of the Company’s common stock for the five (5) days prior to the conversion date, or $0.00004 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The assigned principal and interest of $35,028 was subsequently converted to a total of 216,806,667 shares of common stock over various dates from January 7, 2014 to February 6, 2014 in complete satisfaction of the debt.	–	35,028
Unsecured $56,900 convertible promissory note, including an Original Issue Discount (“OID”) of $6,900, carries an 8% interest rate (“First St. George Note”), matures on May 30, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the average of the two lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The note holder converted $15,000 of outstanding principal into 125,000,000 shares pursuant to debt conversion on March 7, 2014.The unamortized OID is $3,791 at December 31, 2013. During the 2nd quarter of 2014, a total of $77,375 of principal and another $7,512 of accrued interest was added to the debt due to default provisions, including $25,000 of principal due to a Late Clearing Adjustment penalty. Currently in default.	119,275	56,900
Unsecured $42,500 convertible promissory note carries an 8% interest rate (“Eighth Asher Note”), matures on June 20, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-nine percent (59%) of the average of the three lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The note holder converted $41,000 of outstanding principal into 341,666,667 shares pursuant to debt conversion on March 25, 2014, and $2,750, consisting of $1,500 of principal and $1,250 of interest was repaid in cash during the second quarter of 2014.	–	42,500
Unsecured $53,000 convertible promissory note carries an 8% interest rate (“Seventh Asher Note”), matures on May 21, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-nine percent (59%) of the average of the three lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The note holder converted $27,000 of outstanding principal into 150,000,000 shares pursuant to debt conversion on March 3, 2014, and $28,120, consisting of $26,000 of principal and $2,120 of accrued interest into 200,857,143 shares pursuant to debt conversion on March 5, 2014 in complete satisfaction of the debt.	–	53,000

27

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Unsecured $440,849 convertible promissory note due to a related party, carries a 10% interest rate (“Star Convertible Note”), matures on July 2, 2017. The principal and unpaid interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 75% of the average closing price of the Company’s common stock over the five (5) consecutive trading days immediately preceding the date of conversion, or the fixed price of $0.005 per share, whichever is greater. The note carries a fourteen percent (14%) interest rate in the event of default, and the debt holder is limited to owning 9.99% of the Company’s issued and outstanding shares. This note was subsequently amended on March 5, 2013 to change the conversion price to, "equal to the greater of, (a) 50% of the Market Price, or (b) the fixed conversion price of $0.00075 per share". The modification resulted in a loss on debt modification of $81,792. The note holder converted $250,000 of outstanding principal into 50,000,000 shares pursuant to debt conversion on September 15, 2012, $46,000 into 50,000,000 shares pursuant to debt conversion on March 14, 2013, $40,000 into 50,000,000 shares pursuant to debt conversion on April 10, 2013, $26,400 into 80,000,000 shares pursuant to debt conversion on July 9, 2013 and $32,000 into 40,000,000 shares pursuant to debt conversion on August 7, 2013, $18,750 into 125,000,000 shares pursuant to debt conversion on April 7, 2014, $20,000 into 200,000,000 shares pursuant to debt conversion on May 3, 2014, and $15,000, consisting of $7,699 of principal and $7,301 of interest into 150,000,000 shares pursuant to the final debt conversion on May 22, 2014.		–			46,449
Total convertible debts		152,275			266,877
Less: unamortized discount on beneficial conversion feature		–			(103,188	)
Less: unamortized OID		(1,112	)		(6,395	)
Convertible debts		151,163			157,294
Less: current maturities of convertible debts		(151,163	)		(115,128	)
Long term convertible debts	$	–		$	42,166

The Company recognized interest expense in the amount of $97,918 and $30,867 for the six months ended June 30, 2014 and 2013, respectively related to convertible debts.

In addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible debts by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the convertible debt. This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt.

The aforementioned accounting treatment resulted in a total debt discount equal to $-0- and $195,652 during the six months ended June 30, 2014 and the year ended December 31, 2013, respectively. The discount is amortized on a straight line basis from the dates of issuance until the stated redemption date of the debts, as noted above.

The convertible notes, consisting of total original face values of $440,849 from Star Financial, $95,500 from Asher Enterprises, $33,000 from JMJ Financial, Inc., and $56,900 from St. George Investments that created the beneficial conversion feature carry default provisions that place a “maximum share amount” on the note holders that can be owned as a result of the conversions to common stock by the note holders of 9.99% of the issued and outstanding shares of Epazz.

During the six months ended June 30, 2014 and 2013, the Company recorded debt amortization expense in the amount of $73,443 and $128,612, respectively, attributed to the aforementioned debt discount, including $5,283 and $3,411 of amortization on Original Issue Discounts during the six months ended June 30, 2014 and 2013, respectively.

During the six months ended June 30, 2014, the Company issued a total of 4,688,760,477 shares pursuant to debt conversions in settlement of $533,360, consisting of $531,240 of outstanding principal and $2,120 of unpaid interest. In addition, the Company issued a total of 1,059,333,745 shares pursuant to related party debt conversions in settlement of $112,183, consisting of $97,449 of outstanding principal, $12,234 of unpaid interest and $2,500 of liquidated damages during the six months ended June 30, 2014. The principal and interest was converted in accordance with the conversion terms, therefore no gain or loss has been recognized.

28

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During year ended December 31, 2013, the Company issued a total of 462,766,951 shares pursuant to debt conversions in settlement of $343,540, consisting of $336,094 of outstanding principal and $7,446 of unpaid interest, including 220,000,000 shares pursuant to debt conversion in settlement of $144,400 of outstanding principal owed to a related party (“Star Convertible Note”) and 46,856,526 shares pursuant to debt conversion in settlement of $14,838 of outstanding principal owed to a related party (“GG Mars Capital Convertible Note”). The principal and interest was converted in accordance with the conversion terms, therefore no gain or loss has been recognized. In addition, on May 27, 2013, the Company modified a related party debt and issued 14,239,500 shares of Class A Common Stock in settlement of $14,239 of related party debt owed to Vivienne Passley, which consisted of $13,000 of principal and $1,239 of accrued and unpaid interest. The total fair value of the common stock was $28,479 based on the closing price of the Company’s common stock on the date of grant, resulting in the recognition of a $14,240 loss on debt settlement.

Asher Enterprises, Inc. Convertible Notes

On July 2, 2012, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $42,500. The Third Asher Note had a maturity date of March 29, 2013, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 59% multiplied by the Market Price (representing a discount rate of 41%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009 per share. The shares of common stock issuable upon conversion of the Third Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Third Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Third Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00551 below the market price on July 2, 2012 of $0.012 provided a value of $36,082, of which $-0- and $11,760 was amortized during the six months ended June 30, 2014 and 2013, respectively.

On July 24, 2012, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $32,500. The Fourth Asher Note had a maturity date of April 26, 2013, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 59% multiplied by the Market Price (representing a discount rate of 41%). “Market Price” means the average of the lowest five (5) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009 per share. The shares of common stock issuable upon conversion of the Fourth Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Fourth Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Fourth Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00583 below the market price on July 24, 2012 of $0.0126 provided a value of $27,959, of which $-0- and $11,751 was amortized during the six months ended June 30, 2014 and 2013, respectively.

On October 16, 2012, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $27,500. The Fifth Asher Note had a maturity date of July 18, 2013, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 41% multiplied by the Market Price (representing a discount rate of 59%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ninety (90) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the Fifth Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Fifth Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

29

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company evaluated the Fifth Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00603 below the market price on October 16, 2012 of $0.008 provided a value of $27,500, , of which $-0- and $19,900 was amortized during the six months ended June 30, 2014 and 2013, respectively.

On December 12, 2012, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $16,500. The Sixth Asher Note had a maturity date of September 14, 2013, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 41% multiplied by the Market Price (representing a discount rate of 59%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ninety (90) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the Sixth Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Sixth Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Sixth Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00518 below the market price on December 12, 2012 of $0.0064 provided a value of $16,500, of which $-0- and $15,364 was amortized during the six months ended June 30, 2014 and 2013, respectively.

On August 19, 2013, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $53,000. The Seventh Asher Note had a maturity date of May 21, 2014, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 59% multiplied by the Market Price (representing a discount rate of 41%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the Seventh Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Seventh Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Seventh Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0006 below the market price on August 19, 2013 of $0.0014 provided a value of $39,021, of which $20,007 and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

On September 18, 2013, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $42,500. The Eighth Asher Note had a maturity date of June 20, 2014, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 59% multiplied by the Market Price (representing a discount rate of 41%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the Eighth Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Eighth Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Eighth Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0004 below the market price on September 18, 2013 of $0.0010 provided a value of $27,210, of which $16,920 and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

30

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

GG Mars Capital, Inc. Convertible Note, Related Party

On August 20, 2013, we entered into a Convertible Promissory Note Agreement with GG Mars Capital, Inc. (“GG Mars”), a company owned by our CEO’s family member, pursuant to which we sold to GG Mars an 11% Convertible Promissory Note in the original principal amount of $14,838. The note was acquired from and assigned by another independent lender on August 15, 2013 prior to being exchanged for the convertible note. The First GG Mars Note was convertible into shares of common stock at the discretion of the note holder at a price equal to fifty percent (50%) of the average of the three lowest closing prices of the Company’s common stock for the one hundred and twenty (120) days prior to the conversion date, or $0.0001 per share, whichever is greater. The shares of common stock issuable upon conversion of the First GG Mars Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First GG Mars Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the First GG Mars Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.001 below the market price on August 20, 2013 of $0.0013 provided a value of $14,838, of which $-0- and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

Star Financial, Inc. Convertible Note, Related Party

On July 2, 2012, we modified a previously outstanding non-convertible debt of $342,321, consisting of $296,103 of principal and $46,218 of accrued interest in exchange for a Convertible Promissory Note with Star Financial Corporation (“Star”), a company owned by our CEO’s family member, pursuant to which we issued to Star a 10% Convertible Promissory Note in the original principal amount of $440,849. The modification resulted in a loss on debt modification of $98,528. The note was again modified on March 5, 2013, resulting in a loss on debt modification of $81,792. The Star Convertible Note has a maturity date of July 2, 2017, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the five (5) Closing Prices for the Common Stock during the five (5) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00075 per share. The shares of common stock issuable upon conversion of the Star Convertible Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Star Convertible Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Star Convertible Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00141 below the market price on July 2, 2012 of $0.012 provided a value of $112,382, of which $5,653 and $24,176 was amortized during the six months ended June 30, 2014 and 2013, respectively.

Tonaquint, Inc. Convertible Note

On September 10, 2012, we entered into a Securities Purchase Agreement with Tonaquint, Inc., pursuant to which we sold to Tonaquint an 8% Convertible Promissory Note in the original principal amount of $56,900. The First Tonaquint Note has a maturity date of May 31, 2013, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (representing a discount rate of 40%). “Market Price” means the average of the lowest two (2) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009 per share. The shares of common stock issuable upon conversion of the First Tonaquint Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First Tonaquint Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the First Tonaquint Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0047 below the market price on September 10, 2012 of $0.0033 provided a value of $56,900, of which $-0- and $32,669 was amortized during the six months ended June 30, 2014 and 2013, respectively.

31

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

JMJ Financial, Inc. Convertible Note

On June 12, 2013, we entered into a Securities Purchase Agreement with JMJ Financial, Inc., (“JMJ”) pursuant to which we sold to JMJ a 12% Convertible Promissory Note in the original principal amount of $33,000. The First JMJ Note had a maturity date of June 11, 2014, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price, not less than $0.00009 per share. The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (representing a discount rate of 40%). “Market Price” means the lowest Trading Price for the Common Stock during the twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009 per share. The shares of common stock issuable upon conversion of the First JMJ Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First JMJ Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the First JMJ Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00518 below the market price on June 12, 2013 of $0.0017 provided a value of $33,000, of which $-0- and $9,581 was amortized during the six months ended June 30, 2014 and 2013, respectively.

On November 13, 2013, we drew additional funds on the June 12, 2013 Securities Purchase Agreement with JMJ Financial, Inc., (“JMJ”) pursuant to which we sold to JMJ another 12% Convertible Promissory Note in the original principal amount of $33,000. The Second JMJ Note has a maturity date of November 12, 2014, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price, not less than $0.00009 per share. The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (representing a discount rate of 40%). “Market Price” means the lowest Trading Price for the Common Stock during the twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009 per share. The shares of common stock issuable upon conversion of the Second JMJ Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Second JMJ Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Second JMJ Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00024 was above the market price on November 13, 2013 and did not result in a beneficial conversion feature.

St. George Investments, Inc. Convertible Note

On September 5, 2013, we entered into a Securities Purchase Agreement with St. George Investments, Inc., (“First St. George Note”) pursuant to which we sold to St. George an 8% Convertible Promissory Note in the original principal amount of $56,900. The First St. George Note has a maturity date of May 30, 2014, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (representing a discount rate of 40%). “Market Price” means the average of the two lowest Closing Bid Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the First St. George Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First St. George Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

On September 24, 2014, St. George Investments, LLC (“note holder”) presented the Company with a notice of default. In accordance with the default provisions, the note began to accrue interest at twenty two percent (22%) per annum effective March 31, 2014. The unsecured convertible promissory note with $41,900 of principal outstanding (“First St. George Note”) matured on June 5, 2014 and was in default effective April 1, 2014 pursuant to Section 3.2 of the Note. In accordance with the default provisions, the outstanding balance prior to the occurrence of default shall increase to 150% of the outstanding balance of principal and interest a maximum of two times. In addition, the note holder was precluded from clearing the conversion of 125,000,000 shares of common stock received pursuant to a March 7, 2014 conversion of $15,000 of outstanding principal until September 10, 2014 (“Late Clearing Adjustment Amount”). Pursuant to Section 1.6(g) of the Note, the note holder was entitled to increase the outstanding balance of the Note by the Late Clearing Adjustment Amount of $25,000. As a result of the Late Clearing Adjustment Amount and Note defaults on April 1, 2014 and June 5, 2014, the principal and interest on the First St. George Note has increased to $136,738 as of September 24, 2014.

The Company evaluated the First St. George Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0005 below the market price on September 5, 2013 of $0.0012 provided a value of $46,555, of which $25,580 and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

32

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Derivative Liabilities

In accordance with ASC 815-15, the Company determined that the variable conversion feature and shares to be issued with respect to the Magna Group, LLC convertible notes and the convertible debt with IBC Funds, LLC represented embedded derivative features, and these are shown as derivative liabilities on the balance sheet. The Company calculated the fair value of the compound embedded derivatives associated with the convertible debentures utilizing a lattice model.

The aforementioned accounting treatment resulted in a total debt discount equal to $422,240 and $-0- during the six months ended June 30, 2014 and the year ended December 31, 2013, respectively. The discount was amortized using the effective interest method from the dates of issuance until the stated redemption date of the debts, or the accelerated dates of conversion. A total of $422,240 and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

Magna Group, LLC Convertible Note

On December 31, 2013, we issued to Magna Group, LLC (“First Magna Group Note”) a 12% Convertible Promissory Note in the original principal amount of $35,028. The note was issued in exchange for two notes totaling $33,000 of principal and $1,028 of accrued interest, along with a $1,000 origination fee, that were acquired from, and assigned by, Star Financial on December 31, 2013. The First Magna Group Note has a maturity date of December 31, 2014, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the lowest Trading Price for the Common Stock during the five (5) day period prior to delivery of the conversion notice. “Fixed Conversion Price” shall mean $0.00004 per share. The shares of common stock issuable upon conversion of the First Magna Group Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First Magna Group Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation. The Company evaluated the First Magna Group Note and determined that the shares issuable pursuant to the conversion option were indeterminate and constituted a derivative liability.

On February 4, 2014, we issued to Magna Group, LLC (“Second Magna Group Note”) a 12% Convertible Promissory Note in the original principal amount of $35,491. The note was issued in exchange for two notes totaling $33,000 of principal and $1,491 of accrued interest, along with a $1,000 origination fee, that were acquired from, and assigned by, Star Financial and Vivienne Passley on February 4, 2014. The Second Magna Group Note has a maturity date of February 4, 2015, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the lowest Trading Price for the Common Stock during the five (5) day period prior to delivery of the conversion notice. “Fixed Conversion Price” shall mean $0.00004 per share. The shares of common stock issuable upon conversion of the Second Magna Group Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First Magna Group Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation. The Company evaluated the Second Magna Group Note and determined that the shares issuable pursuant to the conversion option were indeterminate and constituted a derivative liability.

On February 19, 2014, we issued to Magna Group, LLC (“Third Magna Group Note”) a 12% Convertible Promissory Note in the original principal amount of $37,700. The note was issued in exchange for a note totaling $32,000 of principal and $5,000 of accrued interest, along with a $700 origination fee, that were acquired from, and assigned by, Star Financial on February 19, 2014. The Third Magna Group Note has a maturity date of February 19, 2015, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the lowest Trading Price for the Common Stock during the five (5) day period prior to delivery of the conversion notice. “Fixed Conversion Price” shall mean $0.00004 per share. The shares of common stock issuable upon conversion of the Third Magna Group Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Third Magna Group Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation. The Company evaluated the Third Magna Group Note and determined that the shares issuable pursuant to the conversion option were indeterminate and constituted a derivative liability.

IBC Funds, LLC Convertible Debt

On February 14, 2014, we issued to IBC Funds, LLC (“First IBC Funds Settlement”) a Settlement Agreement in the original principal amount of $314,021. The Settlement was issued in exchange for five claims totaling $314,021, including $259,500 of principal and $28,571 of accrued interest owed to related parties, along with a $25,950 of additional liabilities. The First IBC Funds Settlement had a maturity date of December 31, 2014, and was convertible into our common stock at the Variable Conversion Price of 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the lowest Trading Price for the Common Stock during the five (5) day period prior to delivery of the conversion notice. The shares of common stock issuable upon conversion of the First IBC Funds Settlement were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First IBC Funds Settlement was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation. The Company evaluated the First IBC Funds Settlement and determined that the shares issuable pursuant to the conversion option were indeterminate and constituted a derivative liability.

33

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 15 – Long Term Debts

Long term debts consist of the following at June 30, 2014 and December 31, 2013, respectively:

	June 30,		December 31,
	2014		2013
On June 6, 2014, the Company received a loan of $42,000 from Global Merchant Cash, Inc. (“GMC Loan”). The loan bears interest at an effective rate of 187%, consisting of 100 daily weekday payments of $599, maturing on November 3, 2014. The loan is collateralized with the accounts receivable of Epazz, Inc. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.	$	39,021	$	–
On May 9, 2014, the Company issued an unsecured $210,000 seller financed note payable as partial payment on an asset purchase (“Jadian Note”), which bears interest at 6% per annum until the maturity date of May 9, 2017, and provides for equal monthly principal and interest payments of $6,389 commencing on June 1, 2014. The Jadian Note includes a balloon payment, consisting of the remaining outstanding balance of principal and interest upon maturity at May 9, 2017. The interest rate shall be 8% per annum with an additional 5% late payment fee upon default.		208,462		–
On April 30, 2014, the Company purchased furniture and fixtures and computer equipment in the total amount of $41,300 from IKEA, which was partially financed with proceeds of $37,788 pursuant to an equipment financing agreement with Financial Pacific Leasing bearing an effective interest rate of 26.78%, consisting of 36 monthly payments of $1,488; maturing on March 15, 2017. The loan is collateralized with the furniture and fixtures and computer equipment, along with a personal guarantee by Shaun Passley, Ph.D., our Chief Executive Officer.		34,493		–
On Deck Capital Loan – Telecorp: On April 4, 2013, the Company received a loan of $65,000 from On Deck Capital, Inc., (“On Deck”), bearing an effective interest rate of 42.74%, consisting of 377 daily weekday payments of $234, maturing on September 11, 2015. The loan is collateralized with Telecorp’s receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		57,119		–
On April 2, 2014, the Company received a loan of $25,000 from BSB Leasing, Inc. (“BSB Loan”) as a partial financing to purchase certain assets of Cynergy, Inc. for a total of $75,000. The loan bears interest at an effective rate of 25%, consisting of monthly payments of $944, maturing on February 25, 2017. The loan is collateralized with Cynergy’s assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		22,463		–
On March 20, 2014, the Company received a loan of $25,000 from BMT Leasing, Inc. (“BMT Loan”) as a partial financing to purchase certain assets of Cynergy, Inc. for a total of $75,000. The loan bears interest at an effective rate of 21%, consisting of monthly payments of $910, maturing on March 20, 2017. The loan is collateralized with Cynergy’s assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		22,163		–
On March 25, 2014, the Company received a loan of $25,000 from Navitas Leasing, Inc. (“Navitas Loan”) as a partial financing to purchase certain assets of Cynergy, Inc. for a total of $75,000. The loan bears interest at an effective rate of 21%, consisting of monthly payments of $907, maturing on April 1, 2017. The loan is collateralized with Cynergy’s assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		21,639		–
On February 28, 2014, the Company provided Troy Holdings with a Promissory Note in the amount of $120,000 (the “Telecorp Note”), which was adjusted down to $102,000 for excess liabilities acquired during the acquisition of Telecorp Products, Inc. The Note provides for six (6) equal monthly payments of $20,000 commencing thirty (30) days after the Closing. The Telecorp Note is non-interest bearing except upon default, in which case the interest rate shall be 10% per annum.		67,616		–

34

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On June 11, 2014, DeskFlex refinanced the Accion #2 promissory note and entered into a $15,207 promissory note, bearing interest at 10.25% (“Accion #3”). The promissory note is payable in monthly principal and interest installments of $1,339 per month, maturing on June 20, 2015 (the “Maturity Date”).	14,153	–
Can Capital Loan – Epazz: On November 4, 2013, the Company received net proceeds of $75,381, and a direct payoff of $36,619 on the Rapid Advance Loan listed below, on a loan of $112,000 from CAN Capital Assets Servicing, Inc., (“CAN Capital #4”) bearing an effective interest rate of 53.1%, consisting of 370 daily weekday payments of $552, maturing on November 13, 2014. The loan is collateralized with Epazz’s receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer. On April 23, 2014, we amended this loan agreement to increase the loan balance to $150,000, consisting of additional proceeds of $71,685, and a rolled over loan balance of $78,315, to be paid over the restarted term of the loan via 432 daily weekday payments of $648, maturing on July 7, 2015.	133,425	98,984
On November 20, 2013, DeskFlex entered into a $10,550 demand promissory note bearing interest at 10.25% (“Accion #2”). The promissory note is payable in monthly installments of $1,223 per month, maturing on August 20, 2014 (the “Maturity Date”).	–	9,417
On October 24, 2013, the Company purchased licenses to develop content management software in the total amount of $51,250 from Igenti, Inc., of which $51,250 was financed pursuant to an equipment financing agreement with Baytree National Bank & Trust Company bearing an effective interest rate of 13.235%, consisting of 36 monthly payments of $1,719; maturing on October 23, 2016. The loan is collateralized with the data management software. Igenti subsequently paid a total of $53,500, including $2,250 of penalties, to the Company for future payment for the development of the content management software. Given the nature and status of the software development, no equipment costs have been capitalized.	38,662	47,321
On October 10, 2013, the Company purchased licenses to develop content management software in the total amount of $34,800 from Igenti, Inc., of which $34,800 was financed pursuant to an equipment financing agreement with Financial Pacific Leasing bearing an effective interest rate of 31.625%, consisting of 36 monthly payments of $1,438; maturing on October 9, 2016. The loan is collateralized with the content management software. Igenti retained a total of $1,300 of financing fees and paid the remaining proceeds of $33,500 to the Company for future payment for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	28,220	32,025
Can Capital Loan – MS Health: On June 24, 2013, the Company received a loan of $15,000 from WebBank, c/o NewLogic Business Loans, Inc., (“NewLogic”), which has been renamed to CAN Capital Assets Servicing, Inc (“CAN Capital”) bearing an effective interest rate of 63.9%, consisting of 176 daily weekday payments of $106, maturing on February 19, 2014. The loan is collateralized with MS Health’s receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer. On January 7, 2014, we amended this loan agreement to increase the loan balance to $22,025, consisting of additional proceeds of $18,323, a rolled over loan balance of $3,702 to be paid over the restarted one year term of the loan via daily payments of $113.	13,261	4,202
Can Capital Loan – K9 Bytes: On February 20, 2014, the Company received a loan of $22,283 from WebBank, c/o CAN Capital Assets Servicing, Inc (“CAN Capital”) bearing an effective interest rate of 58.7%, consisting of 308 daily weekday payments of $130, maturing on December 25, 2014. The loan is collateralized with K9 Bytes’ receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.	14,181	–

35

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On May 1, 2013, the Company purchased licenses to develop data management software in the total amount of $51,250 from Igenti, Inc., bearing an effective interest rate of 11%, consisting of 36 monthly payments of $1,674, maturing on April 30, 2016. The loan is collateralized with the data management software. Igenti retained a total of $4,615 of financing fees and paid the remaining proceeds of $46,615 to the Company for future payment to Sveltoz Solutions for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	33,210	41,167
On February 22, 2013, the Company purchased licenses to develop data management software in the total amount of $102,500 from Igenti, Inc., of which $51,250 was financed pursuant to an equipment financing agreement with Baytree National Bank & Trust Company on March 7, 2013 bearing an effective interest rate of 11.48%, consisting of 36 monthly payments of $1,674; maturing on March 6, 2016. The loan is collateralized with the data management software. Igenti retained a total of $3,000 of financing fees and paid the remaining proceeds of $99,500 to the Company for future payment to Sveltoz Solutions for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	28,948	38,361
On February 22, 2013, the Company purchased licenses to develop data management software in the total amount of $102,500 from Igenti, Inc., of which $51,250 was financed with an equipment finance loan from Summit Funding Group, Inc. equipment with a three year loan term consisting of monthly loan payments of $1,828, with $2,078 paid at signing, maturing on February 21, 2016. The loan is collateralized with the data management software. Igenti retained a total of $3,000 of financing fees and paid the remaining proceeds of $99,500 to the Company for future payment to Sveltoz Solutions for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	32,010	40,108
On August 10, 2012, the Company purchased $13,870 of equipment with a three year equipment finance loan. The loan bears interest at an effective interest rate of 31.55%, along with monthly principal and interest payments of $585. The loan is collateralized with the purchased equipment. Matures on August 9, 2015.	8,200	10,228
On April 1, 2012, the Company purchased $129,747 of equipment with a three year equipment finance loan. The loan bears interest at an effective interest rate of 8.3%, along with monthly principal and interest payments of $4,078. The loan is collateralized with the purchased equipment. Matures on April 1, 2015.	57,170	78,603
Consideration for the MS Health acquisition included partial proceeds obtained from a $360,800 Small Business Association (“SBA”) loan, bearing interest at fixed and variable rates, maturing on March 27, 2022. The initial interest rate is 5.5% per year for three (3) years, consisting of the Prime Rate in effect on the first business day of the month in which the SBA loan application was received, plus 2.25%. The loan terms then transition to a variable interest rate over the remaining seven (7) years of the ten (10) year maturity term, calculated at 2.25% above the Prime Rate, as adjusted quarterly. The Company must pay principal and interest payments of $3,916 monthly. The SBA Loan is guaranteed by PRMI, K9 Bytes, Desk Flex, Inc., MS Health and the Company, and secured by the assets of MS Health and the Company.	298,043	312,095
Consideration for the MS Health acquisition included an unsecured $100,000 seller financed note payable (“MSHSC Note”), bearing interest at 6% per annum, a ten (10) year amortization, a right of offset, no payments of either principal or interest for two (2) years and equal payments of principal and interest commencing in year three (3), no prepayment penalty, and full payment of all amounts due after five (5) years, maturing March 27, 2022. Pursuant to an amendment to a consulting agreement with the seller on March 23, 2012, the Company agreed to begin to repay principal of $1,000 per month, and had repaid a total of $6,000 during the year ended December 31, 2012. The MSHSC Note is secured by a security interest over the assets of MS Health. We did not purchase and MSHSC agreed to retain and be responsible for any and all liabilities of MSHSC.	103,228	94,000

36

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Pursuant to an asset purchase agreement entered into on October 26, 2011, the Company granted K9 Bytes, Inc., a Florida corporation, a subordinated secured $30,750 promissory note carrying a 6% interest rate, 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 promissory note ($23,017, assuming no additional payments other than those scheduled) is due. The promissory note is secured by a secondary lien on all of the assets of Epazz’s subsidiary, K9 Bytes, Inc., an Illinois corporation formed to house the purchased assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		1,544			2,510
Unsecured $50,000 promissory note originated on September 15, 2010 between IntelliSys and Paul Prahl, payable in monthly installments of $970 carries a 6% interest rate, maturing on September 18, 2015. The Company also agreed to provide Mr. Prahl earn-out rights, which provide that he will receive up to a maximum of $13,350 per year for the three calendar years following the Closing (with the first such calendar year beginning on January 1, 2011), based on the revenues generated by IntelliSys during such applicable year, whereas $6,675 is earned if revenues are between $350,000 and $380,000, $10,012 is earned if revenues are between $380,000 and $395,000, or $13,350 is earned if revenues are greater than $395,000 during each relevant year.		8,454			8,186
Unsecured term loan between Epazz and Bank of America, originating on June 15, 2011 bearing interest at 9.5% matures on June 17, 2016. Payments of $1,559 are due monthly.		50,954			60,573
Unsecured promissory note between Epazz and Newtek Finance for $185,000 originating on September 30, 2010 bearing interest at 6% matures on September 30, 2020. Payments of $2,054 are due monthly.		128,699			137,087
The Company raised funds paid pursuant to an asset purchase agreement with K9 Bytes, Inc., a Florida corporation, on October 26, 2011, through a $235,000 Small Business Association (“SBA”) loan from a third party lender (the “Third Party Lender” and the “SBA Loan”). The SBA Loan has a term of ten (10) years; maturing on October 26, 2021, bearing interest at the prime rate plus 2.75% per annum, 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, Ph.D., 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 Dr. 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 Bytes 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 the wholly-owned subsidiary, K9 Bytes, Inc.		187,032			197,062
Total long term debt		1,652,370			1,211,929
Less: current portion		(612,898	)		(354,786	)
Long term debt, less current portion	$	1,039,472		$	857,143

The Company recorded interest expense on long term debts, credit lines and capital leases in the amount of $370,174 and $100,160 for the six months ended June 30, 2014 and 2013, respectively.

Note 16 – Derivative Liabilities

As discussed in Note 14 under Convertible Debts, the Company issued convertible debts with variable conversion provisions. The conversion terms of the convertible debts are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. As such, the number of shares of common stock issuable upon conversion of the debts is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion debts and shares to be issued were recorded as derivative liabilities on the issuance date.

37

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The fair values of the Company’s derivative liabilities were estimated at the issuance date and are revalued at each subsequent reporting date, using a lattice model. The Company recorded current derivative liabilities of $-0- and $-0- at June 30, 2014 and December 31, 2013, respectively. The change in fair value of the derivative liabilities resulted in a net loss of $777,664 and $-0- for the six months ended June 30, 2014 and 2013, respectively, which has been reported as other income (expense) in the statements of operations. The net loss of $777,664 for the six months ended June 30, 2014 consisted of a loss of $837,010 due to the value in excess of the face value of the convertible notes, as offset by a net gain in market value of $59,346 on the convertible debts.

The aforementioned accounting treatment resulted in a total debt discount equal to $422,240 and $-0- during the six months ended June 30, 2014 and the year ended December 31, 2013, respectively. The discount was amortized using the effective interest method from the dates of issuance until the stated redemption date of the debts, or the accelerated dates of conversion. A total of $422,240 and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

The following presents the derivative liability value by instrument type at June 30, 2014 and December 31, 2013, respectively:

	June 30, 2014		December 31, 2013
Convertible notes, Magna Group	$	–	$	–
Convertible debt, IBC Funds, LLC		–		–
	$	–	$	–

The following is a summary of changes in the fair market value of the derivative liability during the six months ended June 30, 2014 and the years ended December 31, 2013, respectively:

	Derivative Liability Total
Balance, December 31, 2012	$	–
Increase in derivative value due to issuances of convertible promissory notes, Magna Group		–
Increase in derivative value due to issuances of debt, IBC Funds, LLC		–
Change in fair market value of derivative liabilities due to the mark to market adjustment		–
Debt conversions		–
Balance, December 31, 2013	$	–
Increase in derivative value due to issuances of convertible promissory notes, Magna Group		124,323
Increase in derivative value due to issuances of debt, IBC Funds, LLC		1,134,927
Change in fair market value of derivative liabilities due to the mark to market adjustment		(59,346	)
Debt conversions		(1,199,904	)
Balance, June 30, 2014	$	–

Key inputs and assumptions used to value the convertible debentures and warrants issued during the six months ended June 30, 2014:

· Stock prices on all measurement dates were based on the fair market value and would fluctuate with projected volatility.

· The holders of the securities would convert monthly to the ownership limit starting at 4.99% increasing by 10% per month.

· The holders would automatically convert the note at the maximum of 3 times the conversion price if the Company was not in default.

· The monthly trading volume would reflect historical averages and would increase at 1% per month.

· The Company would redeem the notes based on availability of alternative financing, increasing 2% monthly to a maximum of 10%.

· The holder would automatically convert the note at maturity if the registration was effective and the Company was not in default.

· The computed volatility was projected based on historical volatility.

· The expected risk-free interest rate is based on the yield of the 1-year U.S. Treasury note.

· The estimated value represents the average or expected value from the Monte Carlo simulation. The simulation was specified to run until the expected value was within 1.0 percent of the true value using a 95% confidence interval. A total of 8,020,000 trials were necessary to reach the specified level of precision.

38

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 17 – Changes in Stockholder’s Equity (Deficit)

On January 14, 2014 and May 17, 2013, the Board of Directors, consisting solely of Shaun Passley, Ph.D., the Company’s majority shareholder, amended the Article of Incorporation to change the par value and number of authorized shares of each class of common and series of preferred stock and authorize a third class of preferred stock, Series C Convertible Preferred Stock, in addition to the modification of the attributes and dividends. The disclosures herein reflect these modifications and the changes to the par value have been retroactively reflected throughout.

Convertible Preferred Stock, Series A

The Company has one thousand (1,000) authorized shares of $0.0001 par value Series A Convertible Preferred Stock (“Series A Preferred Stock”). The Series A Preferred Stock accrues dividends equal to 1.5% of the Company’s revenues per quarter, beginning on January 1^st of any calendar year in which the Company has generated revenue over $2 million, and an additional 24% of the Company’s net income beginning on January 1^st of any calendar year in which the Company has generated net income over $2 million. The dividends are payable at the discretion of the Company, provided that any unpaid dividends accrue until paid. The Series A Preferred Stock includes a liquidation preference equal to $0.0001 per share, plus any accrued and unpaid dividends. The Series A Preferred Stock is convertible, at the option of the holder into shares of the Company’s Class A Common Stock, with five business days’ notice into 60% of the total number of then issued and outstanding shares of Class A Common Stock. The Series A Preferred Stock has limited voting rights, relating solely to matters which adversely affect the rights of the Series A Preferred Stock holders. The Company shall reserve and keep available out of its authorized but unissued shares of Class A Common Stock such number of shares sufficient to effect the conversions.

Convertible Preferred Stock, Series B

The Company has one thousand (1,000) authorized shares of $0.0001 par value Series B Convertible Preferred Stock (“Series B Preferred Stock”). The Series B Preferred Stock accrues dividends equal to 1.5% of the Company’s revenues per quarter, beginning on January 1^st of any calendar year in which the Company has generated revenue over $1 million, and an additional 6% of the Company’s net income beginning on January 1^st of any calendar year in which the Company has generated net income over $2 million. The dividends are payable at the discretion of the Company, provided that any unpaid dividends accrue until paid. The Series B Preferred Stock includes a liquidation preference equal to $0.0001 per share, plus any accrued and unpaid dividends. The Series B Preferred Stock is convertible, at the option of the holder into shares of the Company’s Class A Common Stock, with five business days’ notice into 10% of the total number of then issued and outstanding shares of Class A Common Stock, provided that no conversion will take place until all holders of the Series B Preferred Stock consent to such conversion. The Series B Preferred Stock has limited voting rights, relating solely to matters which adversely affect the rights of the Series B Preferred Stock holders. The Company shall reserve and keep available out of its authorized but unissued shares of Class A Common Stock such number of shares sufficient to effect the conversions.

Convertible Preferred Stock, Series C

Effective January 14, 2014, the Company has three billion (3,000,000,000) authorized shares of $0.0001 par value Series C Convertible Preferred Stock (“Series C Preferred Stock”). The Series C Preferred Stock accrues dividends equal to 1.5% of the Company’s revenues per quarter, beginning on January 1^st of any calendar year in which the Company has generated revenue over $1 million, and an additional 6% of the Company’s net income beginning on January 1^st of any calendar year in which the Company has generated net income over $2 million. The dividends are payable at the discretion of the Company, provided that any unpaid dividends accrue until paid. The Series C Preferred Stock includes a liquidation preference equal to $0.0001 per share, plus any accrued and unpaid dividends. Subject to certain conversion restrictions over the first three months from the original issuance date, each share of Series C Preferred Stock is convertible, at the option of the holder into three (3) shares of the Company’s Class A Common Stock, with five business days’ notice. The following conversion restrictions shall apply; (i) the holder shall be prohibited from converting any Series C Preferred shares for a period of one (1) month from the original issuance date, (ii) the holder shall be prohibited from converting not more than 30% of the Series C Preferred shares originally issued to holder during the second (2^nd) month following the original issuance date, (iii) the holder shall be prohibited from converting not more than 30% (60% in total) of the Series C Preferred shares originally issued to holder during the third (3^rd) month following the original issuance date, (iv) the holder shall be prohibited from converting not more than an additional 40% (100% in total) of the Series C Preferred shares originally issued to holder following the end of the third month following the original issuance date. The Series C Preferred Stock shall each vote three voting share and shall vote together with the Common Stock of the Company. The Company shall reserve and keep available out of its authorized but unissued shares of Class A Common Stock such number of shares sufficient to effect the conversions.

Shares of Convertible Series C Preferred Stock Issued for Services to Related Parties

On January 17, 2014, the Company issued 600,000,000 shares of the recently designated Series C Convertible Preferred Stock to the Company’s CEO in exchange for 600,000,000 shares of his previously issued Class A Common Stock. The total fair value of the Series C Convertible Preferred Stock was $568,283 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $345,427 due to the difference in the fair value of the Class A Common Stock exchanged.

On February 7, 2014, the Company issued 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $26,000 short term promissory note. The total fair value of the common stock was $2,385 based on an independent valuation on the date of grant.

39

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On February 21, 2014, the Company issued 10,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $75,000 short term promissory note. The total fair value of the common stock was $9,562 based on an independent valuation on the date of grant.

On February 22, 2014, the Company issued 15,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $100,000 short term promissory note. The total fair value of the common stock was $14,266 based on an independent valuation on the date of grant.

On March 7, 2014, the Company issued 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $30,000 short term promissory note. The total fair value of the common stock was $2,912 based on an independent valuation on the date of grant.

On March 22, 2014, the Company issued 200,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, for providing a personal guaranty on an acquisition loan. The total fair value of the common stock was $127,746 based on an independent valuation on the date of grant.

On March 22, 2014, the Company issued 200,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, for providing a personal guaranty on an acquisition loan. The total fair value of the common stock was $127,746 based on an independent valuation on the date of grant.

On March 22, 2014, the Company issued 1,821,052,632 shares of the Series C Convertible Preferred Stock to the Company’s CEO in exchange for 1,821,052,632 shares, consisting of 1,730,526,316 previously issued and unvested shares of Class A Common Stock and 90,526,316 shares of his previously issued and vested Class A Common Stock. The vesting terms were accelerated commensurate with the exchange. The total fair value of the Series C Convertible Preferred Stock was $1,163,162 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $707,025 due to the difference in the fair value of the Class A Common Stock exchanged.

On March 22, 2014, the Company issued 13,669,568 shares of the Series C Convertible Preferred Stock to L&F Lawn Services, a company owned by our CEO’s family member, a related party, in exchange for 13,669,568 of their previously issued Class A Common Stock. The total fair value of the Series C Convertible Preferred Stock was $8,731 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $5,307 due to the difference in the fair value of the Class A Common Stock exchanged.

On March 22, 2014, the Company issued 60,000,000 shares of the Series C Convertible Preferred Stock to the Company’s CEO in exchange for 60,000,000 shares, consisting of 54,000,000 previously issued and unvested shares of Class A Common Stock and 6,000,000 shares of his previously issued and vested Class A Common Stock. The vesting terms were accelerated commensurate with the exchange. The total fair value of the Series C Convertible Preferred Stock was $38,324 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $23,295 due to the difference in the fair value of the Class A Common Stock exchanged.

Subscriptions Payable Issued for Shares of Convertible Series C Preferred Stock Granted for Services to Related Parties

On January 15, 2014, the Company granted 5,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $43,000 short term promissory note. The total fair value of the common stock was $6,465 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On February 8, 2014, the Company granted 1,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $13,000 short term promissory note. The total fair value of the common stock was $1,193 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 7, 2014, the Company granted 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $22,000 short term promissory note. The total fair value of the common stock was $1,942 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 26, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $37,500 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 26, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

40

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On March 28, 2014, the Company granted 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $18,750 short term promissory note. The total fair value of the common stock was $1,594 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 28, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,390 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

Common Stock, Class A

The Company has 9 billion authorized shares of $0.0001 par value Class A Common Stock.

Class A Common Stock Issuances:

Debt Conversions into Class A Common Stock – Related Parties

On April 2, 2014, the Company issued 250,000,000 shares of Class A Common Stock pursuant to the conversion of $25,000 of convertible debt held by Vivienne Passley, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 7, 2014, the Company issued 125,000,000 shares of Class A Common Stock pursuant to the conversion of $18,750 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 3, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 22, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On June 17, 2014, the Company issued 334,333,745 shares of Class A Common Stock pursuant to the conversion of $33,433 of convertible debt held by Vivienne Passley, a related party, which consisted of $26,000 of principal, $4,933 of interest and $2,500 of liquidated damages. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

Equity Based Debt Settlement Financing, Conversions into Class A Common Stock – IBC Funds, LLC

On February 14, 2014, IBC Funds, LLC (“IBC”) filed a Joint Motion for Approval of Settlement Agreement and Stipulation, and Request for Fairness Hearing in the Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County, Florida, Case No. 2014-CA-000899. IBC has contracted with various note holders of the Company to acquire approximately $314,021 of Company debt and subsequently converted the debt to common stock of the Company at 50% of the lowest trading price over the 15 days prior to, and including the conversion request date pursuant to Section 3(a)(10) of the Securities Act of 1933, which allows the exchange of claims, securities, or property for stock when the arrangement is approved for fairness by a court proceeding. In addition, the Company agreed to issue 75,000,000 settlement shares to IBC. The Company has agreed to these terms as the acquisition of these debts and subsequent conversion would alleviate a significant portion of the Company’s liabilities. A fairness hearing was held on February 14, 2014 and the arrangement was approved. A total of 3,040,823,600 shares of Class A Common Stock was issued, in addition to the 75,000,000 settlement shares, in complete satisfaction of the debt, as disclosed in detail below.

On February 14, 2014, the Company issued 75,000,000 settlement shares of Class A Common Stock pursuant to the February 12, 2014 settlement agreement entered into with IBC Funds, LLC. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized. The total fair value of the common stock was $37,500 based on the closing price of the Company’s common stock on the date of grant.

On February 14, 2014, the Company issued 25,000,000 shares of Class A Common Stock pursuant to the conversion of $3,750 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 24, 2014, the Company issued 100,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

41

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On February 25, 2014, the Company issued 100,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 25, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 28, 2014, the Company issued 142,900,000 shares of Class A Common Stock pursuant to the conversion of $21,435 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 7, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 11, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 14, 2014, the Company issued 101,900,000 shares of Class A Common Stock pursuant to the conversion of $10,190 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 25, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 27, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 2, 2014, the Company issued 151,900,000 shares of Class A Common Stock pursuant to the conversion of $15,190 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 7, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $30,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 10, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 16, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 22, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 28, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

42

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On May 1, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 6, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $10,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 6, 2014, the Company issued 169,123,600 shares of Class A Common Stock pursuant to the conversion of $8,456 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

Debt Conversions into Class A Common Stock – Magna Group, LLC

On January 7, 2014, the Company issued 25,140,000 shares of Class A Common Stock pursuant to the conversion of $5,028 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On January 22, 2014, the Company issued 25,000,000 shares of Class A Common Stock pursuant to the conversion of $5,000 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On January 31, 2014, the Company issued 66,666,667 shares of Class A Common Stock pursuant to the conversion of $10,000 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 6, 2014, the Company issued 100,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 13, 2014, the Company issued 103,273,067 shares of Class A Common Stock pursuant to the conversion of $15,491 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 27, 2014, the Company issued 133,333,333 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 10, 2014, the Company issued 180,000,000 shares of Class A Common Stock pursuant to the conversion of $18,000 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 19, 2014, the Company issued 197,000,000 shares of Class A Common Stock pursuant to the conversion of $19,700 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

43

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Debt Conversions into Class A Common Stock – Asher Enterprises

On March 3, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $27,000 of convertible debt held by Asher Enterprises, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 5, 2014, the Company issued 200,857,143 shares of Class A Common Stock pursuant to the conversion of $28,120 of convertible debt held by Asher Enterprises, which consisted of $26,000 of principal and $2,120 of interest. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 25, 2014, the Company issued 341,666,667 shares of Class A Common Stock pursuant to the conversion of $41,000 of convertible debt held by Asher Enterprises, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

Debt Conversions into Class A Common Stock – St. George Investments, LLC

On March 7, 2014, the Company issued 125,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by St. George Investments, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

Subscriptions Payable Issued for Shares of Class A Common Stock Granted for Services

On April 23, 2014, the Company granted 3,500,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $35,000 short term promissory note. The total fair value of the common stock was $1,050 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On April 24, 2014, the Company granted 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $150,000 short term promissory note. The total fair value of the common stock was $3,000 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On May 7, 2014, the Company granted 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $125,000 short term promissory note. The total fair value of the common stock was $2,000 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On May 28, 2014, the Company granted 3,250,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $32,500 short term promissory note. The total fair value of the common stock was $650 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On June 12, 2014, the Company granted 2,125,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $5,000 short term promissory note. The total fair value of the common stock was $213 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

Convertible Common Stock, Class B

The Company has 60,000,000 authorized shares of $0.0001 par value Convertible Class B Common Stock, convertible at the option of the holder into shares of the Company’s Class A Common Stock on a 1:1 basis. Effective January 14, 2014, the preferential voting rights of the Convertible Class B Common Stock were changed from preferential voting rights of 2,000 votes to each Class A Common Stock vote (2,000:1) to 10,000 votes to each Class A Common Stock vote (10,000:1). The Company shall reserve and keep available out of its authorized but unissued shares of Class A Common Stock such number of shares sufficient to effect the conversions.

Convertible Class B Common Stock Issuance for Services

On March 22, 2014, the Company issued 12,500,000 shares of Convertible Class B Common Stock to the Company’s CEO in consideration for providing services. The total fair value of the common stock was $44,737 based on the closing price of the Company’s common stock on the date of grant.

Dividends Payable

On January 1, 2013, the Company declared and accrued dividends quarterly on its Convertible Series B Preferred Stock pursuant to the recognition of revenues in excess of $1 million during the year ended December 31, 2012. Dividends equal to 1.5% of the Company’s revenues per quarter during the year ending December 31, 2013 accrue quarterly, resulting in a dividend payable of $11,000, which was subsequently paid on September 11, 2014, with the issuance of 110,000,000 shares of Class A Common Stock in lieu of cash.

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EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 18 - Subsequent Events

Strand, Inc., Asset Purchase Agreement

On July 31, 2014, one of the Company’s subsidiaries, Telecorp Products, Inc., through a newly-formed wholly-owned Illinois subsidiary, Stratin, Inc. (“Stratin”), closed on an Asset Purchase Agreement (“APA”) with Strand, Inc., an Illinois corporation (“Strand”). Pursuant to the APA, we purchased substantially all of the seller’s assets, including intangible assets and certain tangible assets used in connection with Strand’s software business, including all of its intellectual property, its business trademarks and copyrights, equipment, computers, software, machinery and accounts receivable in consideration for an aggregate of $185,000, of which $100,000 was paid at the closing, and $85,000 was financed by way of a Convertible Promissory Note (the “Strand Note”). The terms of the Strand Note include interest at 6% per annum, no payments of either principal or interest for thirty (30) days after Closing and monthly principal and interest payments of $2,586 commencing thereafter, no prepayment penalty, and a balloon payment consisting of full payment of all amounts due after one (1) year. In the event we default on the July 31, 2015 balloon payment, the seller, may at his option, convert the then outstanding principal and interest into the Class A Common stock of the parent company of Telecorp Products, Inc. (Epazz, Inc.) based on a twenty-five percent (25%) discount to the average closing bid price of Epazz’ common stock over the five (5) trading days prior to the date of default, or $0.00075 per share, whichever is greater. The Strand Note is secured by a lien on the assets of Strand. We did not purchase and Strand agreed to retain and be responsible for any and all liabilities of Strand. We did not purchase and Strand agreed to retain and be responsible for any and all liabilities of Strand.

The unaudited supplemental pro forma results of operations of the combined entities had the dates of the acquisitions been January 1, 2014 or January 1, 2013 are as follows:

	Combined Pro Forma:
	For the six months ended June 30,
	2014			2013
Revenue:	$	744,770		$	637,732
Expenses:
Operating expenses		3,193,363			2,334,314
Net operating loss		(2,448,593	)		(1,696,582	)
Other income (expense)		(1,968,949	)		(360,762	)
Net loss	$	(4,417,542	)	$	(2,057,344	)
Weighted average number of common shares
Outstanding – basic and fully diluted		4,783,826,881			1,666,897,778
Net loss per share – basic and fully diluted	$	(0.00	)	$	(0.00	)

Debt Financing, Related Parties, GG Mars Capital, Inc.

Originated August 1, 2014, a $36,000 unsecured promissory note payable, including a $8,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on December 3, 2014. The note also carried a liquidated damages fee of $1,000 upon default, which was amended and removed on September 19, 2014.

Debt Financing, Related Parties, L&F Lawn Service, Inc.

Originated August 21, 2014, an unsecured $12,500 promissory note payable, including a $2,500 loan origination fee, owed to L&F Lawn Service, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on December 21, 2014. The note also carried a liquidated damages fee of $1,000 upon default, which was amended and removed on September 19, 2014.

Issuances of Series C Preferred Stock Granted for Services to Related Parties on Subscriptions Payable

On July 7, 2014 the Company issued 5,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on January 15, 2014 in consideration for a $43,000 short term promissory note. The total fair value of the common stock was $6,465 based on an independent valuation on the date of grant.

On July 7, 2014 the Company issued 1,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on February 8, 2014 in consideration for a $13,000 short term promissory note. The total fair value of the common stock was $1,193 based on an independent valuation on the date of grant.

45

EPAZZ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On July 7, 2014 the Company issued 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost that was previously granted on March 7, 2014 in consideration for a $22,000 short term promissory note. The total fair value of the common stock was $1,942 based on an independent valuation on the date of grant.

On July 7, 2014 the Company issued 3,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost that was previously granted on March 26, 2014 in consideration for a $37,500 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant.

On July 7, 2014 the Company issued 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on March 26, 2014 in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant.

On July 7, 2014 the Company issued 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost that was previously granted on March 28, 2014 in consideration for a $18,750 short term promissory note. The total fair value of the common stock was $1,594 based on an independent valuation on the date of grant.

On July 7, 2014 the Company issued 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on March 28, 2014 in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant.

Issuances of Class A Common Stock Granted for Services

On July 30, 2014 the Company issued 277,777,778 shares of Class A Common Stock to Wellington Shields Holdings, LLC, as a fee for closing on an acquisition. The total fair value of the common stock was $55,556 based on the closing price of the Company’s common stock on the date of grant.

Issuances of Class A Common Stock Granted for Services to Related Parties on Subscriptions Payable

On August 29, 2014 the Company issued 3,500,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on April 23, 2014 in consideration for a $35,000 short term promissory note. The total fair value of the common stock was $1,050 based on the closing price of the Company’s common stock on the date of grant.

On August 29, 2014 the Company issued 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost that was previously granted on April 24, 2014 in consideration for a $150,000 short term promissory note. The total fair value of the common stock was $3,000 based on the closing price of the Company’s common stock on the date of grant.

On August 29, 2014 the Company issued 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost that was previously granted on May 7, 2014 in consideration for a $125,000 short term promissory note. The total fair value of the common stock was $2,000 based on the closing price of the Company’s common stock on the date of grant.

On August 29, 2014 the Company issued 3,250,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on May 28, 2014 in consideration for a $32,500 short term promissory note. The total fair value of the common stock was $650 based on the closing price of the Company’s common stock on the date of grant.

On August 29, 2014 the Company issued 2,125,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on June 12, 2014 in consideration for a $5,000 short term promissory note. The total fair value of the common stock was $213 based on the closing price of the Company’s common stock on the date of grant.

Issuance of Dividends Paid via Class A Common Stock in Lieu of Cash

On September 11, 2014 the Company issued a total of 110,000,000 shares of Class A Common Stock amongst three related party Convertible Series B Preferred Stockholders pursuant to a dividend payable of $11,000 that was earned at a rate of 1.5% of the Company’s revenues for the 2013 calendar year. The total fair value of the common stock was $55,556 based on the closing price of the Company’s common stock on the date of grant.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS

ALL STATEMENTS IN THIS DISCUSSION THAT ARE NOT HISTORICAL ARE FORWARD-LOOKING STATEMENTS. STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT OTHERWISE INCLUDE THE WORDS "BELIEVES", "EXPECTS", "ANTICIPATES", "INTENDS", "PROJECTS", "ESTIMATES", "PLANS", "MAY INCREASE", "MAY FLUCTUATE" AND SIMILAR EXPRESSIONS OR FUTURE OR CONDITIONAL VERBS SUCH AS "SHOULD", "WOULD", "MAY" AND "COULD" ARE GENERALLY FORWARD-LOOKING IN NATURE AND NOT HISTORICAL FACTS. THESE FORWARD-LOOKING STATEMENTS WERE BASED ON VARIOUS FACTORS AND WERE DERIVED UTILIZING NUMEROUS IMPORTANT ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INCLUDE THE INFORMATION CONCERNING OUR FUTURE FINANCIAL PERFORMANCE, BUSINESS STRATEGY, PROJECTED PLANS AND OBJECTIVES. THESE FACTORS INCLUDE, AMONG OTHERS, THE FACTORS SET FORTH BELOW UNDER THE HEADING "RISK FACTORS." ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. MOST OF THESE FACTORS ARE DIFFICULT TO PREDICT ACCURATELY AND ARE GENERALLY BEYOND OUR CONTROL. WE ARE UNDER NO OBLIGATION TO PUBLICLY UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS, EXCEPT AS PROVIDED BY LAW. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-Q, UNLESS ANOTHER DATE IS STATED, ARE TO JUNE 30, 2014. AS USED HEREIN, THE “COMPANY,” “EPAZZ,” “WE,” “US,” “OUR” AND WORDS OF SIMILAR MEANING REFER TO EPAZZ, INC., AND INCLUDE EPAZZ’S WHOLLY OWNED SUBSIDIARIES, DESK FLEX, INC., AN ILLINOIS CORPORATION (“DFI”), PROFESSIONAL RESOURCE MANAGEMENT, INC. (“PRM”), AN ILLINOIS CORPORATION, INTELLISYS, INC., A WISCONSIN CORPORATION ("INTELLISYS"), K9 BYTES, INC., AN ILLINOIS CORPORATION (“K9 BYTES”), MS HEALTH, INC., AN ILLINOIS CORPORATION (“MS HEALTH”), TELECORP PRODUCTS, INC., A MICHIGAN CORPORATION (“TELECORP”), JADIAN, INC., AN ILLINOIS CORPORATION (“JADIAN”), STRAND, INC., AN ILLINOIS CORPORATION (“STRAND”) AND FLEXFRIDGE, INC., AN ILLINOIS CORPORATION (“FLEXFRIDGE”), UNLESS OTHERWISE STATED, OR THE CONTEXT SUGGESTS OTHERWISE.

BUSINESS OVERVIEW

The Company was incorporated in the State of Illinois on March 23, 2000 to create software to help college students organize their college information and resources. The idea behind the Company was that if the information and resources provided by colleges and universities was better organized and targeted toward each individual, the students would encounter a personal experience with the college or university that could lead to a lifetime relationship with the institution. This concept is already used by business software designed to retain relationships with clients, employees, vendors and partners.

The Company developed a web portal infrastructure operating system product called BoxesOS v3.0. BoxesOS provides a web portal infrastructure operating system designed to increase the satisfaction of key stakeholders (students, faculty, alumni, employees, and clients) by enhancing the organizational experience through the use of enterprise web-based applications to organize their relationships and improve the lines of communication. BoxesOS decreases an organization’s operating expenses by providing development tools to create advanced web applications. The applications can be created by non-technical staff members of each institution. BoxesOS creates sources of revenue for Alumni Associations and Non-Profit organizations through utilizing a web platform to conduct e-commerce and provides e-commerce tools for small businesses to easily create "my accounts" for their customers. It further reduces administrative costs, by combining technology applications into one package, providing an alternative solution to enterprise resource planner (“ERP”) modules and showing a return on investment for institutions by reducing the need for 3rd party applications license fees. BoxesOS can also link a college or university’s resources with the business community by allowing businesses to better train their employees by utilizing courseware development from higher education institutions.

On, or about June 18, 2008, the Company acquired Desk Flex, Inc., an Illinois corporation (“DFI”), and Professional Resource Management, Inc., an Illinois corporation (“PRMI”).

Professional Resource Management, Inc. and Desk Flex, Inc.

Professional Resource Management, Inc. was incorporated under the laws of Illinois in June 1985. On or around December 31, 1997, Professional Resource Management, Inc. established a wholly-owned subsidiary, PRM Transfer Corp. On, or around December 31, 1997, Professional Resource Management, Inc., PRM Transfer Corp. and Arthur Goes entered into a Reorganization Agreement, whereby Professional Resource Management, Inc. transferred all of its assets and liabilities to PRM Transfer Corp., with the exception of those assets pertaining to its proprietary source code or software product, Desk/Flex. Also pursuant to the Reorganization Agreement, Professional Resource Management, Inc. amended its corporate charter to change its name to Desk Flex, Inc. (“DFI”), and PRM Transfer Corp. amended its charter to change its name to Professional Resources Management, Inc. (“PRMI”). The transfer was executed in an effort by Mr. Goes to better promote the Desk/Flex product.

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PRMI and DFI are separate legal entities, but operate in conjunction. PRMI and DFI share office space and certain employees. DFI’s main source of revenue comes from the “Desk/Flex Software” product, which it owns, and PRMI’s main source of revenue comes from the “Agent Power” product line, which it owns. PRMI also acts as the general agent for DFI; however, there is no formal agency agreement between the two companies.

Autohire Software

Effective 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 and the intellectual property of Igenti associated therewith (the “AutoHire Software”). The AutoHire system provides a tool to power career centers, post job ads to sites and job boards, and to collect resumes online. The online processes supported by the system provide the mechanism to comply with the record keeping requirements of Title VII of the Civil Rights Act of 1964, which apply to organizations employing fifteen (15) or more persons.

IntelliSys, Inc.

On or about September 2, 2010, the Company entered into a Stock Purchase Agreement (the “IntelliSys Purchase Agreement”) with IntelliSys, Inc., a Wisconsin corporation (“IntelliSys”) and Paul Prahl, an individual and the sole stockholder of IntelliSys. Pursuant to the IntelliSys Purchase Agreement, the Company purchased 100% of the outstanding shares of IntelliSys. The IntelliSys Purchase Agreement closed on March 31, 2011 (“Closing”). As a result of the Closing, IntelliSys became a wholly-owned subsidiary of the Company. IntelliSys developed the IPMC Software (“IPMC”)(Integrated Plant Management Control) which is a software system design for water and wastewater facility management. IPMC is the technology-based strategy for optimizing operations by automatically collecting, managing, organizing and disseminating information for the operations, management, laboratory, maintenance, and engineering functions.

K9 Bytes, Inc.

On October 26, 2011, we, through a newly-formed wholly-owned Illinois subsidiary, K9 Bytes, Inc. (“K9 Sub”), entered into an Asset Purchase Contract and Receipt Agreement with K9 Bytes, Inc., a Florida corporation (“K9 Bytes” and the “Purchase Contract”). Pursuant to the Purchase Contract, we purchased all of K9 Bytes assets, including all of its intellectual property, its business trade name, website (k9bytessoftware.com), furniture, fixtures, equipment and inventory, accounts receivable and goodwill.

MS Health, Inc.

On March 8, 2012, we, through a newly-formed wholly-owned Illinois subsidiary, MS Health, Inc. (“MS Health”), entered into an Asset Purchase Agreement with MS Health Software Corporation, a New Jersey corporation (“MSHSC”). Pursuant to the Purchase Agreement, we purchased all of MSHSC’s assets, including all of its intellectual property, its business trademarks and copyrights, furniture, fixtures, equipment and software.

MSHSC developed and sells CHMCi, an enterprise wide solution that includes tools to effectively provide, manage, bill, and track behavioral healthcare and social services. With CMHCi, an organization will realize the benefits of increased efficiency, accountability, and productivity. CMHCi offers server-based, internet, and secure cloud computing enabling the user to access information as required. By maintaining a complete electronic client record, including data collection and reporting across multiple programs, locations, episodes of care, and service providers, CMHCi helps eliminate redundant record keeping. The scheduler component tracks client, staff, and group appointments. Easy to use, it interfaces seamlessly with service authorization tracking, service history, and billing. The integrated financial reporting component provides the basis for an efficient and comprehensive accounting system, including electronic claims and remittance, third party insurance, and client, municipality, and grantor billing.

In connection with the Asset Purchase, the shareholders of MSHSC and the Company (through MS Health) entered into a Covenant Not to Compete; Consulting Agreement, Non-Competition and Consulting Agreement, pursuant to which the shareholders of MSHSC agreed to provide consulting services to the Company for a period of six months following closing. Pursuant to the agreement, the shareholders of MSHSC agreed not to compete against the Company for two years from the closing of the acquisition.

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FlexFridge, Inc.

On March 4, 2013, the Board of Directors of Epazz, Inc. (the “Company”), consisting solely of Shaun Passley, Ph.D., the Company’s majority shareholder, approved the formation of a new wholly-owned subsidiary of the Company named Cooling Technology Solutions, Inc., which was later renamed, Z Fridge, Inc., and ultimately again renamed as, FlexFridge, Inc. (“FlexFridge”) on May 29, 2014. The Company has filed a non-provisional patent application for its Project Flex product, which consists of a patent pending foldable mini-fridge. On November 21, 2013, the Company was spun off to shareholders of record on September 15, 2013, whereby shareholders of Epazz, Inc. received one (1) share of FlexFridge in exchange for each ten (10) shares held of Epazz, Inc. Epazz has a controlling financial interest in FlexFridge. As such, FlexFridge is consolidated within these financial statements pursuant to Accounting Standards Codification (“ASC”) 810-10. There has been no material activity within FlexFridge to date.

Telecorp Products, Inc.

On February 28, 2014, the Company entered into a Stock Purchase Agreement (the “Telecorp Purchase Agreement”) with Troy Holdings International, Inc., an Ontario Canada corporation (“Troy Holdings”), Telecorp Products, Inc. a Michigan corporation and Troy, Inc., a shareholder and the sole stockholder of Telecorp. Pursuant to the Telecorp Purchase Agreement, the Company purchased 100% of the outstanding shares of Telecorp from Troy Holdings, for an aggregate purchase price of $302,000 (the “Purchase Price”). The Purchase Price was payable as follows:

(a)

The Company paid Troy Holdings $200,000 at the Closing (the “Cash Consideration”) of the Telecorp Purchase Agreement; and

(b)

The Company provided Troy Holdings with a Promissory Note in the amount of $102,000 (the “Telecorp Note”), as adjusted from an original $120,000 by $18,000 of liabilities acquired in excess of the agreed upon limit of $50,000 of liabilities, which provides for six (6) equal monthly payments of $20,000 commencing thirty (30) days after the Closing. The Telecorp Note is non-interest bearing except upon default, in which case the interest rate shall be 10% per annum.

Additionally, the Company agreed to assume aggregate outstanding Telecorp liabilities of up to $50,000 in connection with the Closing. A total of $68,000 of liabilities was actually acquired, and the resulting $18,000 of excess liabilities was credited as payment against the Telecorp Note. As a result of the Closing, Telecorp became a wholly-owned subsidiary of the Company.

Telecorp developed and sells software to effectively operate contact centers. Telecorp’s solutions work with equipment from the giants of the computer telephony industry, such as Avaya, Cisco and Nortel Networks. In connection with the Stock Purchase Agreement, the shareholders of Telecorp and the Company entered into a Non-Disclosure/Non-Compete Agreement, pursuant to which the shareholders of Telecorp and the Company, each agreed to not for a period of one (1) year, communicate or divulge to, or use for the benefit of itself or any other person, firm, association or corporation, any information in any way relating to the Proprietary Property, in competition with the business of the Company, and pursuant to the agreement, the shareholders of Telecorp agreed not to compete against the Company for one (1) year from the closing of the acquisition.

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 $428,577 of goodwill. According to the purchase method of accounting, the Company recognized the identifiable assets acquired and liabilities assumed.

Zinergy (DBA) formerly Cynergy Software, Asset Purchase

On April 4, 2014, we closed on a March 13, 2014 Asset Purchase Agreement with Cynergy Corporation, an Oklahoma corporation (“Cynergy”). Pursuant to the Purchase Agreement, we purchased substantially all of the intangible assets and certain tangible assets used in connection with Cynergy’s help desk software business, including all of its intellectual property, its business trademarks and copyrights, equipment, computers, software, machinery and accounts receivable in consideration for an aggregate of $75,000, of which $25,000 was paid at the closing, $25,000 was paid within fifteen (15) days after the closing and the remaining $25,000 was paid within forty (40) days after the closing. We did not purchase and Cynergy agreed to retain and be responsible for any and all liabilities of Cynergy Corporation. The acquisition was financed in part with a software financing agreement. The Financing agreement has a lien against the software assets of Zinergy.

This acquisition was accounted for as a business combination under the purchase method of accounting. The purchase resulted in $65,139 of goodwill. According to the purchase method of accounting, the Company recognized the identifiable assets acquired and liabilities assumed, consisting of $8,035 of software and $1,826 of an intangible asset for the trade name.

Zinergy Service Desk Software is very customizable for business processes. Zinergy integrates with just about every other business tool available. Help Desk Support Software, Help Desk Ticketing Software, Customer Support Software, HRIS Ticketing Solution and much more.

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Jadian Enterprises, Inc.

On May 9, 2014, the Company, through a newly-formed wholly-owned Illinois subsidiary, Jadian Enterprises, Inc. (“Jadian Enterprises”), closed on an Asset Purchase Agreement (“APA”) with Jadian, Inc., a Michigan corporation (“Jadian”). Pursuant to the APA, we purchased substantially all of the intangible assets and certain tangible assets used in connection with Jadian’s software business, including all of its intellectual property, its business trademarks and copyrights, equipment, computers, software, machinery and accounts receivable in consideration for an aggregate of $425,000, of which $207,945 was paid at the closing, $7,055 was settled as a result of certain offsets, including an offset for $40,760 for prepaid maintenance contracts received by the seller prior to Closing, as diminished by a credit for Accounts Receivable of $33,705, and $210,000 was financed by way of a Promissory Note (the “Jadian Note”). The terms of the Jadian Note include interest at 6% per annum, a ten (10) year amortization, full right of offset, no payments of either principal or interest for thirty (30) days after Closing and equal payments of principal and interest commencing thereafter, no prepayment penalty, and a balloon payment consisting of full payment of all amounts due after three (3) years. The Jadian Note is secured by a lien on the assets of Jadian. We did not purchase and Jadian agreed to retain and be responsible for any and all liabilities of Jadian. We did not purchase and Jadian agreed to retain and be responsible for any and all liabilities of Jadian.

The Company also agreed to provide the seller with additional earn-out rights in connection with the purchase, which provide that the seller will receive up to a maximum of $100,000 per year for the three twelve month periods following the Closing (any delinquent earn-out payment shall bear interest at the rate of 10% per annum until the delinquent amount is paid), based on the gross revenues generated by Jadian during such applicable year based on the following schedule (the “Earn-Out”):

Revenue for the Relevant Year	Earn-Out
$-0- to $500,000	$	–
$500,000 to $600,000	$	25,000
$600,000 to $700,000	$	50,000
$700,000 to $800,000	$	75,000
$800,000 or more	$	100,000

Provided that in no event shall the total amount payable to Jadian Enterprises in connection with the Earn-Out exceed $100,000 per year, or $300,000 in aggregate. Management has determined the probability of having to pay out any of these Earn-Out provisions as Medium and accordingly, has not recorded a contingent liability.

Jadian sells Enterprise Quality Manager (EQ/M) software. EQ/M is a web-based solution with remote tools that enables enforcement bodies to electronically manage compliance, audit, inspection, work order, and licensing/certification/permits, and enforcement activities. The first version of the software was written in 1990 to help manage the activities related to auditing and corrective actions. The software is now in its third generation, with the current Microsoft .NET™ version released commercially in 2003.

PLAN OF OPERATION

During the next twelve months, we plan to integrate our recent acquisitions, including Zinergy, Telecorp, Jadian and Strand, and hope to expand our customer base for our Desk/Flex, Agent Power, AutoHire, IntelliSys, K9 Bytes and MS Health software packages. In addition, we plan to develop our Project Flex product, which consists of a patent pending foldable mini-fridge that has yet to be developed, and continue to pursue growth through additional acquisitions. We believe we can satisfy our cash requirements for the next three months with our current cash on hand and revenues generated from our operations. As such, continuing operations and completion of our plan of operation are contingent on finding additional sources of capital. We cannot assure investors that adequate revenues will be generated. In the absence of our projected revenues, we may be unable to proceed with our plan of operations. Even without significant revenues or additional funding within the next several months, we still anticipate being able to continue with our present activities, but we may require financing to potentially achieve our goals of growing our operations and increasing our revenues.

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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2014, AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2013:

	For the Three Months Ended
	June 30,						Increase /
	2014			2013			(Decrease)
Revenues	$	327,525		$	279,119		$	48,406
General and Administrative		278,446			166,403			112,043
Salaries and Wages		108,502			1,555,081			(1,446,579	)
Depreciation and Amortization		51,398			67,385			(15,987	)
Bad Debts (Recoveries)		(5,250	)		45			(5,295	)
Total Operating Expenses		433,096			1,788,914			(1,355,818	)
Net Operating Loss		(105,571	)		(1,509,795	)		(1,404,224	)
Total Other Income (Expense)		(658,660	)		(157,783	)		500,877
Net Loss	$	(764,231	)	$	(1,667,578	)	$	(903,347	)

Revenues:

For the three months ended June 30, 2014 we had revenue of $327,525 compared to revenue of $279,119 for the three months ended June 30, 2013, an increase of $48,406, or 17% from the comparative period. The increase in revenues was due primarily to the acquisition of our new subsidiaries.

General and Administrative:

General and administrative expenses increased by $112,043, or 67% to $278,446 for the three months ended June 30, 2014 compared to general and administrative expense of $166,403 for the three months ended June 30, 2013. The increase in general and administrative expense is due primarily to increased public relations fees and general increases due to the acquisition of subsidiaries incurred during the three months ending June 30, 2014 that wasn’t incurred during the three months ending June 30, 2013.

Salaries and Wages:

Salaries and wages decreased by $1,446,579, or 93% to $108,502 for the three months ended June 30, 2014 compared to salaries and wages of $1,555,081 for the three months ended June 30, 2013. The decrease in salaries and wages is due primarily to the stock based compensation of $1,430,500 during the three months ended June 30, 2013, which was comprised of the issuance of a total of 746,026,316 shares of Class A Common Stock and 5,000,000 shares of Convertible Class B Common Stock granted amongst Shaun Passley, CEO and Fay Passley. No shares were issued for services during the three months ending June 30, 2014.

Depreciation and Amortization:

We had depreciation and amortization expense of $51,398 for the three months ended June 30, 2014 as compared to $67,385 for the three months ended June 30, 2013, a decrease of $15,987, or 24% from the comparative period. This decrease is principally due to certain assets reaching the end of their depreciable life cycle and intangible assets that were impaired on December 31, 2013 that are no longer being amortized. We anticipate the replacement of these assets as resources become available.

Bad Debts (Recoveries):

We had bad debts (recoveries) of $(5,250) for the three months ended June 30, 2014 as compared to bad debts (recoveries) of $45 for the three months ended June 30, 2013, a decrease in bad debts (recoveries) of $5,295, or 11,767% from the comparative period. This decrease is due to changes in our allowance for doubtful accounts. We provide an allowance for doubtful accounts of all accounts receivable aging greater than 30 days old, and are actively managing our receivables.

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Net Operating Loss:

Total operating expenses for the three months ended June 30, 2014 were $433,096, compared to $1,788,914 for the three months ended June 30, 2013, a decrease of $1,355,818, or 76% from the comparative period. We had net operating losses of $105,571, compared to $1,509,795 for the three months ended June 30, 2013, a decrease of $1,404,224, or 93% from the comparative period. The decrease in operating loss was primarily due to the decrease in stock based compensation to related parties.

Other Income (Expense):

Interest expense was $501,712 for the three months ended June 30, 2014 compared to $143,543 for the three months ended June 30, 2013, an increase of $358,169, or 250% from the comparative period. Interest expense increased primarily due to significant increased borrowings since the three months ended June 30, 2013.

Loss on debt modifications, related parties was $172,864 for the three months ended June 30, 2014 compared to $14,240 for the three months ended June 30, 2013, an increase of $158,624 from the comparative period. The current period loss on debt modification was due to an amended promissory note with Vivienne Passley, which at the time of modification carried a balance of $57,621, consisting principal of $51,000 and $6,621 of interest. We amended the promissory note to include a fixed conversion price of $0.0001 per share. The Company compared the fair value of the debt immediately preceding the modification to the fair value after the modification to determine the loss on modification of $172,864. The prior period loss on debt modification was due to the settlement of a promissory note with Vivienne Passley, which at the time of modification carried a balance of $14,239, including accrued interest of $1,239. We amended the promissory note to satisfy repayment with 14,239,500 shares of common stock valued at $28,479 based on the closing price of the common stock on the grant date. The Company compared the fair value of the debt immediately preceding the modification to the fair value after the modification to determine the loss on modification of $14,240

Change in derivative liabilities consisted of a gain of $15,915 for the three months ended June 30, 2014 compared to $-0- for the three months ended June 30, 2013, an increase of $15,915 from the comparative period. The current period gain on derivative liabilities consisted of a net gain in market value of $15,915 on the convertible debts.

Net Loss:

We had a net loss of $764,231 for the three months ended June 30, 2014 compared to a net loss of $1,667,578 for the three months ended June 30, 2013, resulting in a decreased net loss of $903,347, or 54% from the comparative period. The decreased net loss was primarily due the decrease in stock based compensation to related parties and $15,915 gain attributable to the change in derivative liabilities, as offset by increased interest expense incurred with increased borrowings, along with the increased loss on debt modifications incurred during the three months ended June 30, 2014 compared to the three months ended June 30, 2013.

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RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2014, AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2013:

	For the Six Months Ended
	June 30,						Increase /
	2014			2013			(Decrease)
Revenues	$	580,077		$	487,129		$	92,948
General and Administrative		570,139			287,634			282,505
Salaries and Wages		2,444,999			1,771,234			673,765
Depreciation and Amortization		97,555			144,160			(46,605	)
Bad Debts (Recoveries)		(5,262	)		(8,740	)		3,478
Total Operating Expenses		3,107,431			2,194,288			913,143
Net Operating Loss		(2,527,354	)		(1,707,159	)		820,195
Total Other Income (Expense)		(1,968,250	)		(358,990	)		1,609,260
Net Loss	$	(4,495,604	)	$	(2,066,149	)	$	2,429,455

Revenues:

For the six months ended June 30, 2014 we had revenue of $580,077 compared to revenue of $487,129 for the six months ended June 30, 2013, an increase of $92,948, or 19% from the comparative period. The increase in revenues was due primarily to the acquisition of our new subsidiaries.

General and Administrative:

General and administrative expenses increased by $282,505, or 98% to $570,139 for the six months ended June 30, 2014 compared to general and administrative expense of $287,634 for the six months ended June 30, 2013. The increase in general and administrative expense is due primarily to increased public relations fees and general increases due to the acquisition of subsidiaries incurred during the six months ending June 30, 2014 that wasn’t incurred during the six months ending June 30, 2013.

Salaries and Wages:

Salaries and wages increased by $673,765, or 38% to $2,444,999 for the six months ended June 30, 2014 compared to salaries and wages of $1,771,234 for the six months ended June 30, 2013. The increase in salaries and wages is due primarily to the stock based compensation of $2,187,923, which was comprised of $1,897,189 of share based compensation related to the accelerated vesting of Class A Common shares and subsequent exchange and issuance of 2,621,052,632 shares of Series C Convertible Preferred stock granted to Shaun Passley, CEO, as well as, the accelerated vesting of Class A Common shares and subsequent exchange and issuance of 73,669,568 shares of Series C Convertible Preferred stock amongst related parties, L&F Lawn Services and Craig Passley valued at $28,602, the issuance of 400,000,000 shares of Series C Convertible Preferred stock valued at a total of $255,492 amongst related parties, GG Mars Capital and Star Financial, in addition to the fair value of $6,640 pursuant to an amendment to increase the Class B Common voting rights from 2,000:1 to 10,000:1 during the six months ended June 30, 2014, compared to stock based compensation of $1,512,500 pursuant to the issuance of a total of 812,526,316 shares of Class A Common Stock granted amongst Shaun Passley, CEO, Craig Passley, Corporate Secretary and Vivienne Passley, and 5,000,000 shares of Convertible Class B Common Stock valued at $9,500 granted to Shaun Passley, CEO, in addition to increased cash compensation related to additional personnel on hand pursuant to our K9 Bytes subsidiary that was acquired on March 28, 2012. Another 254,000,000 shares valued at a total of $454,000 were issued that have not vested, and are presented as a deduction against additional paid in capital in the equity section of the balance sheet until the terms of the vesting periods are satisfied, that was incurred during the six months ended June 30, 2013.

Depreciation and Amortization:

We had depreciation and amortization expense of $97,555 for the six months ended June 30, 2014 as compared to $144,160 for the six months ended June 30, 2013, a decrease of $46,605, or 32% from the comparative period. This decrease is principally due to certain assets reaching the end of their depreciable life cycle and intangible assets that were impaired on December 31, 2013 that are no longer being amortized. We anticipate the replacement of these assets as resources become available.

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Bad Debts (Recoveries):

We had bad debts (recoveries) of $5,262 for the six months ended June 30, 2014 as compared to bad debts (recoveries) of $8,740 for the six months ended June 30, 2013, a decrease in bad debts (recoveries) of $3,478, or 40% from the comparative period. This decrease is due to changes in our allowance for doubtful accounts. We provide an allowance for doubtful accounts of all accounts receivable aging greater than 30 days old, and are actively managing our receivables.

Net Operating Loss:

Total operating expenses for the six months ended June 30, 2014 were $3,107,431, compared to $2,194,288 for the six months ended June 30, 2013, an increase of $913,143, or 42% from the comparative period. We had net operating losses of $2,527,354, compared to $1,707,159 for the six months ended June 30, 2013, an increase of $820,195, or 48% from the comparative period. The increase in operating loss was primarily due the increase in stock based compensation to related parties.

Other Income (Expense):

Interest expense was $1,017,777 for the six months ended June 30, 2014 compared to $262,958 for the six months ended June 30, 2013, an increase of $754,819, or 287% from the comparative period. Interest expense increased primarily due to significant increased borrowings, along with increased non-cash discounts of $657,818 attributable to the amortization of debt discounts, loan origination costs and a loss on convertible debt default provisions incurred during the six months ended June 30, 2014, compared to the same period in 2013.

Loss on debt modifications, related parties was $172,864 for the six months ended June 30, 2014 compared to $96,032 for the six months ended June 30, 2013, an increase of $76,832 from the comparative period. The current period loss on debt modification was due to an amended promissory note with Vivienne Passley, which at the time of modification carried a balance of $57,621, consisting principal of $51,000 and $6,621 of interest. We amended the promissory note to include a fixed conversion price of $0.0001 per share. The Company compared the fair value of the debt immediately preceding the modification to the fair value after the modification to determine the loss on modification of $172,864. The prior period loss on debt modification was due to an amended convertible promissory note with Star Financial Corporation, which at the time of modification carried a balance of $190,849. We amended the convertible promissory note to revise the conversion terms from a $0.005 floor and 75% discount to market to conversion terms consisting of, "equal to the greater of, (a) 50% of the Market Price, or (b) the fixed conversion price of $0.00075 per share". The Company compared the fair value of the debt immediately preceding the modification to the fair value after the modification to determine the loss on modification of $81,792.

Change in derivative liabilities was a loss of $777,664 for the six months ended June 30, 2014 compared to $-0- for the six months ended June 30, 2013, an increase of $777,664 from the comparative period. The current period loss on derivative liabilities consisted of a loss of $837,010 due to the value in excess of the face value of the convertible notes, as offset by a net gain in market value of $59,346 on the convertible debts.

Net Loss:

We had a net loss of $4,495,604 for the six months ended June 30, 2014 compared to a net loss of $2,066,149 for the six months ended June 30, 2013, resulting in an increased net loss of $2,429,455, or 118% from the comparative period. The increased net loss was primarily due the increase in stock based compensation to related parties and interest expense incurred with increased borrowings, along with a $777,664 loss attributable to the change in derivative liabilities incurred during the six months ended June 30, 2014 compared to the six months ended June 30, 2013.

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LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes total assets, accumulated deficit, stockholders’ equity (deficit) and working capital at June 30, 2014 compared to December 31, 2013.

	June 30,			December 31,
	2014			2013
Total Assets	$	1,995,461		$	1,082,961
Total Liabilities	$	3,751,495		$	2,607,576
Accumulated (Deficit)	$	(11,997,598	)	$	(7,501,994	)
Stockholders’ Equity (Deficit)	$	(1,756,034	)	$	(1,524,615	)
Working Capital (Deficit)	$	(2,469,820	)	$	(1,283,338	)

We had total current assets of $239,029 as of June 30, 2014, consisting of cash of $101,871, net accounts receivable of $71,762, and other current assets of $65,396.

We had non-current assets of $1,756,432 as of June 30, 2014, consisting of $130,973 of property and equipment, net, including accumulated depreciation and amortization of $107,895, intangible assets of $476,418, net, including $387,444 of accumulated amortization and goodwill of $1,149,041 related to the purchase of our subsidiaries.

We had total current liabilities of $2,708,849 as of June 30, 2014, consisting of $11,000 of dividends payable in stock or cash at the election of management, $414,879 of accounts payable and accrued expenses, $496,510 of deferred revenues, current portion of outstanding balances on lines of credit of $86,544, current portion of capitalized leases in the amount of $4,987, current maturities of notes payable, related parties of $930,868, current maturities on convertible debts of $152,275, net of discounts of $1,112, and current maturities on long term debts in the amount of $612,898.

We had negative working capital of $2,469,820 and a total accumulated deficit of $11,997,598 as of June 30, 2014.

We had total liabilities of $3,751,495 as of June 30, 2014, which included total current liabilities of $2,708,849, long-term portion of capitalized leases of $3,174 and long-term debts of $1,039,472, net of current portion.

We had net cash used in operating activities of $276,897 for the six months ended June 30, 2014, which was primarily due to our net loss of $365,546 after adjustments for non-cash operating expenses, a decrease of $1,130 in accounts receivable and a decrease of $42,835 of other current assets, and an increase of $118,743 in accounts payable and accrued expenses, and a decrease of $74,059 in deferred revenues.

We had $525,721 of net cash used in investing activities for the six months ended June 30, 2014, which consisted of $43,512 of cash paid for the purchase of equipment, $482,945 paid for the acquisition of subsidiaries, offset by $736 received in cash with the merger.

We had $695,922 of net cash provided by financing activities during the six months ended June 30, 2014, which represented proceeds from notes payable, related parties of $675,152, and proceeds from notes payable of $345,696, repayments on notes payable, related parties of $82,879, repayments on notes payable of $231,287, repayments on convertible notes payable of $1,500 and principal payments on capital leases of $9,260.

Declaration of Dividends

On January 1, 2013, the Company declared and accrued dividends quarterly on its Convertible Series B Preferred Stock pursuant to the recognition of revenues in excess of $1 million during the year ended December 31, 2012. Dividends equal to 1.5% of the Company’s revenues per quarter during the year ending December 31, 2013 accrue quarterly, resulting in a dividend payable of $11,000, which was subsequently paid with the issuance of 110,000,000 shares of Class A Common Stock in lieu of cash.

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Recent Financing Activities

Second quarter of 2014:

Debt Financing, Related Parties, GG Mars Capital, Inc.

Originated April 24, 2014, a $150,000 unsecured promissory note payable, including a $30,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on June 26, 2014. In addition, a loan origination fee consisting of 10,000,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $10,000 upon default, which was amended and removed on September 19, 2014.

Originated May 7, 2014, a $150,000 unsecured promissory note payable, including a $25,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on August 7, 2014. In addition, a loan origination fee consisting of 10,000,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $12,500 upon default, which was amended and removed on September 19, 2014.

Originated June 3, 2014, a $25,000 unsecured promissory note payable, including a $4,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on December 3, 2014. The note also carried a liquidated damages fee of $1,000 upon default, which was amended and removed on September 19, 2014.

Debt Financing, Related Parties, Star Financial Corporation

Originated April 23, 2014, an unsecured $35,000 promissory note payable, including a $7,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on August 23, 2014. In addition, a loan origination fee consisting of 3,500,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.

Originated May 28, 2014, an unsecured $32,500 promissory note payable, including a $7,500 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on September 28, 2014. In addition, a loan origination fee consisting of 3,250,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.

Originated June 3, 2014, an unsecured $5,000 promissory note payable, including a $1,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on December 3, 2014. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.

Originated June 12, 2014, an unsecured $21,250 promissory note payable, including a $4,250 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on October 12, 2014. In addition, a loan origination fee consisting of 2,125,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.

Originated June 30, 2014, an unsecured $20,000 promissory note payable, including a $3,500 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on December 30, 2014. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.

Recent Debt Conversions

Second quarter of 2014:

On various dates between April 2, 2014 and June 17, 2014, we issued a total of 2,780,357,345 shares of common stock pursuant to debt conversions of a total of $275,830, consisting of $261,095 of principal and $12,235 of accrued interest and $2,500 of liquidated damages.

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A total of $152,275 of convertible debentures remain outstanding as of the date of this filing, and are convertible at various hypothetical prices discounted to market as depicted in the table below:

				Potential issuable shares at various conversion prices
				below the most recent market price of $0.0001 per share
	Conversion	Principal		100%	75%	50%	25%
Lender / Origination	Terms	Borrowed		$0.0001	$0.000075	$0.00005	$0.000025
JMJ Financial  (Second JMJ Note)  November 13, 2013	Convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the lowest trading price of the Company’s common stock for the twenty five (25) trading days prior to the conversion date, or $0.00009 per share, whichever is greater.	$	33,000	330,000,000	440,000,000	660,000,000	1,320,000,000
St. George Investments, Inc.  (First St. George Note)  September 5, 2013	Convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the average of the two lowest closing bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater.	$	119,275	1,192,750,000	1,590,333,333	2,385,500,000	4,771,000,000
		$	152,275	1,522,750,000	2,030,333,333	3,045,500,000	6,091,000,000

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(c) and 15d – 15(e)). Based upon that evaluation, our principal executive officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer, as appropriate to allow timely decisions regarding required disclosure.

Inherent Limitations of Internal Controls

Our Principal Executive Officer does not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, other than those stated above, during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

ITEM 1A. Risk Factors

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following sales of equity securities by the Company occurred during the three month period ended June 30, 2014:

Equity Issuances to IBC Funds, LLC Pursuant to Section 3(a)(10) of the Securities Act of 1933, as Amended

On April 2, 2014, the Company issued 151,900,000 shares of Class A Common Stock pursuant to the conversion of $15,190 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal.

On April 7, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $30,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal.

On April 10, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal.

On April 16, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal.

On April 22, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal.

On April 28, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal.

On May 1, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal.

On May 6, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $10,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal.

On May 6, 2014, the Company issued 169,123,600 shares of Class A Common Stock pursuant to the conversion of $8,456 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal.

The Company claims an exemption from registration afforded by Section 3(a)(10) of the Securities Act of 1933, as amended (the “Act”), for the above conversions, as the securities were exchanged by the Company in exchange for securities, claims, or property interests, and not for cash and Section 4(2) of the Act for the issuances as the issuances did not involve a public offering, the recipients took the securities for investment and not resale, the Company took appropriate measures to restrict transfer, and the recipients are (a) “accredited investors”; or (b) have access to similar documentation and information as would be required in a Registration Statement under.

Debt Conversions into Class A Common Stock – Related Parties

On April 2, 2014, the Company issued 250,000,000 shares of Class A Common Stock pursuant to the conversion of $25,000 of convertible debt held by Vivienne Passley, a related party, which consisted entirely of principal.

On April 7, 2014, the Company issued 125,000,000 shares of Class A Common Stock pursuant to the conversion of $18,750 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal.

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On May 3, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal.

On May 22, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal.

On June 17, 2014, the Company issued 334,333,745 shares of Class A Common Stock pursuant to the conversion of $33,433 of convertible debt held by Vivienne Passley, a related party, which consisted of $26,000 of principal, $4,933 of interest and $2,500 of liquidated damages.

The Company claims an exemption from registration afforded by Section 3(a)(9) of the Securities Act of 1933, as amended (the “Act”), for the above conversions, as the securities were exchanged by the Company with its existing security holders exclusively in transactions where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange and Section 4(2) of the Act for the issuances as the issuances did not involve a public offering, the recipients took the securities for investment and not resale, the Company took appropriate measures to restrict transfer, and the recipients are (a) “accredited investors”; or (b) have access to similar documentation and information as would be required in a Registration Statement under.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

On September 24, 2014, St. George Investments, LLC (“note holder”) presented the Company with a notice of default. In accordance with the default provisions, the note shall accrue interest at twenty two percent (22%) per annum effective April 1, 2014. The unsecured convertible promissory note with $41,900 of principal outstanding (“First St. George Note”) matured on June 5, 2014 and was in default effective April 1, 2014 pursuant to Section 3.2 of the Note. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the average of the two lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. In accordance with the default provisions, the outstanding balance prior to the occurrence of default shall increase to 150% of the outstanding balance of principal and interest a maximum of two times. In addition, the note holder was precluded from clearing the conversion of 125,000,000 shares of common stock received pursuant to a March 7, 2014 conversion of $15,000 of outstanding principal until September 10, 2014 (“Late Clearing Adjustment Amount”). Pursuant to Section 1.6(g) of the Note, the note holder is entitled to increase the outstanding balance of the Note by the Late Clearing Adjustment Amount of $25,000. As a result of the Late Clearing Adjustment Amount and Note defaults on April 1, 2014 and June 5, 2014, the principal and interest on the First St. George Note has increased to $136,738 as of September 24, 2014.

ITEM 4. MINE SAFETY DISCLOSURES.

Mine safety disclosures are not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

			Incorporated by reference
Exhibit	Exhibit Description	Filed herewith	Form	Period ending	Exhibit	Filing date
3.1	Articles of Incorporation		SB-2	12/04/06	X	12/04/06
3.2	Articles of Amendment		SB-2	12/04/06	X	12/04/06
3.3	Articles of Amendment		SB-2	12/04/06	X	12/04/06
3.4	Articles of Amendment		SB-2	12/04/06	X	12/04/06
3.5	Statement of Change of Registered Agent		SB-2	12/04/06	X	12/04/06
3.6	Articles of Amendment		SB-2	12/04/06	X	12/04/06
3.7	Amended and Restated By-Laws		SB-2	12/04/06	X	12/04/06
3.8	Articles of Amendment		10-Q	09/30/12	X	12/18/12
3.9	Articles of Amendment		10-K	12/31/12	X	06/03/13
3.10	Articles of Amendment, January 14, 2014	X
4.1	Form of Stock Certificate		SB-2	12/04/06	X	12/04/06
10.1	February 22, 2013 – Equipment Finance Agreement with Summit Funding Group, Inc.		10-Q	03/31/13	X	06/14/13
10.2	March 7, 2013 – Lease Agreement with Baytree National Bank & Trust Company		10-Q	03/31/13	X	06/14/13
10.3	Promissory Note with Star Financial Corporation, April 1, 2013		10-Q	06/30/13	X	08/19/13
10.4	Promissory Note with Star Financial Corporation, April 12, 2013		10-Q	06/30/13	X	08/19/13
10.5	Promissory Note with Star Financial Corporation, May 16, 2013		10-Q	06/30/13	X	08/19/13
10.6	Promissory Note with Star Financial Corporation, June 12, 2013		10-Q	06/30/13	X	08/19/13
10.7	First JMJ Financial Convertible Promissory Note, June 12, 2013		10-Q	06/30/13	X	08/19/13
10.8	Software Finance Agreement with CIT Finance, LLC, May 1, 2013		10-Q	06/30/13	X	08/19/13
10.9	Loan and Security Agreement with Small Business Financial Solutions, LLC, April 5, 2013		10-Q	06/30/13	X	08/19/13
10.10	Merchant Agreement with Horizon Business Funding, LLC, June 11, 2013		10-Q	06/30/13	X	08/19/13
10.11	Business Loan Agreement with WebBank, June 19, 2013		10-Q	06/30/13	X	08/19/13
10.12	First Amendment to Executive Employment Agreement, August 16, 2013		10-Q	06/30/13	X	08/19/13
10.13	Promissory Note with Vivienne Passley, July 19, 2013		10-Q	09/30/13	X	11/19/13
10.14	Promissory Note with Vivienne Passley, August 12, 2013		10-Q	09/30/13	X	11/19/13
10.15	Promissory Note with Star Financial Corporation, July 31, 2013		10-Q	09/30/13	X	11/19/13
10.16	Promissory Note with Star Financial Corporation, August 2, 2013		10-Q	09/30/13	X	11/19/13
10.17	Promissory Note with Star Financial Corporation, August 7, 2013		10-Q	09/30/13	X	11/19/13
10.18	Promissory Note with Star Financial Corporation, August 27, 2013		10-Q	09/30/13	X	11/19/13
10.19	Promissory Note with GG Mars Capital, Inc., August 20, 2013		10-Q	09/30/13	X	11/19/13
10.20	Promissory Note with GG Mars Capital, Inc., September 7, 2013		10-Q	09/30/13	X	11/19/13
10.21	Convertible Promissory Note with GG Mars Capital, Inc., August 20, 2013		10-Q	09/30/13	X	11/19/13
10.22	Assignment Agreement with GG Mars Capital, Inc. and Accion Chicago, August 15, 2013		10-Q	09/30/13	X	11/19/13
10.23	Convertible Promissory Note with St. George Investments, Inc., September 5, 2013		10-Q	09/30/13	X	11/19/13
10.24	Note Purchase Agreement with St. George Investments, Inc., September 5, 2013		10-Q	09/30/13	X	11/19/13
10.25	Convertible Promissory Note with Asher Enterprises (Seventh Asher Note), August 19, 2013		10-Q	09/30/13	X	11/19/13
10.26	Securities Purchase Agreement with Asher Enterprises (Seventh Note), August 19, 2013		10-Q	09/30/13	X	11/19/13
10.27	Amendment #1 to Promissory Note with Asher Enterprises (Seventh Asher Note), November 7, 2013		10-Q	09/30/13	X	11/19/13
10.28	Convertible Promissory Note with Asher Enterprises (Eighth Asher Note), September 18, 2013		10-Q	09/30/13	X	11/19/13
10.29	Securities Purchase Agreement with Asher Enterprises (Eighth Note), September 18, 2013		10-Q	09/30/13	X	11/19/13
10.30	Amendment #1 to Promissory Note with Asher Enterprises (Eighth Asher Note), November 7, 2013		10-Q	09/30/13	X	11/19/13
10.31	Amendment #1 to Promissory Note with JMJ Financial (First JMJ Note), August 13, 2013		10-Q	09/30/13	X	11/19/13

61

			Incorporated by reference
Exhibit	Exhibit Description	Filed herewith	Form	Period ending	Exhibit	Filing date

10.32	Stock Purchase Agreement (Telecorp Acquisition), February 28, 2014	X
10.33	Closing Statement (Telecorp Acquisition), February 28, 2014	X
10.34	Non-Disclosure/Non-Compete Agreement (Telecorp Acquisition), February 28, 2014	X
10.35	Share Pledge Agreement (Telecorp Acquisition), February 28, 2014	X
10.36	Seller Financed Promissory Note (Telecorp Acquisition), February 28, 2014	X
10.37	Asset Purchase Agreement (Cynergy Acquisition), April 4, 2014	X
10.38	Bill of Sale (Cynergy Acquisition) , April 4, 2014	X
10.39	Asset Purchase Agreement (Jadian Acquisition), May 9, 2014	X
10.40	Bill of Sale (Jadian Acquisition), May 9, 2014	X
10.41	Closing Statement (Jadian Acquisition), May 9, 2014	X
10.42	Security Agreement (Jadian Acquisition), May 9, 2014	X
10.43	Consulting Agreement (Jadian Acquisition), May 9, 2014	X
10.44	Employment Agreement (Jadian Acquisition), May 9, 2014	X
10.45	Guaranty Agreement (Jadian Acquisition), May 9, 2014	X
10.46	Seller Financed Promissory Note (Jadian Acquisition), May 9, 2014	X
10.47	Asset Purchase Agreement (Strand Acquisition), July 31, 2014	*
10.48	Bill of Sale (Strand Acquisition), July 31, 2014	X
10.49	Guaranty Agreement (Strand Acquisition), July 31, 2014	X
10.50	Seller Financed Promissory Note (Strand Acquisition), July 31, 2014	X
10.51	Stock Exchange Agreement (S. Passley), January 17, 2014	X
10.52	Stock Exchange Agreement (S. Passley), March 22, 2014	X
10.53	Stock Exchange Agreement (C. Passley), March 22, 2014	X
10.54	Stock Exchange Agreement (L&F Lawn Services, Inc.), March 22, 2014	X
10.55	Convertible Promissory Note (Magna Group, LLC), February 4, 2014	X
10.56	Convertible Promissory Note (Magna Group, LLC), February 19, 2014	X
10.57	Convertible Promissory Note (V. Passley), April 2, 2014	X
10.58	Settlement Agreement and Stipulation Pursuant to Section 3(a)(10) (IBC Funds, LLC), February 12, 2014	X
10.59	Order Granting Approval of Settlement Agreement and Stipulation (IBC Funds, LLC), February 14, 2014	X
10.60	Convertible Promissory Note Default Notice (St. George Investments, LLC), September 24, 2014	X
21.1	Subsidiaries	X
31.1	Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101.INS	XBRL Instance Document	X
101.SCH	XBRL Schema Document	X
101.CAL	XBRL Calculation Linkbase Document	X
101.DEF	XBRL Definition Linkbase Document	X
101.LAB	XBRL Labels Linkbase Document	X
101.PRE	XBRL Presentation Linkbase Document	X

* To be filed by amendment

62

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	EPAZZ, INC.
DATED: October 2, 2014	By: /s/ Shaun Passley
	Shaun Passley
	Chief Executive Officer (Principal Executive Officer), President, Chief Financial Officer (Principal Accounting Officer), and Director

63

EX-3.1

Exhibit 3.10

 

Page 1

Text of Amendment

b. If amendment affects the corporate purpose, the amended purpose is required to be set forth in its entirety.

For more space, attach additional sheets of this size.

Class	Par Value	Number of Shares Authorized
Class A Common	$0.0001	9,000,000,000
Class B Common	$0.0001	60,000,000
Preferred Series A	$0.0001	1,000
Preferred Series B	$0.0001	1,000
Preferred Series C	$0,0001	3,000,000,000
Preferred (Undesigned)	$0.0001	39,998 000

see next page

Page 2

“The total number of shares of stock that the Corporation shall have authority to issue is 12,100,000,000, consisting of 9,060,000,000 shares of common stock, par value $0.0001 per share (“Common Stock”), and 3,040,000,000 shares of “blank check” preferred stock par value $0.0001 per share (“Preferred Stock”). The Common Stock shall include 9,000,000,000 shares of Class A Common Stock, $0.0001 par value per share (the “Class A Common Stock”); 60,000,000 shares of Class B Common Stock, $0.0001 par value per share (the “Class B Common Stock”).

Shares of Preferred Stock of the Corporation may be issued from time to time in one or more series, each of which shall have such distinctive designation or title as shall be determined by the Board of Directors of the Corporation (“Board of Directors”) prior to the issuance of any shares thereof. Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof.

The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then outstanding shares of the capital stock of the corporation entitled to vote generally in the election of the directors (the “Voting Stock”), voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation.

Rights of Our Class A Common Stock and Class B Common Stock

Rights to Dividends and on Liquidation. Each share of Class A Common Stock and Class B Common Stock is entitled to share equally in dividends (other than dividends declared with respect to any outstanding Preferred Stock) when and as declared by our Board of Directors. Upon liquidation, each share of Class A Common Stock and Class B Common Stock is entitled to share equally in our assets available for distribution to the holders of those shares. Any outstanding Preferred Stock would rank senior to the Class A Common Stock and Class B Common Stock in respect of liquidation rights and could rank senior to that stock in respect of dividend rights.

Voting--General. Each holder of Class A Common Stock is entitled to one vote per share, and each holder of Class B Common Stock is entitled to 10,000 votes per share.

Non-Cumulative Voting Rights. Our Class A Common Stock and Class B Common Stock, do not have cumulative voting rights.

Voting by Class. Holders of our Class A Common Stock and Class B Common Stock shall vote as one class on any and all shareholder matters.

Miscellaneous Rights and Provisions. There are no preemptive rights, subscription rights, or redemption provisions relating to our Class A Common Stock and Class B Common Stock and none of the shares carries any liability for further calls.

CONVERSION RIGHTS. The Class B Common Stock shall be convertible into Common A Stock as follows (the "Conversion Rights"):

(a) Holder’s Right to Convert.

(i) All shares Class B Common Stock shall be convertible, at the option of the Holder thereof, with five (5) Business Days written notice to the Corporation (a “Notice of Conversion“), at the office of the Corporation or any transfer agent for the Class B Stock, into that number of fully-paid, non-assessable shares of Class B Common Stock determined by each of vote of Class B Common shares shall convert into one share of Class A Common Stock (the “Shares”). The Holder may only affect a conversion of all of the Class B Stock shares which he, she or it owns pursuant to and in compliance with the restrictions on conversion set forth herein (each a “Conversion”).

(ii) Mechanics of Conversion. In order to effect a Conversion, a Holder shall: (i) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the Corporation (Attention: Corporate Secretary), and (ii) surrender or cause to be surrendered the original Class B Common Stock Certificates being converted, duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to the Corporation which the Holder desires to convert. Upon receipt by the Corporation of a facsimile copy of a Notice of Conversion from a Holder, the Corporation shall promptly send, via facsimile, a confirmation to such Holder stating that the Notice of Conversion has been received, the date upon which the Corporation expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation regarding the conversion and/or any deficiencies that exist in connection with such Notice of Conversion. The Corporation shall not be obligated to issue shares of Common Stock upon a conversion unless the original Class B Common Stock Certificates Converted are delivered to the Corporation as provided above. In the event the Holder has lost or misplaced the certificates evidencing the Class B Common Stock, the Holder shall be required to provide the Corporation or the Corporation’s Transfer Agent (as applicable) with whatever documentation and fees each may require to re-issue the Class B Common Stock Certificates and shall be required to provide such re-issued Class B Common Stock Certificates to the Corporation in connection with such Notice of Conversion. Unless the Notice of Conversion provided by the Holder includes a valid opinion from an attorney stating that such Shares of Common Stock issuable in connection with the Notice of Conversion can be issued free of restrictive legend, which shall be determined by the Corporation in its sole discretion, such shares shall be issued as Restricted Shares.

(iii) Delivery of Common Stock Upon Conversion. Upon the surrender of Class B Common Stock Certificates accompanied by a Notice of Conversion, the Corporation (itself, or through its transfer agent) shall, no later than the fifth (5th) Business Day following the date of such surrender (the "Delivery Period"), issue and deliver (i.e., deposit with a nationally recognized overnight courier service postage prepaid) to the Holder or its nominee (x) that number of shares of Class A Common Stock issuable upon conversion of such shares of Series A Preferred Stock being converted and (y) the total amount of the accrued and unpaid Dividends.

(b) Taxes. The Corporation shall not be required to pay any tax which may be payable in respect to any transfer involved in the issue and delivery of shares of Common Stock upon conversion in a name other than that in which the shares of the Class B Common Stock so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid. The Corporation shall withhold from any payment due whatsoever in connection with the Class B Common Stock any and all required withholdings and/or taxes the Corporation, in its sole discretion deems reasonable or necessary, absent an opinion from Holder’s accountant or legal counsel, acceptable to the Corporation in its sole determination, that such withholdings and/or taxes are not required to be withheld by the Corporation.

(c) Adjustments for Reclassification, Exchange and Substitution. If the Common Stock issuable upon conversion of the Class B Common Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each Holder of such Class B Common Stock shall have the right thereafter to convert such shares of Class B Common Stock into a number of shares of such other class or classes of stock which a Holder of the number of shares of Common Stock deliverable upon conversion of such series of Class B Common Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

(d) No Impairment. The Corporation will not through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion rights of the holders of Class B Common Stock against impairment. Notwithstanding the foregoing, nothing in this Section shall prohibit the Corporation from amending its Certificate of Incorporation with the requisite consent of its shareholders and the Board of Directors.

(e) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the Conversion of the shares of the Class B Common, such number of its shares of Common Stock as shall from time to time be sufficient to effect the Conversion of all then outstanding shares of the Class B Common Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the Conversion of all then outstanding shares of the Class B Common Stock, the Corporation will within a reasonable time period make a good faith effort to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

(f) Effect of Conversion. On the date of any Conversion, all rights of any Holder with respect to the shares of the Class B Common Stock so converted, including the rights, if any, to receive distributions of the Corporation’s assets or notices from the Corporation, will terminate.

(g) Notices of Record Date. In the event that the Corporation shall propose at any time:

(i) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or

(ii) to voluntarily liquidate or dissolve or to enter into any transaction deemed to be a liquidation, dissolution or winding up of the Corporation;

then, in connection with each such event, the Corporation shall send to the holders of the Class B Common at least ten (10) Business Days prior written notice of a record date for determining rights to vote in respect of the matters referred to above.

Such written notice shall be given by first class mail (or express courier), postage prepaid, addressed to the holders of Class B Common Stock at the address for each such Holder as shown on the books of the Corporation and shall be deemed given on the date such notice is mailed. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the vote or written consent of the holders of a majority of the Class B Common Stock, voting together as a single class.

Designation of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock:

The Corporation shall have three classes of Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, with such powers and preferences, and the relative, participating, optional and other rights, and the qualifications, limitations, and restrictions thereon set forth below:

CERTIFICATE OF DESIGNATIONS
ESTABLISHING THE DESIGNATIONS, PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF THE
SERIES A CONVERTIBLE PREFERRED STOCK

Pursuant to Sections 6.10 and 10.20 of the Illinois Business Corporation Act of 1983, the Corporation has adopted a designation of One Thousand (1,000) shares of Series A Convertible Preferred Stock, par value $0.0001 per share which have the powers and preferences, and the relative, participating, optional and other rights, and the qualifications, limitations, and restrictions thereon set forth below (the “Designation” or “Certificate of Designation”):

Section 1. DESIGNATION OF SERIES; RANK. The shares of such series shall be designated as the "Series A Convertible Preferred Stock" (the "Series A Preferred Stock") and the number of shares initially constituting such series shall be One Thousand (1,000) shares.

Section 2. DEFINITIONS.

For purposes of this Designation, the following definitions shall apply:

(a) “Business Day” means a day in which a majority of the banks in the State of Illinois in the United States of America are open for business.

(b) “Common Stock” means the Corporation’s $0.0001 par value Class A Common Stock and Class B Common Stock.

(c) ""Distribution shall mean the transfer of cash, Common Stock or other property without consideration whether by way of dividend or otherwise to the shareholders of Common Stock.

(d) “First Dividend Date” means January 1^st of any year following a calendar year in which the Corporation has generated revenue of over $2 million based on the Corporation’s audited statement of operations.

(e) “First Dividend Rate” means 1.5% of the Company’s revenues per quarter, based on the revenues set forth in the Company’s financial statements as filed with the Securities and Exchange Commission on Form 10-Q or Form 10-K

(f) “Holder” shall mean the person or entity in which the Series A Preferred Stock is registered on the books of the Corporation, which shall initially be the person or entity which such Series A Preferred Stock is issued to, and shall thereafter be permitted and legal assigns which the Corporation is notified of by the Holder and which the Holder has provided a valid legal opinion in connection therewith to the Corporation.

(g) “Junior Stock” shall mean the Common Stock and each other class of capital stock or series of preferred stock of the Corporation established after the Original Issue Date, the terms of which do not expressly provide that such class or series ranks senior to or on parity with the Series A Preferred Stock upon the liquidation, winding-up or dissolution of the Corporation.

(h) "Market Price" means, for any security as of any date, the last sales price of such security on the principal trading market where such security is listed or traded as reported by Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Corporation if Bloomberg Financial Markets is not then reporting closing sales prices of such security) (collectively, "Bloomberg"), or if the foregoing does not apply, the last reported sales price of such security on a national exchange or in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no such price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each case for such date or, if such date was not a trading day for such security, on the next preceding date that was a trading day. If the Market Price cannot be calculated for such security on any of the foregoing bases, the Market Price of such security on such date shall be the fair market value as reasonably determined by a valuation firm, with experience in the valuation of securities similar to the Corporation’s, chosen by the Board of Directors of the Corporation in its sole discretion, with the costs of such appraisal to be borne by the Corporation.

(i) “Original Issue Date” shall mean the date upon which the shares of Series A Preferred Stock are first issued.

(j) “Liquidation Preference” shall be equal to $.0001 per share for the Series A Convertible Preferred Stock (as appropriately adjusted for any Recapitalizations).

(k) “Second Dividend Date” means January 1^st of any year following a calendar year in which the Corporation has generated net income of over $2 million based on the Corporation’s audited statement of operations.

(l) “Second Dividend Rate” means 24% of the Corporation’s net income based on the Corporation’s audited statement of operations.

(m) “Senior Securities” shall mean any senior debt or other security holders of the Corporation, including certain banks and/or institutions, which hold security interests over the Corporation’s assets as of the Original Issue Date, or which the Corporation may agree in the future to provide such first priority security interests to, which shall not require the approval and/or consent of the Series A Preferred Stock Holders.

(n) “Class A Common Stock” means the Corporation’s Class A Common Stock, $0.001 par value per share.

(o) “Series A Preferred Stock Certificates” means the certificates, as replaced from time to time, evidencing the outstanding Series A Preferred Stock shares.

(p) "Recapitalization" shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

(q) “Restricted Shares” means shares of the Corporation’s Common Stock which are restricted from being transferred by the Holder thereof unless the transfer is effected in compliance with the Securities Act of 1933, as amended and applicable state securities laws (including investment suitability standards, which shares shall bear the following restrictive legend (or one substantially similar):

"The securities represented by this certificate have not been registered under the Securities Act of 1933 or any state securities act. The securities have been acquired for investment and may not be sold, transferred, pledged or hypothecated unless (i) they shall have been registered under the Securities Act of 1933 and any applicable state securities act, or (ii) the corporation shall have been furnished with an opinion of counsel, satisfactory to counsel for the corporation, that registration is not required under any such acts."

SECTION 3. DIVIDENDS.

(a) Dividends in General. Dividends shall accrue on the Series A Preferred Stock, Quarterly in arrears, for each Quarter that such Preferred Stock is outstanding, (a) beginning on the First Dividend Date, equal to the First Dividend Rate, and additional dividends (b) beginning effective on the Second Dividend Date, based on the Second Dividend Rate, until such dividends are paid in full as provided below (“Dividends”).

(b) Payment of Dividends. The Corporation shall pay the Holder of the Series A Preferred Stock the accrued Dividends in cash or shares of common stock based on the Market Price, at the option of the Corporation from time to time, provided that until paid in the sole discretion of the Corporation, such Dividends shall continue to accrue.

(c) Additional Dividend Policies.

(i) In any calendar year, the Holders of outstanding shares of Series A Preferred Stock shall be entitled to receive dividends, when, as and only if declared by the Board of Directors, out of any assets at the time legally available therefor, payable in preference and priority to any declaration or payment of any Distribution on Common Stock of the Corporation in such calendar year. No Distributions shall be made with respect to the Common Stock until all declared Dividends on the Series A Preferred Stock have been paid or set aside for payment to the Series A Preferred Stock holders.

(ii) Non-Cash Distributions. Whenever a Distribution provided for in this Section 3 shall be payable in property other than cash, the value of such Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board of Directors.

(iii) Other Distributions. Subject to the terms of this Certificate of Designations, and to the fullest extent permitted by Illinois law, the Corporation shall be expressly permitted to redeem, repurchase or make distributions on the shares of its capital stock in all circumstances other than where doing so would cause the Corporation to be unable to pay its debts as they become due in the usual course of business.

SECTION 4. LIQUIDATION PREFERENCE.

(a) Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the Holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any Distribution of any of the assets of the Corporation to the Holders of the Junior Stock by reason of their ownership of such stock, but not prior to any holders of the Corporation’s Senior Securities, which holders shall have priority to the distribution of any assets of the Corporation, an amount per share for each share of Series A Preferred Stock held by them equal to the sum of (i) the Liquidation Preference specified for such share of Series A Preferred Stock, and (ii) all declared but unpaid Dividends (if any) on such shares of Series A Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the Holders of the Series A Preferred Stock are insufficient to permit the payment to such Holders of the full amounts specified in this Section 4(a), subsequent to the payment to the Senior Securities then the entire remaining assets of the Corporation following the payment to the Senior Securities legally available for distribution shall be distributed with equal priority and pro rata among the Holders of the Series A Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 4(a).

(b) Remaining Assets. After the payment to the Holders of Series A Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro rata among the Holders of the Junior Stock in proportion to the number of shares of Junior Stock, and the terms of such Junior Stock, held by them.

(c) Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors. In the event of a merger or other acquisition of the Corporation by another entity, the Distribution date shall be deemed to be the date such transaction closes.

SECTION 5. CONVERSION RIGHTS. The Series A Preferred Stock shall be convertible into Common Stock as follows (the "Conversion Rights"):

(b) Holder’s Right to Convert.

(i) All shares Series A Preferred Stock shall be convertible, at the option of the Holder thereof, with five (5) Business Days written notice to the Corporation (a “Notice of Conversion“), at the office of the Corporation or any transfer agent for the Series A Preferred Stock, into that number of fully-paid, non-assessable shares of Class A Common Stock determined by multiplying the total number of shares of Class A Common Stock issued and outstanding by 0.60 (the “Shares”). The Holder may only affect a conversion of all of the Series A Preferred Stock shares which he, she or it owns pursuant to and in compliance with the restrictions on conversion set forth herein (each a “Conversion”).

(ii) Mechanics of Conversion. In order to effect a Conversion, a Holder shall: (i) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the Corporation (Attention: Corporate Secretary), and (ii) surrender or cause to be surrendered the original Series A Preferred Stock Certificates being converted, duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to the Corporation which the Holder desires to convert. Upon receipt by the Corporation of a facsimile copy of a Notice of Conversion from a Holder, the Corporation shall promptly send, via facsimile, a confirmation to such Holder stating that the Notice of Conversion has been received, the date upon which the Corporation expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation regarding the conversion and/or any deficiencies that exist in connection with such Notice of Conversion. The Corporation shall not be obligated to issue shares of Common Stock upon a conversion unless the original Series A Preferred Stock Certificates Converted are delivered to the Corporation as provided above. In the event the Holder has lost or misplaced the certificates evidencing the Series A Preferred Stock, the Holder shall be required to provide the Corporation or the Corporation’s Transfer Agent (as applicable) with whatever documentation and fees each may require to re-issue the Series A Preferred Stock Certificates and shall be required to provide such re-issued Series A Preferred Stock Certificates to the Corporation in connection with such Notice of Conversion. Unless the Notice of Conversion provided by the Holder includes a valid opinion from an attorney stating that such Shares of Common Stock issuable in connection with the Notice of Conversion can be issued free of restrictive legend, which shall be determined by the Corporation in its sole discretion, such shares shall be issued as Restricted Shares.

(iii) Delivery of Common Stock Upon Conversion. Upon the surrender of Series A Preferred Stock Certificates accompanied by a Notice of Conversion, the Corporation (itself, or through its transfer agent) shall, no later than the fifth (5th) Business Day following the date of such surrender (the "Delivery Period"), issue and deliver (i.e., deposit with a nationally recognized overnight courier service postage prepaid) to the Holder or its nominee (x) that number of shares of Class A Common Stock issuable upon conversion of such shares of Series A Preferred Stock being converted and (y) the total amount of the accrued and unpaid Dividends.

(b) Taxes. The Corporation shall not be required to pay any tax which may be payable in respect to any transfer involved in the issue and delivery of shares of Common Stock upon conversion in a name other than that in which the shares of the Series A Preferred Stock so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid. The Corporation shall withhold from any payment due whatsoever in connection with the Series A Preferred Stock any and all required withholdings and/or taxes the Corporation, in its sole discretion deems reasonable or necessary, absent an opinion from Holder’s accountant or legal counsel, acceptable to the Corporation in its sole determination, that such withholdings and/or taxes are not required to be withheld by the Corporation.

(h) Adjustments for Reclassification, Exchange and Substitution. If the Common Stock issuable upon conversion of the Series A Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each Holder of such Series A Preferred Stock shall have the right thereafter to convert such shares of Series A Preferred Stock into a number of shares of such other class or classes of stock which a Holder of the number of shares of Common Stock deliverable upon conversion of such series of Series A Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

(i) No Impairment. The Corporation will not through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or anyother voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion rights of the holders of Series A Preferred Stock against impairment. Notwithstanding the foregoing, nothing in this Section 5(d) shall prohibit the Corporation from amending its Certificate of Incorporation with the requisite consent of its shareholders and the Board of Directors.

(j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the Conversion of the shares of the Series A Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the Conversion of all then outstanding shares of the Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the Conversion of all then outstanding shares of the Series A Preferred Stock, the Corporation will within a reasonable time period make a good faith effort to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

(k) Effect of Conversion. On the date of any Conversion, all rights of any Holder with respect to the shares of the Series A Preferred Stock so converted, including the rights, if any, to receive distributions of the Corporation’s assets or notices from the Corporation, will terminate.

(l) Notices of Record Date. In the event that the Corporation shall propose at any time:

(i) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or

(ii) to voluntarily liquidate or dissolve or to enter into any transaction deemed to be a liquidation, dissolution or winding up of the Corporation;

then, in connection with each such event, the Corporation shall send to the holders of the Series A Preferred Stock at least ten (10) Business Days prior written notice of a record date for determining rights to vote in respect of the matters referred to above.

Such written notice shall be given by first class mail (or express courier), postage prepaid, addressed to the holders of Series A Preferred Stock at the address for each such Holder as shown on the books of the Corporation and shall be deemed given on the date such notice is mailed. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the vote or written consent of the holders of a majority of the Series A Preferred Stock, voting together as a single class.

SECTION 6. VOTING. The Series A Preferred Stock shall have no voting rights and shall have no right to vote on any shareholder matters (other than as expressly stated below under Section 7) or as otherwise provided for by Illinois law.

SECTION 7. PROTECTIVE PROVISIONS.

Subject to the rights of series of Series A Preferred Stock which may from time to time come into existence, so long as any shares of Series A Preferred Stock are outstanding, 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 A Preferred Stock, voting together as a class:

(a) Increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series A Preferred Stock;

(b) Effect an exchange, reclassification, or cancellation of all or a part of the Series A Preferred Stock, but excluding a stock split, forward split or reverse stock split of the Corporation’s Common Stock or Series A Preferred Stock;

(c) 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 A Preferred Stock; or

(d) Alter or change the rights, preferences or privileges of the shares of Series A Preferred Stock so as to affect adversely the shares of such series, including the rights set forth in this Designation.

PROVIDED, HOWEVER, that the Corporation may, by any means authorized by law and without any vote of the Holders of shares of the Series A Preferred Stock, make technical, corrective, administrative or similar changes in this Statement of Designations that do not, individually or in the aggregate, adversely affect the rights or preferences of the Holders of shares of the Series A Preferred Stock. The Corporation may also designate and issue additional series of preferred stock from time to time in the sole discretion of the Corporation’s Board of Directors, which such rights, privileges, preferences and limitations shall be determined by the Corporation’s Board of Directors in its sole discretion, and which designations and issuances shall not require the approval of the holders of the Series A Preferred Stock.

SECTION 8. PREEMPTIVE RIGHTS. Holders of Series A Preferred Stock and holders of Common Stock shall not be entitled to any preemptive, subscription or similar rights in respect to any securities of the Corporation, except as specifically set forth herein or in any other document agreed to by the Corporation.

SECTION 9. NOTICES. In addition to any other means of notice provided by law or in the Corporation's Bylaws, any notice required by the provisions of this Designation to be given to the holders of Series A Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each Holder of record at such Holder's address appearing on the books of the Corporation.

SECTION 10. MISCELLANEOUS.

(a) The headings of the various sections and subsections of this Certificate of Designation are for convenience of reference only and shall not affect the interpretation of any of the provisions of this Certificate of Designation.

(b) Whenever possible, each provision of this Certificate of Designation shall be interpreted in a manner as to be effective and valid under applicable law and public policy. If any provision set forth herein is held to be invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions of this Certificate of Designation. No provision herein set forth shall be deemed dependent upon any other provision unless so expressed herein. If a court of competent jurisdiction should determine that a provision of this Certificate of Designation would be valid or enforceable if a period of time were extended or shortened, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law.

(c) Except as may otherwise be required by law, the shares of the Series A Preferred Stock shall not have any powers, designations, preferences or other special rights, other than those specifically set forth in this Certificate of Designation.

CERTIFICATE OF DESIGNATIONS
ESTABLISHING THE DESIGNATIONS, PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF THE
SERIES B CONVERTIBLE PREFERRED STOCK

Pursuant to Sections 6.10 and 10.20 of the Illinois Business Corporation Act of 1983, the Corporation has adopted a designation of One Thousand (1,000) shares of Series B Convertible Preferred Stock, par value $0.0001 per share which have the powers and preferences, and the relative, participating, optional and other rights, and the qualifications, limitations, and restrictions thereon set forth below (the “Designation” or “Certificate of Designation”):

Section 1. DESIGNATION OF SERIES; RANK. The shares of such series shall be designated as the "Series B Convertible Preferred Stock" (the "Series B Preferred Stock") and the number of shares initially constituting such series shall be One Thousand (1,000) shares.

Section 2. DEFINITIONS.

For purposes of this Designation, the following definitions shall apply:

(a) “Business Day” means a day in which a majority of the banks in the State of Illinois in the United States of America are open for business.

(b) “Common Stock” means the Corporation’s $0.0001 par value Class A Common Stock and Class B Common Stock.

(c) "Distribution" shall mean the transfer of cash, Common Stock or other property without consideration whether by way of dividend or otherwise to the shareholders of Common Stock.

(d) “First Dividend Date” means January 1^st of any year following a calendar year in which the Corporation has generated revenue of over $1 million based on the Corporation’s audited statement of operations.

(e) “First Dividend Rate” means 1.5% of the Company’s revenues per quarter, based on the revenues set forth in the Company’s financial statements as filed with the Securities and Exchange Commission on Form 10-Q or Form 10-K.

(f) “Holder” shall mean the person or entity in which the Series B Preferred Stock is registered on the books of the Corporation, which shall initially be the person or entity which such Series B Preferred Stock is issued to, and shall thereafter be permitted and legal assigns which the Corporation is notified of by the Holder and which the Holder has provided a valid legal opinion in connection therewith to the Corporation.

(g) “Junior Stock” shall mean the Common Stock and each other class of capital stock or series of preferred stock of the Corporation established after the Original Issue Date, the terms of which do not expressly provide that such class or series ranks senior to or on parity with the Series B Preferred Stock upon the liquidation, winding-up or dissolution of the Corporation.

(h) "Market Price" means, for any security as of any date, the last sales price of such security on the principal trading market where such security is listed or traded as reported by Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Corporation if Bloomberg Financial Markets is not then reporting closing sales prices of such security) (collectively, "Bloomberg"), or if the foregoing does not apply, the last reported sales price of such security on a national exchange or in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no such price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each case for such date or, if such date was not a trading day for such security, on the next preceding date that was a trading day. If the Market Price cannot be calculated for such security on any of the foregoing bases, the Market Price of such security on such date shall be the fair market value as reasonably determined by a valuation firm, with experience in the valuation of securities similar to the Corporation’s, chosen by the Board of Directors of the Corporation in its sole discretion, with the costs of such appraisal to be borne by the Corporation.

(i) “Original Issue Date” shall mean the date upon which the shares of Series B Preferred Stock are first issued.

(j) “Liquidation Preference” shall be equal to $.0001 per share for the Series A Convertible Preferred Stock (as appropriately adjusted for any Recapitalizations).

(k) “Second Dividend Date” means January 1^st of any year following a calendar year in which the Corporation has generated net income of over $2 million based on the Corporation’s audited statement of operations.

(l) “Second Dividend Rate” means 6% of the Corporation’s net income based on the Corporation’s audited statement of operations.

(m) “Senior Securities” shall mean (a) the Series A Convertible Preferred Stock of the Corporation; and (b) any senior debt or other security holders of the Corporation, including certain banks and/or institutions, which hold security interests over the Corporation’s assets as of the Original Issue Date, or which the Corporation may agree in the future to provide such first priority security interests to, which shall not require the approval and/or consent of the Series B Preferred Stock Holders.

(n) “Class A Common Stock” means the Corporation’s Class A Common Stock, $0.00001 par value per share.

(o) “Series B Preferred Stock Certificates” means the certificates, as replaced from time to time, evidencing the outstanding Series B Preferred Stock shares.

(p) "Recapitalization" shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

(q) “Restricted Shares” means shares of the Corporation’s Common Stock which are restricted from being transferred by the Holder thereof unless the transfer is effected in compliance with the Securities Act of 1933, as amended and applicable state securities laws (including investment suitability standards, which shares shall bear the following restrictive legend (or one substantially similar):

"The securities represented by this certificate have not been registered under the Securities Act of 1933 or any state securities act. The securities have been acquired for investment and may not be sold, transferred, pledged or hypothecated unless (i) they shall have been registered under the Securities Act of 1933 and any applicable state securities act, or (ii) the corporation shall have been furnished with an opinion of counsel, satisfactory to counsel for the corporation, that registration is not required under any such acts."

SECTION 3. DIVIDENDS.

(a) Dividends in General. Dividends shall accrue on the Series B Preferred Stock, Quarterly in arrears, for each Quarter that such Preferred Stock is outstanding, (a) beginning on the First Dividend Date, equal to the First Dividend Rate, and additional dividends (b) beginning effective on the Second Dividend Date, based on the Second Dividend Rate, until such dividends are paid in full as provided below (“Dividends”).

(b) Payment of Dividends. The Corporation shall pay the Holder of the Series B Preferred Stock the accrued Dividends in cash or shares of common stock based on the Market Price, at the option of the Corporation from time to time, provided that until paid in the sole discretion of the Corporation, such Dividends shall continue to accrue.

(c) Additional Dividend Policies.

(i) In any calendar year, the Holders of outstanding shares of Series B Preferred Stock shall be entitled to receive dividends, when, as and only if declared by the Board of Directors, out of any assets at the time legally available therefor, payable in preference and priority to any declaration or payment of any Distribution on Common Stock of the Corporation in such calendar year. No Distributions shall be made with respect to the Common Stock until all declared Dividends on the Series B Preferred Stock have been paid or set aside for payment to the Series B Preferred Stock holders.

(ii) Non-Cash Distributions. Whenever a Distribution provided for in this Section 3 shall be payable in property other than cash, the value of such Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board of Directors.

(iii) Other Distributions. Subject to the terms of this Certificate of Designations, and to the fullest extent permitted by Illinois law, the Corporation shall be expressly permitted to redeem, repurchase or make distributions on the shares of its capital stock in all circumstances other than where doing so would cause the Corporation to be unable to pay its debts as they become due in the usual course of business.

SECTION 4. LIQUIDATION PREFERENCE.

(a) Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the Holders of the Series B Preferred Stock shall be entitled to receive, prior and in preference to any Distribution of any of the assets of the Corporation to the Holders of the Junior Stock by reason of their ownership of such stock, but not prior to any holders of the Corporation’s Senior Securities, which holders shall have priority to the distribution of any assets of the Corporation, an amount per share for each share of Series B Preferred Stock held by them equal to the sum of (i) the Liquidation Preference specified for such share of Series B Preferred Stock, and (ii) all declared but unpaid Dividends (if any) on such shares of Series B Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the Holders of the Series B Preferred Stock are insufficient to permit the payment to such Holders of the full amounts specified in this Section 4(a), subsequent to the payment to the Senior Securities then the entire remaining assets of the Corporation following the payment to the Senior Securities legally available for distribution shall be distributed with equal priority and pro rata among the Holders of the Series B Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 4(a).

(b) Remaining Assets. After the payment to the Holders of Series B Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro rata among the Holders of the Junior Stock in proportion to the number of shares of Junior Stock, and the terms of such Junior Stock, held by them.

(d) Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors. In the event of a merger or other acquisition of the Corporation by another entity, the Distribution date shall be deemed to be the date such transaction closes.

SECTION 5. CONVERSION RIGHTS. The Series B Preferred Stock shall be convertible into Common Stock as follows (the "Conversion Rights"):

(a) Holder’s Right to Convert.

(i) All shares Series B Preferred Stock shall be convertible, at the option of the Holder thereof, with five (5) Business Days written notice to the Corporation (a “Notice of Conversion”), at the office of the Corporation or any transfer agent for the Series B Preferred Stock, into that number of fully-paid, non-assessable shares of Class A Common Stock determined by multiplying the total number of shares of Class A Common Stock issued and outstanding by 0.10 (the “Shares”). The Holder may only affect a conversion of all of the Series B Preferred Stock shares which he, she or it owns pursuant to and in compliance with the restrictions on conversion set forth herein and only at such time as all other Holders of Series B Preferred Stock desire to convert such shares of Series B Preferred Stock which they hold as provided in this Section 5(b)(i.e., no Conversion shall take place unless all outstanding shares of Series B Preferred Stock are Converted at the same time)(each a “Conversion”).

(ii) Mechanics of Conversion. In order to effect a Conversion, a Holder shall: (i) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the Corporation (Attention: Corporate Secretary), and (ii) surrender or cause to be surrendered the original Series B Preferred Stock Certificates being converted, duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to the Corporation which the Holder desires to convert. Upon receipt by the Corporation of a facsimile copy of a Notice of Conversion from a Holder, the Corporation shall promptly send, via facsimile, a confirmation to such Holder stating that the Notice of Conversion has been received, the date upon which the Corporation expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation regarding the conversion and/or any deficiencies that exist in connection with such Notice of Conversion. The Corporation shall not be obligated to issue shares of Common Stock upon a conversion unless the original Series B Preferred Stock Certificates Converted are delivered to the Corporation as provided above. In the event the Holder has lost or misplaced the certificates evidencing the Series B Preferred Stock, the Holder shall be required to provide the Corporation or the Corporation’s Transfer Agent (as applicable) with whatever documentation and fees each may require to re-issue the Series B Preferred Stock Certificates and shall be required to provide such re-issued Series B Preferred Stock Certificates to the Corporation in connection with such Notice of Conversion. Unless the Notice of Conversion provided by the Holder includes a valid opinion from an attorney stating that such Shares of Common Stock issuable in connection with the Notice of Conversion can be issued free of restrictive legend, which shall be determined by the Corporation in its sole discretion, such shares shall be issued as Restricted Shares.

(iii) Delivery of Common Stock Upon Conversion. Upon the surrender of Series B Preferred Stock Certificates accompanied by a Notice of Conversion, the Corporation (itself, or through its transfer agent) shall, no later than the fifth (5th) Business Day following the date of such surrender (the "Delivery Period"), issue and deliver (i.e., deposit with a nationally recognized overnight courier service postage prepaid) to the Holder or its nominee (x) that number of shares of Class A Common Stock issuable upon conversion of such shares of Series B Preferred Stock being converted and (y) the total amount of the accrued and unpaid Dividends.

(b) Taxes. The Corporation shall not be required to pay any tax which may be payable in respect to any transfer involved in the issue and delivery of shares of Common Stock upon conversion in a name other than that in which the shares of the Series B Preferred Stock so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid. The Corporation shall withhold from any payment due whatsoever in connection with the Series B Preferred Stock any and all required withholdings and/or taxes the Corporation, in its sole discretion deems reasonable or necessary, absent an opinion from Holder’s accountant or legal counsel, acceptable to the Corporation in its sole determination, that such withholdings and/or taxes are not required to be withheld by the Corporation.

(c) Adjustments for Reclassification, Exchange and Substitution. If the Common Stock issuable upon conversion of the Series B Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each Holder of such Series B Preferred Stock shall have the right thereafter to convert such shares of Series B Preferred Stock into a number of shares of such other class or classes of stock which a Holder of the number of shares of Common Stock deliverable upon conversion of such series of Series B Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

(d) No Impairment. The Corporation will not through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion rights of the holders of Series B Preferred Stock against impairment. Notwithstanding the foregoing, nothing in this Section 5(d) shall prohibit the Corporation from amending its Certificate of Incorporation with the requisite consent of its shareholders and the Board of Directors.

(e) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the Conversion of the shares of the Series B Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the Conversion of all then outstanding shares of the Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the Conversion of all then outstanding shares of the Series B Preferred Stock, the Corporation will within a reasonable time period make a good faith effort to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

(f) Effect of Conversion. On the date of any Conversion, all rights of any Holder with respect to the shares of the Series B Preferred Stock so converted, including the rights, if any, to receive distributions of the Corporation’s assets or notices from the Corporation, will terminate.

(g) Notices of Record Date. In the event that the Corporation shall propose at any time:

(i) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or

(ii) to voluntarily liquidate or dissolve or to enter into any transaction deemed to be a liquidation, dissolution or winding up of the Corporation;

then, in connection with each such event, the Corporation shall send to the holders of the Series B Preferred Stock at least ten (10) Business Days prior written notice of a record date for determining rights to vote in respect of the matters referred to above.

Such written notice shall be given by first class mail (or express courier), postage prepaid, addressed to the holders of Series B Preferred Stock at the address for each such Holder as shown on the books of the Corporation and shall be deemed given on the date such notice is mailed. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the vote or written consent of the holders of a majority of the Series B Preferred Stock, voting together as a single class.

SECTION 6. VOTING. The Series B Preferred Stock shall have no voting rights and shall have no right to vote on any shareholder matters (other than as expressly stated below under Section 7) or as otherwise provided for by Illinois law.

SECTION 7. PROTECTIVE PROVISIONS.

Subject to the rights of series of Series B Preferred Stock which may from time to time come into existence, so long as any shares of Series B Preferred Stock are outstanding, 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, voting together as a class:

(a) Increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series B Preferred Stock;

(b) Effect an exchange, reclassification, or cancellation of all or a part of the Series B Preferred Stock, but excluding a stock split, forward split or reverse stock split of the Corporation’s Common Stock or Series B Preferred Stock;

(c) 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

(d) 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, including the rights set forth in this Designation.

PROVIDED, HOWEVER, that the Corporation may, by any means authorized by law and without any vote of the Holders of shares of the Series B Preferred Stock, make technical, corrective, administrative or similar changes in this Statement of Designations that do not, individually or in the aggregate, adversely affect the rights or preferences of the Holders of shares of the Series B Preferred Stock. The Corporation may also designate and issue additional series of preferred stock from time to time in the sole discretion of the Corporation’s Board of Directors, which such rights, privileges, preferences and limitations shall be determined by the Corporation’s Board of Directors in its sole discretion, and which designations and issuances shall not require the approval of the holders of the Series B Preferred Stock.

SECTION 8. PREEMPTIVE RIGHTS. Holders of Series B Preferred Stock and holders of Common Stock shall not be entitled to any preemptive, subscription or similar rights in respect to any securities of the Corporation, except as specifically set forth herein or in any other document agreed to by the Corporation.

SECTION 9. NOTICES. In addition to any other means of notice provided by law or in the Corporation's Bylaws, any notice required by the provisions of this Designation to be given to the holders of Series B Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each Holder of record at such Holder's address appearing on the books of the Corporation.

SECTION 10. MISCELLANEOUS.

(a) The headings of the various sections and subsections of this Certificate of Designation are for convenience of reference only and shall not affect the interpretation of any of the provisions of this Certificate of Designation.

(b) Whenever possible, each provision of this Certificate of Designation shall be interpreted in a manner as to be effective and valid under applicable law and public policy. If any provision set forth herein is held to be invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions of this Certificate of Designation. No provision herein set forth shall be deemed dependent upon any other provision unless so expressed herein. If a court of competent jurisdiction should determine that a provision of this Certificate of Designation would be valid or enforceable if a period of time were extended or shortened, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law.

(c) Except as may otherwise be required by law, the shares of the Series B Preferred Stock shall not have any powers, designations, preferences or other special rights, other than those specifically set forth in this Certificate of Designation.”

CERTIFICATE OF DESIGNATIONS
ESTABLISHING THE DESIGNATIONS, PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF THE
SERIES C CONVERTIBLE PREFERRED STOCK

Pursuant to Sections 6.10 and 10.20 of the Illinois Business Corporation Act of 1983, the Corporation has adopted a designation of Three Billion (3,000,000,000) shares of Series C Convertible Preferred Stock, par value $0.0001 per share which have the powers and preferences, and the relative, participating, optional and other rights, and the qualifications, limitations, and restrictions thereon set forth below (the “Designation” or “Certificate of Designation”):

Section 1. DESIGNATION OF SERIES; RANK. The shares of such series shall be designated as the "Series C Convertible Preferred Stock" (the "Series C Preferred Stock") and the number of shares initially constituting such series shall be Three Billion (3,000,000,000) shares.

Section 2. DEFINITIONS.

For purposes of this Designation, the following definitions shall apply:

(r) “Business Day” means a day in which a majority of the banks in the State of Illinois in the United States of America are open for business.

(s) “Common Stock” means the Corporation’s $0.0001 par value Class A Common Stock and Class B Common Stock.

(t) "Distribution" shall mean the transfer of cash, Common Stock or other property without consideration whether by way of dividend or otherwise to the shareholders of Common Stock.

(u) “Holder” shall mean the person or entity in which the Series C Preferred Stock is registered on the books of the Corporation, which shall initially be the person or entity which such Series C Preferred Stock is issued to, and shall thereafter be permitted and legal assigns which the Corporation is notified of by the Holder and which the Holder has provided a valid legal opinion in connection therewith to the Corporation.

(v) “Junior Stock” shall mean the Common Stock and each other class of capital stock or series of preferred stock of the Corporation established after the Original Issue Date, the terms of which do not expressly provide that such class or series ranks senior to or on parity with the Series C Preferred Stock upon the liquidation, winding-up or dissolution of the Corporation.

(w) "Market Price" means, for any security as of any date, the last sales price of such security on the principal trading market where such security is listed or traded as reported by Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Corporation if Bloomberg Financial Markets is not then reporting closing sales prices of such security) (collectively, "Bloomberg"), or if the foregoing does not apply, the last reported sales price of such security on a national exchange or in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no such price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each case for such date or, if such date was not a trading day for such security, on the next preceding date that was a trading day. If the Market Price cannot be calculated for such security on any of the foregoing bases, the Market Price of such security on such date shall be the fair market value as reasonably determined by a valuation firm, with experience in the valuation of securities similar to the Corporation’s, chosen by the Board of Directors of the Corporation in its sole discretion, with the costs of such appraisal to be borne by the Corporation.

(x) “Original Issue Date” shall mean the date upon which the shares of Series C Preferred Stock are first issued.

(y)“Liquidation Preference” shall be equal to $.0001 per share for the Series A Convertible Preferred Stock (as appropriately adjusted for any Recapitalizations).

(z) “Senior Securities” shall mean (a) the Series A Convertible Preferred Stock of the Corporation; (b) the Series B Convertible Preferred Stock of the Corporation; and (c) any senior debt or other security holders of the Corporation, including certain banks and/or institutions, which hold security interests over the Corporation’s assets as of the Original Issue Date, or which the Corporation may agree in the future to provide such first priority security interests to, which shall not require the approval and/or consent of the Series C Preferred Stock Holders.

(aa) “Class A Common Stock” means the Corporation’s Class A Common Stock, $0.00001 par value per share.

(bb) “Series C Preferred Stock Certificates” means the certificates, as replaced from time to time, evidencing the outstanding Series C Preferred Stock shares.

(cc) "Recapitalization" shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

(dd) “Restricted Shares” means shares of the Corporation’s Common Stock which are restricted from being transferred by the Holder thereof unless the transfer is effected in compliance with the Securities Act of 1933, as amended and applicable state securities laws (including investment suitability standards, which shares shall bear the following restrictive legend (or one substantially similar):

"The securities represented by this certificate have not been registered under the Securities Act of 1933 or any state securities act. The securities have been acquired for investment and may not be sold, transferred, pledged or hypothecated unless (i) they shall have been registered under the Securities Act of 1933 and any applicable state securities act, or (ii) the corporation shall have been furnished with an opinion of counsel, satisfactory to counsel for the corporation, that registration is not required under any such acts."

SECTION 3. DIVIDENDS.

(c) Dividends in General. Dividends shall accrue on the Series C Preferred Stock, Quarterly in arrears, for each Quarter that such Preferred Stock is outstanding, beginning on the Dividend Date, equal to the Dividend Rate, until such dividends are paid in full as provided below (“Dividends”).

(d) Payment of Dividends. The Corporation shall pay the Holder of the Series C Preferred Stock the accrued Dividends in cash or shares of common stock based on the Market Price, at the option of the Corporation from time to time, provided that until paid in the sole discretion of the Corporation, such Dividends shall continue to accrue.

(c) Additional Dividend Policies.

(i) In any calendar year, the Holders of outstanding shares of Series C Preferred Stock shall be entitled to receive dividends, when, as and only if declared by the Board of Directors, out of any assets at the time legally available therefor, payable in preference and priority to any declaration or payment of any Distribution on Common Stock of the Corporation in such calendar year. No Distributions shall be made with respect to the Common Stock until all declared Dividends on the Series C Preferred Stock have been paid or set aside for payment to the Series C Preferred Stock holders.

(ii) Non-Cash Distributions. Whenever a Distribution provided for in this Section 3 shall be payable in property other than cash, the value of such Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board of Directors.

(iii) Other Distributions. Subject to the terms of this Certificate of Designations, and to the fullest extent permitted by Illinois law, the Corporation shall be expressly permitted to redeem, repurchase or make distributions on the shares of its capital stock in all circumstances other than where doing so would cause the Corporation to be unable to pay its debts as they become due in the usual course of business.

SECTION 4. LIQUIDATION PREFERENCE.

(c) Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the Holders of the Series C Preferred Stock shall be entitled to receive, prior and in preference to any Distribution of any of the assets of the Corporation to the Holders of the Junior Stock by reason of their ownership of such stock, but not prior to any holders of the Corporation’s Senior Securities, which holders shall have priority to the distribution of any assets of the Corporation, an amount per share for each share of Series C Preferred Stock held by them equal to the sum of (i) the Liquidation Preference specified for such share of Series C Preferred Stock, and (ii) all declared but unpaid Dividends (if any) on such shares of Series C Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the Holders of the Series C Preferred Stock are insufficient to permit the payment to such Holders of the full amounts specified in this Section 4(a), subsequent to the payment to the Senior Securities then the entire remaining assets of the Corporation following the payment to the Senior Securities legally available for distribution shall be distributed with equal priority and pro rata among the Holders of the Series C Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 4(a).

(d) Remaining Assets. After the payment to the Holders of Series C Preferred Stock of the full preferential amounts specified above, the entire remaining assets of the Corporation legally available for distribution by the Corporation shall be distributed with equal priority and pro rata among the Holders of the Junior Stock in proportion to the number of shares of Junior Stock, and the terms of such Junior Stock, held by them.

(e) Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors. In the event of a merger or other acquisition of the Corporation by another entity, the Distribution date shall be deemed to be the date such transaction closes.

SECTION 5. CONVERSION RIGHTS. The Series C Preferred Stock shall be convertible into Common Stock as follows (the "Conversion Rights"):

(b) Holder’s Right to Convert.

(i) Subject to the Conversion Restrictions (described in Section 5(m) below), each share of Series C Preferred Stock shall be convertible, at the option of the Holder thereof, with five (5) Business Days written notice to the Corporation (a “Notice of Conversion“), at the office of the Corporation or any transfer agent for the Series C Preferred Stock, into three fully-paid, non-assessable shares of Class A Common Stock (the “Shares” and each a “Conversion”).

(ii) Mechanics of Conversion. In order to effect a Conversion, a Holder shall: (i) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the Corporation (Attention: Corporate Secretary), and (ii) surrender or cause to be surrendered the original Series C Preferred Stock Certificates being converted, duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to the Corporation which the Holder desires to convert. Upon receipt by the Corporation of a facsimile copy of a Notice of Conversion from a Holder, the Corporation shall promptly send, via facsimile, a confirmation to such Holder stating that the Notice of Conversion has been received, the date upon which the Corporation expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation regarding the conversion and/or any deficiencies that exist in connection with such Notice of Conversion. The Corporation shall not be obligated to issue shares of Common Stock upon a conversion unless the original Series C Preferred Stock Certificates Converted are delivered to the Corporation as provided above. In the event the Holder has lost or misplaced the certificates evidencing the Series C Preferred Stock, the Holder shall be required to provide the Corporation or the Corporation’s Transfer Agent (as applicable) with whatever documentation and fees each may require to re-issue the Series C Preferred Stock Certificates and shall be required to provide such re-issued Series C Preferred Stock Certificates to the Corporation in connection with such Notice of Conversion. Unless the Notice of Conversion provided by the Holder includes a valid opinion from an attorney stating that such Shares of Common Stock issuable in connection with the Notice of Conversion can be issued free of restrictive legend, which shall be determined by the Corporation in its sole discretion, such shares shall be issued as Restricted Shares.

(iii) Delivery of Common Stock Upon Conversion. Upon the surrender of Series C Preferred Stock Certificates accompanied by a Notice of Conversion, the Corporation (itself, or through its transfer agent) shall, no later than the fifth (5th) Business Day following the date of such surrender (the "Delivery Period"), issue and deliver (i.e., deposit with a nationally recognized overnight courier service postage prepaid) to the Holder or its nominee (x) that number of shares of Class A Common Stock issuable upon conversion of such shares of Series C Preferred Stock being converted and (y) the total amount of the accrued and unpaid Dividends.

(b) Taxes. The Corporation shall not be required to pay any tax which may be payable in respect to any transfer involved in the issue and delivery of shares of Common Stock upon conversion in a name other than that in which the shares of the Series C Preferred Stock so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax, or has established, to the satisfaction of the Corporation, that such tax has been paid. The Corporation shall withhold from any payment due whatsoever in connection with the Series C Preferred Stock any and all required withholdings and/or taxes the Corporation, in its sole discretion deems reasonable or necessary, absent an opinion from Holder’s accountant or legal counsel, acceptable to the Corporation in its sole determination, that such withholdings and/or taxes are not required to be withheld by the Corporation.

(h) Adjustments for Reclassification, Exchange and Substitution. If the Common Stock issuable upon conversion of the Series C Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each Holder of such Series C Preferred Stock shall have the right thereafter to convert such shares of Series C Preferred Stock into a number of shares of such other class or classes of stock which a Holder of the number of shares of Common Stock deliverable upon conversion of such series of Series C Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

(i) No Impairment. The Corporation will not through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion rights of the holders of Series C Preferred Stock against impairment. Notwithstanding the foregoing, nothing in this Section 5(d) shall prohibit the Corporation from amending its Certificate of Incorporation with the requisite consent of its shareholders and the Board of Directors.

(j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the Conversion of the shares of the Series C Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the Conversion of all then outstanding shares of the Series C Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the Conversion of all then outstanding shares of the Series C Preferred Stock, the Corporation will within a reasonable time period make a good faith effort to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

(k) Effect of Conversion. On the date of any Conversion, all rights of any Holder with respect to the shares of the Series C Preferred Stock so converted, including the rights, if any, to receive distributions of the Corporation’s assets or notices from the Corporation, will terminate.

(l) Notices of Record Date. In the event that the Corporation shall propose at any time: (i) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or

(ii) to voluntarily liquidate or dissolve or to enter into any transaction deemed to be a liquidation, dissolution or winding up of the Corporation;

then, in connection with each such event, the Corporation shall send to the holders of the Series C Preferred Stock at least ten (10) Business Days prior written notice of a record date for determining rights to vote in respect of the matters referred to above.

Such written notice shall be given by first class mail (or express courier), postage prepaid, addressed to the holders of Series C Preferred Stock at the address for each such Holder as shown on the books of the Corporation and shall be deemed given on the date such notice is mailed. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the vote or written consent of the holders of a majority of the Series C Preferred Stock, voting together as a single class.

(m) Conversion Restrictions. The following “Conversion Restrictions” shall apply to any Conversion of the Series C Preferred Stock hereunder:

(i) The Holder (and any assigns) shall be prohibited from Converting any Series C Preferred Stock shares for a period of one (1) month from the Original Issue Date;

(ii) The Holder (and any assigns) shall be prohibited from Converting not more than 30% of the Series C Preferred Stock shares originally issued to Holder (the “Total Original Holder Shares”) during the second (2nd) month following the Original Issue Date;

(iii) The Holder (and any assigns) shall be prohibited from Converting not more than an additional 30% (60% in total) of the Total Original Holder Shares during the third (3rd) month following the Original Issue Date; and

(iv) The Holder (and any assigns) shall be prohibited from Converting not more than an additional 40% (100% in total) of the Total Original Holder Shares following the end of the third (3rd) month following the Original Issue Date.

SECTION 6. VOTING. Except as otherwise provided herein, or as required by Illinois law, the Series C Preferred Stock shall each vote three voting shares and shall vote together with the shares of the Common Stock of the Company, and not as a separate class, at any annual or special meeting of shareholders of the Company, and may act by written consent in the same manner as the Common Stock, in either case upon the following basis: each Holder of shares of Series C Preferred Stock shall be entitled to that number of votes as equals three multiplied by the number of shares of Series C Preferred Stock which such Holder holds immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent.

SECTION 7. PROTECTIVE PROVISIONS.

So long as any shares of Series C Preferred Stock are outstanding, 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 C Preferred Stock, voting together as a class:

(e) Increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series C Preferred Stock;

(f) Effect an exchange, reclassification, or cancellation of all or a part of the Series C Preferred Stock, but excluding a stock split, forward split or reverse stock split of the Corporation’s Common Stock or Series C Preferred Stock;

(g) 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 C Preferred Stock; or

(h) Alter or change the rights, preferences or privileges of the shares of Series C Preferred Stock so as to affect adversely the shares of such series, including the rights set forth in this Designation.

PROVIDED, HOWEVER, that the Corporation may, by any means authorized by law and without any vote of the Holders of shares of the Series C Preferred Stock, make technical, corrective, administrative or similar changes in this Statement of Designations that do not, individually or in the aggregate, adversely affect the rights or preferences of the Holders of shares of the Series C Preferred Stock. The Corporation may also designate and issue additional series of preferred stock from time to time in the sole discretion of the Corporation’s Board of Directors, which such rights, privileges, preferences and limitations shall be determined by the Corporation’s Board of Directors in its sole discretion, and which designations and issuances shall not require the approval of the holders of the Series C Preferred Stock.

SECTION 8. PREEMPTIVE RIGHTS. Holders of Series C Preferred Stock and holders of Common Stock shall not be entitled to any preemptive, subscription or similar rights in respect to any securities of the Corporation, except as specifically set forth herein or in any other document agreed to by the Corporation.

SECTION 9. NOTICES. In addition to any other means of notice provided by law or in the Corporation's Bylaws, any notice required by the provisions of this Designation to be given to the holders of Series C Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each Holder of record at such Holder's address appearing on the books of the Corporation.

SECTION 10. MISCELLANEOUS.

(a) The headings of the various sections and subsections of this Certificate of Designation are for convenience of reference only and shall not affect the interpretation of any of the provisions of this Certificate of Designation.

(b) Whenever possible, each provision of this Certificate of Designation shall be interpreted in a manner as to be effective and valid under applicable law and public policy. If any provision set forth herein is held to be invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions of this Certificate of Designation. No provision herein set forth shall be deemed dependent upon any other provision unless so expressed herein. If a court of competent jurisdiction should determine that a provision of this Certificate of Designation would be valid or enforceable if a period of time were extended or shortened, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law.

(c) Except as may otherwise be required by law, the shares of the Series C Preferred Stock shall not have any powers, designations, preferences or other special rights, other than those specifically set forth in this Certificate of Designation.”

EX-10.32

 Exhibit 10.32

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this "Agreement'') is made as of the ____day of February, 2014 (effective date) by and among TROY HOLDINGS INTERNATIONAL, INC., an Ontario Canada corporation (the ^“Seller"), and TELECORP PRODUCTS. INC., a Michigan corporation. (herein referred to as the "Company"), and Troy Inc. (“Shareholder") (as to Sections 8.01 and 8.02 only), and EPAZZ. INC., an Illinois corporation or its nominee (herein referred to as ^“Purchaser "). each sometimes referred to herein as a ”Party^“ and collectively the ^“Parties."

RECITALS

1. The Seller is the sole shareholder of the Company and as such owns 1,400 shares of the no par value common stock of the Company (the "Shares"), representing all of the issued and outstanding securities of the Company.

2. The Seller desires to sell, assign, transfer unto Purchaser all of the right, title and interest in and to the Shares on the terms and subject to the satisfaction of all of the conditions set forth herein (the ^“Transaction").

NOW, THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller and Purchaser do hereby agree as follows:

ARTICLE I

SALE AND TRANSFER OF SHARES; CLOSING

Section 1.01 INCORPORATION OF RECITALS

The recitals set out in the above paragraph are hereby restated and specifically incorporated into this Agreement.

Section 1.02 SALE

Upon the terms and subject to the conditions of this Agreement, Seller shall sell, assign, transfer and set over to the Purchaser and Purchaser will purchase. all of the right, title and interest of the Seller in and to the Shares, free and clear of all liens and claims.

Section 1.03 PURCHASE PRICE

The purchase price (“Purchase Price") for the Shares shall be Three Hundred Twenty Thousand Dollars (US $320,000.00) and shall be payable to Seller, as follows:

a. Forthwith after the full execution of this Agreement and in any event, prior to any site visit as contemplated in paragraph 4.01 herein, Purchaser shall deposit the sum of Twenty-Five Thousand Dollars (US $25,000.00) to be held by the attorney for Seller "In Trust," subject to the terms of this Agreement. At Closing, the Deposit will be a credit to Purchaser against the Purchase Price.

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b. At Closing. Purchaser shall make a payment of One Hundred Seventy-Five Thousand Dollars (US $175,000.00) (exclusive of the Deposit) to Seller.

c. At Closing. Purchaser shall further deliver to Seller an executed promissory note in the amount of One Hundred Twenty Thousand Dollars (US $120,000.00) which promissory note shall provide for six (6) equal monthly payments commencing thirty (30) days after Closing in the form attached hereto as Schedule A (the ^-Promissory Note").

d. The Promissory Note shall provide for no interest (except upon default, in which case the interest rate shall be 10% p.a.) and contain a right of setoff. The Promissory Note shall be secured by a subordinate pledge of the Shares (subordinate only to the line of credit with the Bank of the Company from time to time).

The Purchase Price shall be subject to adjustment based on any decrease in the Working Capital (as that term is hereinafter defined) of the Company between September 30, 2013 and the Closing Date. The September 30, 2013 Balance Sheet is annexed hereto as Schedule B. Prior to Closing, Seller's accountants shall prepare an update of the Balance Sheet, as of the close of business on the day prior to Closing (the "Closing Balance Sheet"). Working Capital shall mean, for the purposes of the Transaction, the difference between the value of the Company's assets as shown on the Balance Sheet. and the value of the Company's liabilities, as shown on the Balance Sheet. The Closing Date Working Capital shall mean the value of the Company's assets as shown on the Closing Date Balance Sheet less the value of the Company's liabilities, as shown on the Closing Date Balance Sheet. The Working Capital Adjustment shall mean, a dollar for dollar decrease in the Purchase Price in the event that the Closing Date Working Capital shall be less than the Working Capital. Any such decrease shall be deducted from the payments under the Promissory Note.

Section 1.04 CLOSING

The completion of the Transaction will take place on or prior to February 28, 2014, or at the option of Purchaser, three (3) business days following the expiry or waiver of the Due Diligence Period (as hereinafter defined). with no Notice of Disapproval (as hereinafter defined) having been issued by the Purchaser or at such other time, date or place as the Seller and Purchaser may otherwise agree in writing (hereinafter the "Closing" or "Closing Date”).

Section 1.05 CLOSING OBLIGATIONS

At Closing, Seller will deliver to Purchaser (a) the certificate(s) representing the Shares. duly endorsed or accompanied by stock powers duly endorsed and (b) any and all other documentation necessary to effect the sale and transfer of the Shares to the Purchaser. At Closing, the Purchaser will deliver to Seller the cash consideration (by way of bank draft or wire transfer) in accordance with Section 1.03, the Promissory Note, the Security Agreement, and any other documentation reasonably necessary to carry out the purposes and intent of this Agreement.

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ARTICLE II

REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY

The Seller hereby represents and warrants to the Purchaser, as of the date hereof and as of the Closing Date. as follows:

Section 2.01 ORGANIZATION AND GOOD STANDING

a. The Company is a Michigan corporation duly organized, existing and in good standing under the laws of the State of Michigan. The Company has all requisite power and authority, corporate or otherwise, to conduct its business as it is now being conducted, to own and operate their assets and to perform all of its obligations under applicable contracts.

b. Seller shall deliver to Purchaser copies of the Organizational Documents of the Company. as currently in effect. during the Due Diligence Period.

c. Seller is an Ontario Canada corporation. duly organized, existing and in good standing under the laws of Ontario Canada.

Section 2.02 CAPITALIZATION/COMMON STOCK AND OWNERSHIP

There are Five Thousand (5,000) shares of common stock authorized and One Thousand Four Hundred (1,400) shares of issued common stock (the "Shares") of the Company, which Shares are solely held by Seller. All of the Shares have been duly authorized and validly issued and constitute all of the capital stock of the Company. The Shares transferred by the Seller to Purchaser will be free and clear of liens. The Seller has full legal right to sell, assign and transfer the Shares to Purchaser and will deliver to Purchaser certificates representing the Shares, transfer good and indefeasible title to the Shares to Purchaser, free and clear of liens. There are no outstanding or authorized subscriptions, options, warrants, calls, rights or other similar contracts, including rights of conversion or exchange under any outstanding debt or equity security or other contract, to which any of the capital stock of the Company will he subject or obligating the Seller and/or the Company to issue, deliver or sell, or cause to be issued, delivered or sold. any other shares of capital stock of the Company or any other debt or equity securities convertible into or evidencing the right to subscribe for any such shares of capital stock or obligating the Seller and/or the Company to grant, extend or enter into any such contract. There are no voting trusts, proxies or other contracts to which Seller and/or the Company is a party or is bound with respect to the voting of any shares of capital stock of the Company.

Section 2.03 AUTHORITY

The Seller. the Shareholders and the Company have the absolute and unrestricted right, power, authority and capacity to execute and deliver this Agreement. This Agreement constitutes the legal, valid and binding obligation of the Seller and the Shareholders, enforceable against Seller and the Shareholders in accordance with its terms.

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Section 2.04 NO CONFLICT

The execution and delivery by the Seller of this Agreement and the consummation of the transaction contemplated herein, does not and shall not directly or indirectly (with or without the lapse of time or the giving of notice or otherwise):

a. contravene. conflict with, or result in a violation of. any law or give any governmental body or other person the right to challenge any of the transactions contemplated herein or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which the Company or Seller, or any of the assets owned or used by the Company, may be subject;

b. contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any governmental body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any governmental authorization or any writ, injunction, order, judgment or decree of any governmental authority or any contract that is held by the Company or that otherwise relates to the business of. or any of the assets owned or used by, the Company;

c. cause Purchaser or the Company (after Closing) to become subject to. or to become liable for the payment of any taxes for the period prior to the Closing;

d. cause any of the assets owned by the Company to be reassessed or revalued by any taxing authority or other governmental body; or

e. contravene, conflict with. or result in a violation or breach of any provision of, or give any person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any contract.

Section 2.05 CONSENTS AND APPROVALS

No governmental approvals, notifications, filings or registrations to or with any governmental authority or any other person is or will be necessary for the valid execution and delivery by Seller or Company of this Agreement (including the Closing Documents for the consummation of the transactions contemplated herein), or the enforceability hereof.

Section 2.06 LIABILITIES

A true and correct itemization of all of Seller's liabilities, including without limitation, all amounts to be owed to employees in respect of their employment prior to the Closing Date (including without limitation, accrued vacation pay) is set forth in Schedule D. The Purchaser shall be responsible to disclose liabilities, at Closing not to exceed a total of $50,000.00 (the "Liability Limit"); (inclusive of all tax liabilities whether federal (U.S. or Canada), state or local), whether or not reflected in the Closing Balance Sheet of the Company, shall be the responsibility of the Seller. If the total liabilities of the Company exceed $50,000, the Purchaser shall forthwith provide documents evidencing such liabilities in excess of the Liability Limit (the "Excess Liabilities" or individually, an "Excess Liability") to the Seller who shall have the opportunity to settle or challenge each Excess Liability, failing which the Purchaser shall be entitled to deduct the amount of the Excess Liabilities from payments otherwise due to the Seller under the Promissory Note described in paragraph 1.03 d. herein unless the Seller has settled and paid the same. Further, the parties agree that all debt owed by the Company to either the Seller. its shareholder, or any affiliates of any of the foregoing shall be released (whether paid or forgiven). at or prior to Closing. Seller agrees to provide documentation to Purchaser, in form reasonably acceptable to Purchaser, evidencing such release. For the purposes of this Agreement, "deferred revenues" shall not he considered to be liabilities of the Company and shall not be included in the 'Liability Limit' calculations. Seller shall hold harmless Purchaser against liabilities over the Excess Liabilities, including without limitation, all costs, expenses and attorneys' fees associated therewith.

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Section 2.07 TAXES

The Company has filed or will cause to be filed all tax returns that were required to be filed by or with respect to them, pursuant to legal requirements, including without limitation, United States Federal income tax withholding tax. and any State of Michigan taxes and shall indemnify the Purchaser against all such liabilities for the time period through the date of Closing except such obligations not yet due and payable for which appropriate provision shall have been made by payment into escrow, held by Seller's attorney, for such amounts as set forth for such taxes in the Closing Balance Sheet. Any liability in excess of the escrowed amount shall remain the responsibility of Seller.

Section 2.08 RESIGNATION OF OFFICERS/DIRECTORS

The Seller shall cause the resignation of all of the Officers/Directors of the Company executing and delivering the requisite documentation necessary to affect said resignation at Closing. Furthermore. the Seller agrees to assist the Purchaser with the change in the authorized signatories on the bank accounts of the Company and any other procedures necessary to affect the transfer of the rights associated with the operations of the Company from the Seller to the Purchaser as is reasonably requested of Seller.

Section 2.09 FINDERS/BROKERS

The parties acknowledge that the Seller has retained the services of a Broker. who shall be compensated by the Seller upon the completion of the transaction (the "Seller's Broker"). Except for the Seller's Broker, no other broker, finder or financial advisor has acted for Seller in connection with this Agreement or the transactions contemplated hereby or thereby, and no other broker, Finder or financial advisor is entitled to any broker's, finder's or financial advisor's fee or other commission in respect thereof based in any way on any contract with Seller, and Seller agrees to indemnify, defend and hold Purchaser harmless from and against all claims, demands, actions, liabilities, damages, costs and expenses (including reasonable attorneys' fees) arising from a claim for a fee or commission made by any broker, finder or financial advisor claiming to have acted by or on behalf of Seller in connection with this Agreement.

Section 2.10 LITIGATION

Except as set forth on Exhibit C attached hereto and incorporated herein, there are no claims pending or, to the knowledge of the Seller and the Company, threatened against or affecting the Company or any of its assets, liabilities and properties before or by any governmental authority or any other person. The Seller and the Company have no knowledge of any claim, which alone or in the aggregate: (a) could reasonably be expected to result in any liability with respect to the Company; or (b) seeks to restrain or enjoin the execution and delivery of this Agreement or the consummation of any of the transactions contemplated hereby or thereby. There are no judgments or outstanding orders, injunctions, decrees, stipulations or awards against either of the Company or any of their assets and properties.

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Section 2.11 DISCLOSURE

The schedules. documents, exhibits, reports, certificates and other written statements and information furnished by or on behalf of Seller and/or the Company to the Purchaser do not contain any material misstatement of fact or omit to state a material fact necessary in order to make the statements contained therein, not misleading. To the best of their knowledge and belief, without having conducted any independent inquiry, Seller and the Company have not withheld any fact known to them which has or is reasonably likely to have a material adverse effect with respect to the Company, this Agreement or the transactions contemplated herein.

Section 2.12 OWNERSHIP

The Seller represents and warrants that Seller owns all of the Shares that are subject to this Agreement. which Shares represent all of the outstanding securities of the Company.

Section 2.13 LABOR AND EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS

a. The Company is not a party to any collective bargaining agreement and other labor agreement or employment agreement or any ERISA or NON-ERISA Plans, except as set forth on Exhibit D.

b. All obligations of the Company (whether arising by operation of law. by contract, by past custom or otherwise). for salaries, vacation and holiday pay, sick pay, bonuses and other forms of compensation payable to the officers. directors or other employees of the Company in respect of the services rendered to the Company have been paid through the date of Closing.

Section 2.14 THE MINUTE BOOK

The minute books and other similar records of the Company will be delivered to Purchaser during the Due Diligence Period and contain a true and complete record of all action taken at all meetings and by all written consents in lieu of meetings of the shareholders, the boards of directors and committees of the boards of directors of the Company. The stock transfer ledgers and other similar records of the Company will be delivered to Purchaser during the Due Diligence Period and accurately reflect all record transfers prior to the execution of this Agreement in the capital stock of the Company.

Section 2.15 BANK ACCOUNTS

The list of bank accounts of the Company will be delivered to Purchaser during the Due Diligence Period and contain an accurate and complete list of (i) the names and addresses of each bank in which the Company has an account; (ii) the account numbers of such accounts; and (iii) the authorized signatories and amounts for such accounts.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PURCHASER

The Purchaser hereby represents and warrants to the Seller, as of the date hereof and as of the Closing, as follows:

Section 3.01 ORGANIZATION AND GOOD STANDING

The Purchaser is an Illinois corporation duly organized. existing and in good standing under the laws of the State of Illinois.

Section 3.02 AUTHORITY

The Purchaser has the absolute and unrestricted right, power, authority and capacity to acquire the Company and execute and deliver this Agreement. This Agreement constitutes the legal, valid and binding obligation of the Purchaser, enforceable against Purchaser in accordance with its terms. The Purchaser has duly executed and delivered this Agreement.

Section 3.03 NO CONFLICT

The execution and delivery by Purchaser of this Agreement and the consummation of the transaction contemplated herein does not and shall not, by the lapse of time, the giving of notice or otherwise in any way constitute a violation of any law or a breach of any document binding on the Purchaser.

Section 3.04 CONSENTS AND APPROVALS

No governmental approvals, notifications, filings or registrations to or with any governmental authority or any other person is or will be necessary for the valid execution and delivery by Seller or Company of this Agreement, including the closing documents for the consummation of the transactions contemplated herein. or the enforceability hereof other than those which have been obtained or made and arc in full force and effect.

ARTICLE IV

CONTINGENCIES

Section 4.01 DUE DILIGENCE

This Agreement and the Purchaser's obligation to close. are contingent upon the Purchaser's approval of the condition of the Company on or prior to the date that is five (5) days after the full execution hereof unless sooner waived by Purchaser (the "Due Diligence Period"). During the Due Diligence Period. Purchaser shall have the right to inspect the Company and to conduct such investigations of the Company and its business operations, as may be necessary, at its sole cost and expense during normal business hours in cooperation with one or representative(s) of the Seller and acting reasonably. Without limitation of the foregoing, Purchaser or Purchaser's accountants or both may review the financial data of Seller reasonably requested by Purchaser, and all contracts of the Company. If Purchaser does not approve the condition of the Company, Purchaser shall give Seller a notice of disapproval (the 'Notice of Disapproval^-) before expiration of the Due Diligence Period, in which event this Agreement shall be deemed terminated and null and void and the Purchaser's deposit shall be returned to it without interest or deduction. If no Notice of Disapproval shall have been received by the Seller or otherwise by the Seller's attorney by the close of business on the final day of the Due Diligence Period, the Purchaser shall be deemed to have accepted the condition of the Company in every respect and this Agreement shall become final and binding on the Parties in accordance with its terms.

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ARTICLE V

COVENANTS

Section 5.01 FURTHER ASSURANCES

The Parties agree that from time to time. whether before, at or after the Closing, each of them will take such other action as reasonably necessary to

a. furnish, upon request to each other. such information as either may reasonably request:

b. execute, acknowledge and deliver such contracts, deeds, or other documents as may be reasonably requested and necessary or appropriate to carry out the purposes and intent of this Agreement; or

c. to effect or evidence the transfer to the Purchaser of the Shares held by or in the name of the Seller.

Section 5.02 CONDUCT OF BUSINESS

The Seller and the Company, except as otherwise specifically set forth herein, from the date of execution of this Agreement to immediately prior to the Closing or earlier termination of this Agreement, shall (a) not take or perform any act or refrain from performing any act which would have resulted in a breach of the representations and warranties set forth in Article II; (b) not enter into any agreement, or extend an existing agreement that will survive after the Closing, outside the ordinary course of business; (c) not sell, pledge, lease, license or otherwise transfer any assets or properties, including without limiting the foregoing, all of the telephone and fax numbers, domain names and intellectual property of the Company: (d) not incur any liabilities, pledge, sell or dispose of any asset outside of the ordinary course of business with a value greater than $5.000.00 (excluding accounts receivable, reoccurring trade payables, monthly rent for the business premises. and inventory in the normal course of business); (e) not make any payments or distributions of assets or properties to Seller or its shareholder, or the Company, except as may be necessary to make any nonmaterial adjustment to the Company's pre-Closing Working Capital; and (f) conduct their business only in the ordinary course. and shall not have paid any bonus or salaries other than which were paid in the ordinary course and approved prior to the parties' execution of this Agreement.

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Section 5.03 PUBLIC ANNOUNCEMENTS

Except as required by law, without the prior written approval of the other party, neither Party will issue, or permit any agent or affiliate thereof to issue, any press release or otherwise make or permit any agent or affiliate thereof to make, any public statement or announcement with respect to this Agreement or the transactions contemplated herein.

Section 5.04 CONSULTING Intentionally Deleted.

ARTICLE VI

CONDITIONS

Section 6.01 CONDITIONS TO OBLIGATIONS OF EACH OF THE PARTIES

The respective obligations of each party to consummate the transactions contemplated hereby shall be subject to the fulfillment at or prior to the Closing of the following conditions:

a. no preliminary or permanent injunction or other order, decree or ruling which prevents the consummation of the transactions contemplated by this Agreement shall have been issued and remain in effect;

b. no claim shall have been asserted, threatened or commenced and no law shall have been enacted, promulgated or issued which would reasonably be expected to

(i) prohibit the purchase of, payment for or retention of the Shares by Purchaser or the consummation of the transactions contemplated by this Agreement or

(ii) make the consummation of any such transactions illegal; and

c. all approvals, if any, legally required for the consummation of the transactions contemplated by this Agreement shall have been obtained and be in full force and effect at the Closing.

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Section 6.02 CONDITIONS PRECEDENT TO SELLER OBLIGATIONS TO CLOSE

The obligations of Seller to consummate the transactions contemplated hereby shall be subject to the fulfillment at or prior to the Closing Date of the following additional conditions, except as Seller may waive in writing:

a. Purchaser shall have complied with and performed in all material respects all of the terms, covenants, agreements and conditions contained in this Agreement which are required to be complied with and performed on or prior to Closing; and

b. the representations and warranties of Purchaser in this Agreement shall have been true and correct on the date hereof and such representations and warranties shall be true and correct on and at the Closing (except those, if any, expressly stated to be true and correct at an earlier date), with the same force and effect as though such representations and warranties had been made on and at the Closing.

Section 6.03 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER

The obligations of Purchaser to consummate the transactions contemplated herein shall be subject to the fulfillment at or prior to Closing of the following additional conditions, except as Purchaser may waive in writing:

a. the Seller and the Company shall have complied with and performed in all material respects all of the terms, covenants, agreements and conditions contained in this Agreement which are required to be complied with and performed on or prior to Closing; and

b. the representations and warranties of Seller and the Company in this Agreement shall have been true and correct on the date hereof and such representations and warranties shall be true and correct on and at the Closing (except those, if any, expressly stated to be true and correct at an earlier date), with the same force and effect as though such representations and warranties had been made on and at the Closing.

Section 6.04 EXISTING BUSINESS PREMISES AND EMPLOYEES

The Purchaser may move the business of the Company to Chicago, Illinois on or after the Closing. The Purchaser shall have responsibility for the Company's existing business premises, located at 2000 E. Oakley Park Road. Suite #101, (the "Premises") for the period from the day after the Closing to March 31, 2014, being the last day of the existing lease, or thereafter if Purchaser shall fail to vacate the Premises in a timely fashion. Purchaser shall discharge any and all remaining obligations that the Company may have to its landlord or otherwise arising under its lease with the landlord, and any and all costs associated with terminating such lease shall be paid by Purchaser. Seller shall be responsible for all payroll costs through and including the date of Closing.

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ARTICLE VII

INDEMNIFICATION

Section 7.01 INDEMNIFICATION OF SELLER

Subject to the terms and conditions of this Article 7 and subject to paragraph 6.04 herein, Purchaser agrees to indemnify, defend and hold harmless Seller. from and against any and all claims, liabilities and losses, including without limitation, reasonable attorney's fees, which may be imposed on, incurred by or asserted against, arising out of or resulting from. directly or indirectly:

a. the material inaccuracy of any representation or breach of any covenant or warranty of Purchaser contained in or made pursuant to this Agreement which was not disclosed to Seller in writing prior to the Closing; provided that no such notification shall be deemed to waive or abrogate any right of Seller with respect to conditions to Closing in Section 6.01;

b. the breach of any covenant or agreement of Purchaser contained in this Agreement; or

c. any claim to fees or costs for alleged services by a broker, agent, finder or other person claiming to act in a similar capacity at the request of Purchaser in connection with this Agreement; provided, however, that Purchaser shall not be liable for any portion of any claims, liabilities or losses resulting from a material breach by Seller. of any of its obligations under this Agreement or from Seller's negligence, fraud or willful misconduct.

Section 7.02 INDEMNIFICATION OF PURCHASER

Subject to the terms and conditions of this Article 7, from and after the Closing, Seller agrees to indemnify, defend and hold harmless the Purchaser from and against any and all claims, liabilities and losses, including without limitation, reasonable attorney's fees, which may be imposed on, incurred by or asserted against any Purchaser arising out of or resulting from, directly or indirectly:

a. the material inaccuracy of any representation or breach of any covenant or warranty of the Seller or the Company contained in or made pursuant to this Agreement which was not disclosed to Purchaser in writing prior to the Closing: provided that no such notification shall be deemed to waive or abrogate any right of Purchaser with respect to conditions to Closing in Section 6.02:

b. the breach of any covenant or agreement of Seller or the Company contained in this Agreement:

c. the conduct of the business of the Company prior to the Closing except for liabilities of the Company in the normal course not to exceed $50.000.00. For the purpose of this transaction "deferred revenue' will not be considered as liability: or

d. any claim to fees or costs for alleged services rendered by a broker, agent, finder or other person claiming to act in a similar capacity at the request of the Seller in connection with this Agreement; provided, however, that Seller and the Company shall not be liable for any portion of any claims, liabilities or losses resulting from a material breach by Purchaser of its obligations under this Agreement or from Purchaser's negligence, fraud or willful misconduct.

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ARTICLE VIII

RESTRICTIVE COVENANTS

Section 8.01 NONDISCLOSURE OF PROPRIETARY PROPERTY

As a material part of the consideration given and received by the parties:

a. Seller and Shareholder, jointly and severally among Seller and Shareholder and by and between Shareholders, acknowledge and agree that in the course of ownership of the Company that Seller and Shareholder have acquired and/or the Company has and will continue to provide both Seller and Shareholder with, or access to information regarding the business, procedures, activities and services of the Company, including but not limited to, memorandum, files, forms, techniques, methods and procedures, programs, customer accounts and customer lists, supplier lists, costs and prices of the Company, and customer needs, requirements and business affairs (hereinafter referred to collectively as the ^-Proprietary Property^-) as is necessary or desirable to assist him in his activities on behalf of the Company.

b. Seller and Shareholder hereby acknowledge that the Proprietary Property is the sole and exclusive property of the Company that the Proprietary Property is a valuable, special and unique asset of the business of the Company, developed at considerable expense to the Company. and is not available to the public at large or other persons engaging in businesses which are the same as or similar to the business of the Company.

c. Seller and Shareholder covenant and agree that each shall not for a period of one (1) year, communicate or divulge to, or use for the benefit of itself or any other person, firm, association or corporation, any information in any way relating to the Proprietary Property, in competition with the business of the Company.

Section 8.02 COVENANT NOT TO COMPETE

As a material part of the consideration given and received by the parties:

a. Seller and Shareholder, jointly and severally among Seller and Shareholder and by and between Shareholders, expressly covenant and agree that for a period of one (1) year, Seller will not engage in any business or perform any service, directly or indirectly. in competition with the business of the Company, or have any interest, whether as proprietor, partner, employee, stockholder, principal, agent, consultant, director, officer, or in any other capacity or manner whatsoever, in any enterprise that shall engage in the business of the Company, except through publicly-traded shares of a mutual fund and major stock exchange.

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b. In furtherance of the foregoing and not in limitation thereof. Seller and Shareholder agree that for a period of one (I) year, Seller and Shareholder shall not (aa) directly or indirectly, solicit or service in any way. on behalf of itself or on behalf of or in conjunction with others, any customers, or prospective customers who have been solicited or serviced by the Company; (bb) directly or indirectly take any action which may induce any customer or divert any business from the Company; or (cc) directly or indirectly, for himself or any enterprise engaged in competition with the Company, solicit for employment or employ any employee who is then employed by the Company or who has been employed by the Company within one (1) year prior to the termination of his employment.

c. The covenants on the part of Seller and Shareholder contained in this Article 8 shall be construed as an agreement independent of any other provision in this Agreement. The existence of any claim or cause of action of Seller and/or Shareholders against the Company, whether predicated on this Agreement or otherwise shall not constitute a defense to the enforcement of this Article 8.

d.

(i) Seller and Shareholder understand that the provisions of Article 8 contain restrictive covenants and prohibit the disclosure of the Proprietary Property of the Company, agree to the reasonability of said provisions, and do herewith expressly agree and acknowledge that their breach of this Agreement will not be adequately compensated by money damages. Seller and Shareholder acknowledge that the restrictions contained in this Agreement are a reasonable and necessary protection of the legitimate interests of the Company and that any violation of these restrictions would cause substantial irreparable injury to the Company. Seller and Shareholder acknowledge that Purchaser would not have entered into this Agreement without receiving the consideration offered by Seller and Shareholder in binding itself to these restrictions.

(ii) Seller and Shareholder expressly agree that in the event of any suit which may be brought by the Company for any violation of the provisions of Article 8. any such breach or threatened breach of Article 8 shall entitle the Company to any and/or of the following remedies:

(aa) an order in any such suit enjoining Seller and Shareholder from violating said provisions. An order to that effect may be entered at any stage of such litigation. without the requirement to post bond, and any application for such injunction shall be without prejudice to any other right of action which may accrue to the parties by reason of the breach or threatened breach of this Agreement; and

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(bb) an order in any such suit providing for monetary damages.

(iii) The remedies contained in this Article 8 are cumulative and not exclusive. Nothing contained in this Agreement shall constitute a waiver by the parties. nor shall the parties be precluded from availing themselves of any of the rights and remedies available to them in law or in equity.

(iv) If any portion or portions of the covenants contained herein shall be, for any reason. held invalid or unenforceable or deemed to be too excessive and, therefore unenforceable, such portion or portions of the covenant shall be reinterpreted by the court who shall have made such determination to requalify the limitations provided therein so as to make the covenant enforceable, so long as to make the covenant enforceable, so long as the modifications to be made therein will not substantially defeat the original purposes of the parties hereto and the parties hereto agree to be bound by such reinterpretation.

ARTICLE IX

GENERAL PROVISIONS

Section 9.01 NOTICES

All notices, consents, waivers, requests and other communications under this Agreement must be in writing to:

(i) SELLER: Troy Holdings International, Inc.
Attn: Scott MacCannell, President            Ana Misra. Vice President 204-11 Cidermill Avenue Vaughan. Ontario, L4K 4B6. Canada E-mail: smaccannellrii;tro‘ine.ca amisraittrovinc.ca

(ii) WITH A COPY TO: Mark G. Baker, LL.M.
Baker & Company, Banisters and Solicitors, 3300-130 Adelaide St. West Toronto, ON Canada, M5H3P5 Fax Number: (416) 366-3992 Email: mbakerObakerlawyers.com

(iii) PURCHASER: Epazz, Inc.
Attn: Shaun Passley

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:	205 W. Wacker Dr. Suite 1320 Chicago, Illinois 60606 Fax Number: (312) 873-4283 E-mail: shaun@epazz.net
(iv) WITH A COPY TO	Daniel M. Loewenstein Evans, Loewenstein. Shimanovsky & Moscardini. Ltd. 130 South Jefferson Street, Suite 350 Chicago, Illinois 60661 Fax Number: (312) 466-0819 E-mail: dloewenstein4ielsm.com

or at such other address or number as shall be designated by either of the parties in a notice to the other party given in accordance with this Section 9.01. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given:

a. in the case of a notice sent by regular or registered or certified mail, three business days after it is duly deposited in the mails;

b. in the case of a notice delivered by hand, when personally delivered;

c. in the case of a notice sent by facsimile. upon transmission subject to telephone confirmation of receipt; and

d. in the case of a notice sent by overnight mail or overnight courier service, the next business day after such notice is mailed or delivered to such courier, in each case given or addressed as aforesaid.

Section 9.02 BENEFIT AND BURDEN

This Agreement shall inure to the benefit of. and shall be binding upon. the parties hereto and their successors and permitted assigns.

Section 9.03 NO THIRD PARTY RIGHTS

Nothing in this Agreement shall be deemed to create any right in any creditor or other person not a party hereto (other than the Purchaser Indemnified Persons) and this Agreement shall not be construed in any respect to be a contract in whole or in part for the benefit of any third party (other than the Purchaser Indemnified Persons).

Section 9.04 AMENDMENTS AND WAIVER

No amendment, modification, restatement or supplement of this Agreement shall be valid unless the same is in writing and signed by the parties hereto. No waiver of any provision of this Agreement shall be valid unless in writing and signed by the party against whom that waiver is sought to be enforced.

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Section 9.05 ASSIGNMENTS

Purchaser may assign any of its rights, interests and obligations under this Agreement with the prior written consent and approval of the Seller.

Section 9.06 COUNTERPARTS

This Agreement may be executed in counterparts and by the different parties in separate counterparts. each of which when so executed shall be deemed an original and all of which taken together shall constitute one and the same agreement.

Section 9.07 CAPTIONS AND HEADINGS

The captions and headings contained in this Agreement are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof if any question of intent should arise.

Section 9.08 CONSTRUCTION

The parties acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by the parties hereto.

Section 9.09 SEVERABILITY

Should any clause, sentence, paragraph. subsection. Section or Article of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement. and the parties agree that the part or parts of this Agreement so held to be invalid. unenforceable or void will be deemed to have been stricken by the parties, and the remainder will have the same force and effectiveness as if such stricken part or parts had never been included herein.

Section 9.10 EFFECT OF FACSIMILE AND PHOTOCOPIED SIGNATURES

This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. A copy of this Agreement signed by one party and faxed to another party shall be deemed to have been executed and delivered by the signing party as though an original. A photocopy of this Agreement shall be effective as an original for all purposes.

Section 9.11 REMEDIES

The parties agree that the covenants and obligations contained in this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms would cause irreparable injury in an amount which would be impossible to estimate or determine and for which any remedy at law would be inadequate. As such, the parties agree that if either party fails or refuses to fulfill any of its obligations under this Agreement or to make any payment or deliver any instrument required then the other party shall have the remedy of specific performance. which remedy shall be cumulative and nonexclusive and shall be in addition to any other rights and remedies otherwise available under any' other contract or at law or in equity and to which such party might be entitled including but not limited to breach of contract and or breach of promissory note.

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Section 9.12 TIME OF ESSENCE

The parties agree that with regard to all dates and time periods set forth in this Agreement, time is of the essence.

Section 9.13 GOVERNING LAW

This agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Illinois. without giving effect to the conflict of law principles thereof.

Section 9.14 JURISDICTION/VENUE

Each of the parties hereby:

a. irrevocably submits to the personal jurisdiction of any Illinois court, over any claim arising out of or relating to this Agreement and irrevocably agrees that any and all such claims may be heard and determined in such Illinois court, in and for Cook County, and

b. irrevocably waives, to the fullest extent permitted by applicable law, any objection it may now or hereafter have to the venue in any proceeding being brought in a court in the Circuit Court of Cook County, Illinois.

Section 9.15 PREVAILING PARTY COSTS

If any party commences an action against another party to enforce any of the terms, covenants, conditions or provisions of this Agreement, or because of a breach by a party of its obligations under this Agreement, the prevailing party in any such action shall be entitled to recover its losses, including reasonable attorneys' fees, costs and interest incurred in connection with the enforcement of this agreement.

Section 9.16 ENTIRE AGREEMENT

This Agreement sets forth all of the promises, agreements, conditions, understandings, warranties and representations among the parties with respect to the transactions contemplated hereby and thereby, and supersedes all prior agreements, arrangements and understandings between the parties, whether written, oral or otherwise.

[Remainder of page left intentionally blank. Signature pace follows.]

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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.

“SELLER”	“COMPANY”
TROY HOLDINGS INTERNATIONAL, INC.	TELECORP PRODUCTS, INC.
By: /s/ Scott MacCannell	By: /s/ Scott MacCannell
SCOTT MACCANNELL	SCOTT MACCANNELL
Its: President	Its: Director
By: /s/ Ana Misra	By: /s/ Ana Misra
Ana Misra	Ana Misra
Its: VP Finance	Its: Director
‘PURCHASER”
EPAZZ, INC.
By: /s/ Shaun Passley
Shaun Passley
Its: Chief Executive Officder

EX-10.33

Exhibit 10.33

 

EX-10.34

Exhibit 10.34

NON-DISCLOSURE/NON-COMPETE AGREEMENT

THIS NON-DISCLOSURE/NON-COMPETE AGREEMENT (this “Agreement”) is made this 28th day of February, 2014 by and between TROY HOLDINGS INTERNATIONAL, INC., an Ontario Canada corporation (the “Seller”), EPAZZ, INC., an Illinois corporation (the “Purchaser”), TELECORP PRODUCTS, INC., a Michigan corporation (the “Company”), Troy Inc. (“Shareholder”), ANA MISRA, an individual (“Misra”) and SCOTT MacCANNELL, an individual (“MacCannell”) (Misra and MacCannell are also hereinafter referred to as “Key Personnel”).

RECITALS:

A. The Purchaser is purchasing the stock of the Company, pursuant to that certain Stock Purchase Agreement dated February 21, 2014 (the “SPA”).

B. The Seller and Shareholder each acknowledges that the Seller and the Shareholder have received and/or will receive substantial and adequate monetary consideration and benefits in return for entry into the SPA and this Agreement and that the Seller and the Shareholder have freely chosen to enter into the terms of this Agreement.

C. The Key Personnel each acknowledge that each is an officer of Seller and has received and/or will receive substantial and adequate monetary consideration and benefits in return for entry into this Agreement and that each has freely chosen to enter into the terms of this Agreement.

NOW, THEREFORE, in consideration of the Recitals and covenants and agreements, hereinafter contained, the parties agree as follows:

1. Incorporation by Reference. The Recitals are incorporated and made a part of this Agreement by reference thereto.

2. Non-Disclosure.

As a material part of the consideration given and received by the parties in connection with the SPA:

a. Seller, Key Personnel and Shareholder, jointly and severally, acknowledge and agree that in the course of ownership and/or employment with the Company that Seller, Key Personnel and Shareholder have acquired and/or the Company has and will continue to provide Seller, Key Personnel and Shareholder with, or access to information regarding the business, procedures, activities and services of the Company, including but not limited to, memorandum, files, forms, techniques, methods and procedures, programs, customer accounts and customer lists, supplier lists, costs and prices of the Company, and customer needs, requirements and business affairs (hereinafter referred to collectively as the “Proprietary Property”) as is necessary or desirable to assist him in his activities on behalf of the Company.

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b. Seller, Key Personnel and Shareholder hereby acknowledge that the Proprietary Property is the sole and exclusive property of the Company that the Proprietary Property is a valuable, special and unique asset of the business of the Company, developed at considerable expense to the Company, and is not available to the public at large or other persons engaging in businesses which are the same as or similar to the business of the Company.

c. Seller, Key Personnel and Shareholder covenant and agree that each shall not for a period of one (1) year, communicate or divulge to, or use for the benefit of itself or any other person, firm, association or corporation, any information in any way relating to the Proprietary Property, in competition with the business of the Company.

3. Covenant Not To Compete.

As a material part of the consideration given and received by the parties:

a. Seller, Key Personnel and Shareholder, jointly and severally, expressly covenant and agree that for a period of one (1) year, Seller will not engage in any business or perform any service, directly or indirectly, in competition with the business of the Company, or have any interest, whether as proprietor, partner, employee, stockholder, principal, agent, consultant, director, officer, or in any other capacity or manner whatsoever, in any enterprise that shall engage in the business of the Company, except through publicly-traded shares of a corporation or mutual fund listed on a major stock exchange.

b. In furtherance of the foregoing and not in limitation thereof, Key Personnel and Shareholder agree that for a period of one (1) year, Key Personnel and Shareholder shall not (aa) directly or indirectly, solicit or service in any way, on behalf of itself or on behalf of or in conjunction with others, any customers, or prospective customers who have been solicited or serviced by the Company; (bb) directly or indirectly take any action which may induce any customer or divert any business from the Company; or (cc) directly or indirectly, for himself or any enterprise engaged in competition with the Company, solicit for employment or employ any employee who is then employed by the Company or who has been employed by the Company within one (1) year prior to the termination of his employment.

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c. The covenants on the part of Key Personnel and Shareholder contained in this Agreement shall be construed as an agreement independent of any other provision in this Agreement or the SPA. The existence of any claim or cause of action of Seller and/or Shareholder against the Company or Purchaser, whether predicated on this Agreement, the SPA or otherwise shall not constitute a defense to the enforcement of this Agreement.

d.

(i) Seller, Key Personnel and Shareholder understand that the provisions of this Agreement contain restrictive covenants and prohibit the disclosure of the Proprietary Property of the Company, agree to the reasonability of said provisions, and do herewith expressly agree and acknowledge that their breach of this Agreement will not be adequately compensated by money damages. Seller, Key Personnel and Shareholder acknowledge that the restrictions contained in this Agreement are a reasonable and necessary protection of the legitimate interests of the Company and that any violation of these restrictions would cause substantial irreparable injury to the Company. Seller, Key Personnel and Shareholder acknowledge that Purchaser would not have entered into this Agreement without receiving the consideration offered by Seller and Shareholder in binding itself to these restrictions.

(ii) Seller, Key Personnel and Shareholder expressly agree that in the event of any suit which may be brought by the Company for any violation of the provisions of this Agreement, any such breach or threatened breach of this Agreement shall entitle the Company to any and/or of the following remedies:

(aa) an order in any such suit enjoining Seller, Key Personnel and Shareholder from violating said provisions. An order to that effect may be entered at any stage of such litigation, without the requirement to post bond, and any application for such injunction shall be without prejudice to any other right of action which may accrue to the parties by reason of the breach or threatened breach of this Agreement; and

(bb) an order in any such suit providing for monetary damages.

(iii) The remedies contained in this Agreement are cumulative and not exclusive. Nothing contained in this Agreement shall constitute a waiver by the parties, nor shall the parties be precluded from availing themselves of any of the rights and remedies available to them in law or in equity.

(iv) If any portion or portions of the covenants contained herein shall be, for any reason, held invalid or unenforceable or deemed to be too excessive and, therefore unenforceable, such portion or portions of the covenant shall be reinterpreted by the court who shall have made such determination to requalify the limitations provided therein so as to make the covenant enforceable, so long as to make the covenant enforceable, so long as the modifications to be made therein will not substantially defeat the original purposes of the parties hereto and the parties hereto agree to be bound by such reinterpretation.

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4. Notices.

All notices, consents, waivers, requests and other communications under this Agreement must be in writing to:

(i)	SELLER/	Troy Holdings International, Inc.
	SHAREHOLDER/	Attn:  Scott MacCannell, President
	KEY PERSONNEL:	Ana Misra, Vice President 204-11 Cidermill Avenue Vaughan, Ontario, L4K 4B6, Canada E-mail: smaccannell@troyinc.ca amisra@troyinc.ca

(ii)	WITH A COPY TO:	Mark G. Baker, LL.M. Baker & Company, Barristers and Solicitors, 3300-130 Adelaide St. West Toronto, ON Canada, M5H3P5 Fax Number: (416) 366-3992 Email: mbaker@bakerlawyers.com
(iii)	COMPANY/ PURCHASER:	Epazz, Inc. Attn: Shaun Passley 309 W. Washington Street, Suite 1225 Chicago, Illinois 60606 Fax Number: (312) 873-4283 E-mail: shaun@epazz.net
(iv)	WITH A COPY TO:	Daniel M. Loewenstein Evans, Loewenstein, Shimanovsky & Moscardini, Ltd. 130 South Jefferson Street, Suite 350 Chicago, Illinois 60661 Fax Number: (312) 466-0819 E-mail: dloewenstein@elsm.com

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or at such other address or number as shall be designated by either of the parties in a notice to the other party given in accordance with this Section. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given:

a. in the case of a notice sent by regular or registered or certified mail, three business days after it is duly deposited in the mails;

b. in the case of a notice delivered by hand, when personally delivered;

c. in the case of a notice sent by facsimile, upon transmission subject to telephone confirmation of receipt; and

d. in the case of a notice sent by overnight mail or overnight courier service, the next business day after such notice is mailed or delivered to such courier, in each case given or addressed as aforesaid.

5. Benefit and Burden.

This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their successors and permitted assigns.

6. Amendments and Waiver.

No amendment, modification, restatement or supplement of this Agreement shall be valid unless the same is in writing and signed by the parties hereto. No waiver of any provision of this Agreement shall be valid unless in writing and signed by the party against whom that waiver is sought to be enforced.

7. Counterparts.

This Agreement may be executed in counterparts and by the different parties in separate counterparts, each of which when so executed shall be deemed an original and all of which taken together shall constitute one and the same agreement.

8. Captions and Headings.

The captions and headings contained in this Agreement are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof if any question of intent should arise.

9. Construction.

The parties acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by the parties hereto.

10. Severability.

Should any clause, sentence, paragraph, subsection, Section or Article of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the parties agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken by the parties, and the remainder will have the same force and effectiveness as if such stricken part or parts had never been included herein.

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11. Effect of Facsimile and Photocopied Signatures.

This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. A copy of this Agreement signed by one party and faxed to another party shall be deemed to have been executed and delivered by the signing party as though an original. A photocopy of this Agreement shall be effective as an original for all purposes.

12. Governing Law.

This agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to the conflict of law principles thereof.

13. Jurisdiction/Venue.

Each of the parties hereby:

a. irrevocably submits to the personal jurisdiction of any Illinois court, over any claim arising out of or relating to this Agreement and irrevocably agrees that any and all such claims may be heard and determined in such Illinois court, in and for Cook County, and

b. irrevocably waives, to the fullest extent permitted by applicable law, any objection it may now or hereafter have to the venue in any proceeding being brought in a court in the Circuit Court of Cook County, Illinois.

14. Prevailing Party Costs.

If any party commences an action against another party to enforce any of the terms, covenants, conditions or provisions of this Agreement, or because of a breach by a party of its obligations under this Agreement, the prevailing party in any such action shall be entitled to recover its losses, including reasonable attorneys’ fees, costs and interest incurred in connection with the enforcement of this agreement.

[Remainder of page left intentionally blank. Signature page follows.]

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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.

“S E L LE R”	“COMPANY”
TROY HOLDINGS INTERNATIONAL, INC.	TELECORP PRODUCTS, INC.
By:_____________________________	By:_____________________________
Its:_____________________________	Its:_____________________________

“PU RCHASE R”

EPAZZ, INC.

By: /s/ Shaun Passley

Shaun Passley

Its: Chief Executive Officer

SHAREHOLDER:

TROY INC.

By: ________________________

Its:_________________________

KEY PERSONNEL:

_________________________

SCOTT MacCANNELL

_________________________

ANAMISRA

EX-10.35

Exhibit 10.35

SHARE PLEDGE AGREEMENT

THIS AGREEMENT made as of the 28th day of February, 2014.

BETWEEN:

TROY HOLDINGS INTERNATIONAL INC., an corporation incorporated under the laws of the Province of Ontario

(hereinafter called the "Vendor")

OF THE FIRST PART

- and -

EPAZZ, INC.,

a corporation incorporated under the laws of Illinois

(hereinafter called the "Purchaser")

OF THE SECOND PART

WHEREAS:

1. The Vendor, the Purchaser and Telecorp Products, Inc. (the “Corporation”) entered into a stock purchase agreement made as of the 22nd day of February, 2014 (the “Stock Purchase Agreement”) whereby the Purchaser agreed to purchase and the Vendor agreed to sell its 1,400 shares of the no par value common stock of the Corporation (the “Purchased Shares”);

2. Pursuant to the terms of the Stock Purchase Agreement, as payment for the Purchased Shares, the Purchaser has issued a promissory note to the Vendor, dated February , 2014, in the principal amount of One Hundred and Twenty Thousand U.S. Dollars ($120,000.00USD)

(the “Promissory Note”); and

3. In order to secure the Purchaser’s obligation under the Promissory Note, the Purchaser

has agreed to pledge the Purchased Shares.

NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the respective covenants and agreements of the parties contained herein, the sum of $1.00 paid by each party hereto to each of the other parties hereto and other good and valuable consideration

(the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto), it is agreed as follows:

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ARTICLE ONE

PLEDGE OF SHARES

1.1. Share Pledge. The Purchaser hereby assigns, mortgages, charges, hypothecates and pledges to and deposits with the Vendor as security for the complete, due and timely performance of each and every one of its obligations under the Promissory Note (the “Obligations”), the Purchased Shares (hereinafter, the “Pledged Shares”), to be held by the Vendor as general and continuing collateral security for Obligations.

ARTICLE TWO

REPRESENTATIONS, WARRANTIES AND COVENANTS

2.1 Representations, Warranties and Covenants. The Purchaser represents, warrants and covenants to and in favour of the Vendors that to its knowledge:

(i) it is the registered and beneficial owner of the Pledged Shares;

(ii) the Pledged Shares are free and clear all liens, mortgages, charges and security interests whatsoever other than those created hereunder in favour of the Vendors; and

(iii) the Pledged Shares have been duly issued and are fully paid and non- assessable.

ARTICLE THREE

ENFORCEMENT RIGHTS OF THE VENDOR

3.1 Realization upon Default. Upon the occurrence and during the continuance of the Purchaser’s default under the Promissory Note, being for greater the certainty the non-payment and/or receipt of funds due and payable under the Promissory Note pursuant to the terms of the Promissory Note and the Stock Purchase Agreement (an “Event of Default”), the Vendor may at any time after five (5) days following the date established for a payment under the Promissory Note (an “Uncured Default”) in its sole discretion, seize the Pledged Shares, realize upon or otherwise dispose of the Pledged Shares by sale, transfer or delivery, or exercise and enforce all rights and remedies of a holder of the Pledged Shares as if the Vendor was the absolute owner thereof, without notice to or control by the Corporation, and such remedy may be exercised separately or in combination and shall not be in substitution for any other rights the Vendor may have under the Promissory Note, the Stock Purchase Agreement or otherwise, however created.

3.2 Proceeds. In the event that the Vendor shall seize the Pledged Shares and realize any proceeds therefrom, the Vendor shall be entitled to retain all such proceeds.

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3.3 Recourse. The Vendor shall not be obliged to exhaust its recourse against the Corporation or any other person or persons, or against any other security they may hold in respect of the Obligations before realizing upon or otherwise dealing with the Pledged Shares in such manner as the Vendor consider desirable. The Vendor may grant extensions or other indulgences, take and give up securities, accept compositions, grant releases and discharges and otherwise deal with the Purchaser, the Corporation and with other parties, sureties or securities as the Vendor may see fit without prejudice to the rights of the Purchaser in respect of the Pledged Shares.

3.4 Dividends. The Vendor need not see to the collection of dividends on or exercise any option or right in connection with the Pledged Shares and need not protect or preserve them from any loss of value and is hereby released from all responsibility for loss of value and the Vendor shall be bound to exercise in the keeping of the Pledged Shares only the same degree of care as the Vendor would exercise with respect to the Vendor’s own shares kept at the same place.

ARTICLE FOUR

APPOINTMENT OF ATTORNEY

4.1 Attorney. Following an Uncured Default, the Vendor is hereby irrevocably appointed attorneys of the Purchaser with full powers of substitution from time to time to endorse or transfer, or both, the Pledged Shares or any of them to the Vendor, its nominees, or transferees, and the Vendor and its nominees or transferees are hereby empowered to exercise all rights and powers and to perform all acts of ownership with respect to the Pledged Shares to the same extent as the Purchaser might do. The power of attorney herein granted is in addition to, and not in substitution for, any stock power of attorney delivered by the Purchaser with delivery of the Pledged Shares, and such powers of attorney may be relied upon by the Vendor severally or in combination.

ARTICLE FIVE

CORPORATE RIGHTS

5.1 Corporate and Shareholder Rights. Until the occurrence of an Event of Default (as defined in Section 3.1 hereof) and a determination by the Vendor to enforce the rights granted to it under this Agreement, the Purchaser shall be entitled to vote the Pledged Shares and to receive all cash dividends with respect thereto. Following an Uncured Default, any other moneys which may be received by the Corporation for or in respect of the Pledged Shares shall be received as trustee for the Vendor and shall forthwith be paid over to the Vendor and be held by Vendor pursuant to the mortgage, charge, hypothecation, pledge and grant of security interest herein. The Vendor agrees that it shall not require the shares to be registered in its names or in the name of a nominee unless and until the occurrence of an Event of Default and the determination by the Vendor to enforce the rights granted to it under this Agreement.

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ARTICLE SIX

GENERAL CONTRACT PROVISIONS

6.1 Attachment. The parties hereto acknowledge that it is their intention that the security interests herein created attach to the Pledged Shares on the execution hereof by the Corporation and that value has been given.

6.2 Perfection of Security. The parties hereto agree that the Vendor may file such financing statements and other documents, at the Vendor’s sole cost, and do such acts, matters and things as the Vendor may consider appropriate to perfect, continue and/or realize upon the security interests herein created and to protect and preserve such security interests.

6.3 Notices. All notices, requests, demands or other communications (collectively, "Notices") by the terms hereof required or permitted to be given by one party to any other party, or to any other person shall be given in writing by personal delivery or by registered mail, postage prepaid, or by facsimile transmission to such other party as follows:

To Troy: 204-11 Cidermill Avenue
Vaughan, Ontario L4K 4B6 Canada   Attention: Scott MacCannell, President and Ana Misra, Vice-President With a copy to: Baker & Company 130 Adelaide Street West Suite 3300 Toronto, Ontario M5H 3P5 Canada   Attention: Mark G. Baker

To Epazz: 205 W. Wacker Drive
Suite 1320 Chicago, Illinois 60606 United States of America Attention: Shaun Passley

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With a copy to:

Evans, Loewenstein, Shimanovsky & Moscardini, Ltd.

130 South Jefferson Street

Suite 350

Chicago, Illinois

60661

United States of America

Attention: Daniel M. Loewenstein

or at such other address as may be given by such person to the other parties hereto in writing from time to time.

All such Notices shall be deemed to have been received when delivered or transmitted, or, if mailed, 48 hours after 12:01 a.m. on the day following the day of the mailing thereof. If any Notice shall have been mailed and if regular mail service shall be interrupted by strikes or other irregularities, such Notice shall be deemed to have been received 48 hours after 12:01 a.m. on the day following the resumption of normal mail service, provided that during the period that regular mail service shall be interrupted all Notices shall be given by personal delivery or by facsimile transmission.

6.4 Additional Considerations. The parties shall sign such further and other documents, cause such meetings to be held, resolutions passed and by-laws enacted, exercise their vote and influence, do and perform and cause to be done and performed such further and other acts and things as may be necessary or desirable in order to give full effect to this Agreement and every part thereof.

6.5 Counterparts. This Agreement may be executed in several counterparts, each of which so executed shall be deemed to be an original and such counterparts together shall be but one and the same instrument.

6.6 Time of the Essence. Time shall be of the essence of this Agreement and of every part hereof and no extension or variation of this Agreement shall operate as a waiver of this provision.

6.7 Entire Agreement. This Agreement constitutes the entire Agreement between the parties with respect to all of the matters herein and its execution has not been induced by, nor do any of the parties rely upon or regard as material, any representations or writings whatever not incorporated herein and made a part hereof and may not be amended or modified in any respect except by written instrument signed by the parties hereto. Any schedules referred to herein are incorporated herein by reference and form part of the Agreement.

6.8 Enurement. This Agreement shall enure to the benefit of and be binding upon the parties and their respective successors and assigns.

6.9 Currency. Unless otherwise provided for herein, all monetary amounts referred to herein shall refer to the lawful money of the United States of America.

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6.10 Headings for Convenience Only. The division of this Agreement into articles and sections is for convenience of reference only and shall not affect the interpretation or construction of this Agreement.

6.11 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois and the federal laws of the United States of America applicable therein and each of the parties hereto agrees irrevocably to conform to the non-exclusive jurisdiction of the Courts of such State.

6.12 Gender. In this Agreement, words importing the singular number shall include the plural and vice versa, and words importing the use of any gender shall include the masculine, feminine and neuter genders and the word "person" shall include an individual, a trust, a partnership, a body corporate, an association or other incorporated or unincorporated organization or entity.

6.13 Calculation of Time. When calculating the period of time within which or following which any act is to be done or step taken pursuant to this Agreement, the date which is the reference date in calculating such period shall be excluded. If the last day of such period is not a Business Day, then the time period in question shall end on the first business day following such non-business day.

6.14 Legislation References. Any references in this Agreement to any law, by-law, rule, regulation, order or act of any government, governmental body or other regulatory body shall be construed as a reference thereto as amended or re-enacted from time to time or as a reference to any successor thereto.

6.15 Severability. If any Article, Section or any portion of any Section of this Agreement is determined to be unenforceable or invalid for any reason whatsoever that unenforceability or invalidity shall not affect the enforceability or validity of the remaining portions of this Agreement and such unenforceable or invalid Article, Section or portion thereof shall be severed from the remainder of this Agreement.

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6.16 Transmission by Facsimile. The parties hereto agree that this Agreement may be transmitted by facsimile or such similar device and that the reproduction of signatures by facsimile or such similar device will be treated as binding as if originals and each party hereto undertakes to provide each and every other party hereto with a copy of the Agreement bearing original signatures forthwith upon demand.

IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first written above.

 

TROY HOLDINGS INTERNATIONAL INC.

Per: _______________________

Name: Scott MacCannell

Title: President

I have authority to bind the Corporation.

EPAZZ, INC.

Per: /s/ Shaun Passley

Name: Shaun Passley

Title: Chief Executive Officer

I have authority to bind the Corporation.

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EX-10.36

Exhibit 10.36

PROMISSORY NOTE

$120,000 (USD) DUE: AUGUST 28, 2014

MADE AT the City of Chicago, in the State of Illinois, as of the 28th day of February, 2014.

FOR VALUE RECEIVED, the undersigned promises to pay TROY HOLDINGS INTERNATIONAL INC. the principal amount of ONE HUNDRED AND TWENTY THOUSAND DOLLARS ($120,000.00) of lawful money of the United States of America, together with interest on the amount outstanding from time to time, accruing only after default, at a rate of 10% per annum, calculated and compounded monthly. Interest on overdue interest shall be computed and compounded in the same manner and at the same rate as provided for herein and shall be payable upon demand. The principal sum shall be paid in full by six months from the date of this Promissory Note.

THE UNDERSIGNED hereby agrees to pay the principal sum and interest in the following installments:

Date	Principal Payment
March 28, 2014	$20,000.00
April 28, 2014	$20,000.00
May 28, 2014	$20,000.00
June 28, 2014	$20,000.00
July 28, 2014	$20,000.00
August 28, 2014	$20,000.00
Total	$120,000.00

THIS PROMISSORY NOTE is subject to certain rights of set-off contained in a stock purchase agreement dated February 22, 2014 made amongst Troy Holdings International Inc., Epazz, Inc. and Telecorp Products, Inc.

THE UNDERSIGNED hereby, waives demand, presentment, protest, notice of protest and notice of dishonour.

THE UNDERSIGNED, WHEN NOT IN DEFAULT hereunder, shall have the privilege of prepaying the whole or any part of the principal sum secured at any time or times without notice, bonus or penalty.

IF ANY PROVISION of this Promissory Note shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such portion and shall not affect or render invalid or unenforceable any other provision of this Promissory Note.

THIS PROMISSORY NOTE is made pursuant to and shall be governed by and construed in accordance with the laws of the State of Illinois.

EPAZZ, INC.

Per: /s/ Shaun Passley

Name: Shaun Passley

Title:Chief Executive Officer

I have authority to bind the Corporation.

EX-10.37

Exhibit 10.37

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT ("Agreement") is entered into with an effective date as of March 13,2014, by and among Epazz, Inc., an Illinois corporation, through its assignee (a to-be-formed Illinois corporation) ("Buyer"), Cynergy Corporation, an Oklahoma corporation ("Seller"), Steve Davidson and Janet Davidson ("Spouse").

RECITALS:

A. Upon the terms and subject to the conditions set forth in this Agreement, Seller desires to sell, assign, convey and transfer to Buyer, and Buyer desires to purchase and acquire from Seller, substantially all of the intangible assets and certain tangible assets used in connection with the business of Seller, as more specifically described in this Agreement.

B. As a condition precedent, Steve Davidson and Spouse have agreed not to compete with Buyer, and in connection therewith to execute and deliver certain documents to Buyer, as more specifically described in this Agreement.

C. Buyer and Seller agree that the assets to be acquired pertain only to the help desk software business of Cynergy Corporation, (otherwise referred to as Cynergy Software); the assets used in conjunction with any other business of Cynergy Corporation are not to be acquired as more specifically described in this Agreement.

NOW, THEREFORE, in consideration of the premises, and the mutual representations, warranties, covenants and agreements hereinafter set forth, and each intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

PURCHASE AND SALE OF ASSETS

Section 1.1 Assets To Be Acquired. Subject to the terms and conditions and in reliance upon the representations, warranties and agreements hereinafter set forth, Seller hereby agrees to sell, assign, transfer, convey and deliver to Buyer, and Buyer hereby agrees to purchase, acquire, and accept from Seller, all of the right, title and interest of Seller in and to Seller's assets as set forth on the Schedules attached hereto, including without limitation the following described assets, properties, rights, and contracts, wherever located, whether tangible or intangible, which are owned by, licensed by, leased by, or in the possession of, Seller, whether or not reflected on the books and records of Seller (the "Assets"), free and clear of all liens, claims, charges, security interests, restrictions and other encumbrances of any kind or nature (except for those specifically set forth on the relevant schedules to this Agreement or otherwise specifically assumed pursuant to the express terms of this Agreement), including without limitation, the following Assets:

Section 1.1.1 Know-How. All right, title and interest in and to (i) all patents, patent applications and docketed inventions, domestic and foreign (the "Patents"), including but not limited to those listed on Schedule 1.1.1., and (ii) all research and development results, processes, trade secrets, methods, operating techniques, know-how, algorithms, formulae, specifications, drawings, designs, inventions, discoveries and engineering information, and quality control, testing, operational, logistical, maintenance and other technical data and information and technology (the "Know-How") and all documents, notebooks, logbooks, tapes, discs, records, reports and other media relating thereto including without limitation that which is described on Schedule 1.1.1.

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Section 1.1.2 Trademarks and Copyrights. All right, title, interest and goodwill in and to all trademarks, trade names and service marks, and registrations and applications for such trademarks, trade names and service marks domestic and foreign (the "Trademarks''), including without limitation those that are listed on Schedule 1.1.2, and all right, title, and interest in and to all copyrights, and registrations and applications for such copyrights, domestic and foreign (the "Copyrights"), including without limitation those that are listed on Schedule 1.1.2

Section 1.1.3 Equipment. All of the equipment, computers, machinery, and other tangible assets listed on Schedule .1.3 (collectively, the "Equipment").

Section 1.1.4 Computer Assets. All right, title and interest (including copyright interests) in and to all computer programs (including computer modeling programs, design and operational and applications software and computer source and object codes), firmware, computer data bases, and related documentation, acquired or developed or used for the use or operation of (i) products, systems or components based on, derived from or incorporating the Patents, the Know-How or the Copyrights, (ii) communications, and (iii) the Equipment, or (iv) for design, development, engineering, or manufacturing purposes, related thereto, or for any other purpose (the "Computer Assets") including without limitation the computer programs identified on Schedule 1.1.4.

Section 1.1.5 Warranties and Other Rights. All rights under or pursuant to all warranties, representations, guarantees and service contacts made by suppliers, manufacturers and contractors in connection with products or services purchased by Seller affecting the Equipment or the Assets.

Section 1.1.6 Contracts. All accounts, contracts, subcontracts, licenses and sublicenses, and agreements and other arrangements, proposals, bids, quotations, purchase orders and commitments, and sales orders and commitments, of any kind, whether written or oral, including joint venture, teaming and partnership agreements (the "Contracts"), including without limitation those Contracts identified on Schedule 1.1.6.

Section 1.1.7 Causes of Action. All causes of action, claims or rights of action against third parties arising from or based on the infringement, misappropriation, misuse or unauthorized use of the Patents, the Know-How, the Assets, the Trademarks or the Copyrights.

Section 1.1.8 Inventors. All merchantable inventory of the Assets as of the date hereof, as set forth on Schedule 1.1.8, and updated as of the Closing Date.

Section 1.1.9 Accounts Receivable. All Cynergy Software accounts receivable for maintenance services invoiced in 2014 and collected prior to the Closing Date by Seller as set forth on Schedule 1.1.9, and updated as of the Closing Date (the "Receivables"). Without limiting the foregoing, all amounts previously paid to Cynergy Software in 2014 prior to Closing for prepaid contracts (whether maintenance, support or otherwise) are excluded from the Receivables and shall be payable as a credit to Buyer at Closing.

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Section 1.1.10 Prepaid Maintenance and Support Contracts. Seller shall maintain all prepaid maintenance and support contracts, if any, up to the date of Closing and shall transfer those contracts to the Buyer at Closing.

Section 1.1.11 Communication Assets. Seller's facsimile number(s), website, domain name(s), and promotional material. The website (www.cynergysoftware.com) will be transferred to Buyer upon final payment.

Section 1.1.12 Records. A copy of Seller's business records and files pertaining to the Assets in the form of invoices and associated payments

Section 1.2 Excluded Assets. Seller shall not sell, and Buyer is under no obligation to purchase, Seller's cash on hand, all refunds in regard to income and other taxes, business records, stock book and charter documents and all real estate (whether owned or leased) ("Excluded Assets"). In addition, other excluded assets of Cynergy Corporation include but are not limited to the following: inventory unrelated to Cynergy Software, computer equipment unrelated to Cynergy Software, in office phone system, office furniture and fixtures, and any other asset pertaining to Cynergy Corporation that is not directly used for the business of Cynergy Software.

Section 1.3 Liabilities Excluded. Buyer shall not and does not hereby assume or become liable for any obligations, liabilities or indebtedness of Seller, whether due or to become due, asserted or unasserted, accrued or unaccrued, liquidated or unliquidated, contingent, executory or otherwise, howsoever or whenever arising, unless expressly assumed by Buyer in writing. The liabilities excluded hereunder include but are not limited to (a) any of Seller's accounts payable, and (b) Seller's obligations under any lease(s), mortgage(s) and line(s) of credit, if any (collectively, the "Lines of Credit"), all of which shall be satisfied by Seller on or before the Closing Date.

Section 1.4 Assignment of Contracts and Rights. This Agreement shall not operate to assign any Asset or any claim, right or benefit arising thereunder or resulting therefrom if an attempted assignment thereof, without the consent of a third party (including a government or governmental unit), would constitute a breach, default or other contravention thereof or in any way adversely affect the rights of Seller or Buyer thereunder. Seller and Buyer will each use their commercially reasonable efforts to obtain the consent of such third parties for the assignment thereof to Buyer prior to Closing, and if such consent is not obtained by Closing or if such attempted assignment thereof would not assign all of Seller's rights thereunder at Closing, Seller and Buyer shall continue to cooperate and use their commercially reasonable efforts in order that Buyer would obtain all of such rights thereunder. To the extent that the consents and waivers referred to herein are not obtained by Seller or until the impediments to the sale, assignment, transfer, delivery or sublease referred to therein are resolved, Seller shall use its commercially reasonable efforts to (i) provide, at the request of Buyer, to Buyer the benefits of any such Asset referred to herein, (ii) cooperate in any lawful arrangement designed to provide such benefits to Buyer, and (iii) enforce, at the request of and for the account of Buyer, any rights of Seller arising from any Asset referred to herein against any third person (including a government or governmental unit) including the right to elect to terminate in accordance with the terms thereof upon the advice of Buyer, and without commission or other charge by Seller, whether to any third party or Buyer. Buyer shall not be required by this Section 1.4 to enter into any arrangement that would impose any additional cost, expense or liability or that would deprive Buyer of any material benefits or profits. Nothing in this section shall affect the conditions to Buyer's obligations under Article VII.

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ARTICLE II

CLOSING; PURCHASE PRICE AND PAYMENT; ALLOCATION; Consulting

AGREEMENT; AGREEMENT NOT TO COMPETE

Section 2.1 Closing. The Closing ("Closing") of the sale and purchase of the Assets as well as the consummation of the other transactions contemplated herein shall take place using overnight courier services and email, on or before March 5, 2014, or as soon thereafter as is reasonably practicable under the circumstances (the "Closing Date").

Section 2.2 Purchase Price.

Section 2.2.1 Amount and Payment. In consideration for the Assets, Buyer will pay Seller the sum of Seventy-Five Thousand Dollars ($75,000.00), as it may be adjusted for prorations, credits and adjustments (the "Purchase Price"), which sum shall be paid as follows:

2.2.1.1 Schedule of Payments.

(a) Twenty-Five Thousand Dollars ($25,000.00) on or before five (5) days after Closing; and

(b) Twenty-Five Thousand Dollars ($25,000.00) on or before forty (15) days after Closing.

(c) Twenty·Five Thousand Dollars ($25,000.00) on or before forty (40) days after Closing.

2.2.1.2 Closing. At Closing, Seller will deliver a Promissory Note for each of the scheduled payments set forth above at Section 2.2.1.1. The promissory notes ("Notes") will be subordinate to any Third Party Financing and provide for no interest, full right of offset, and no prepayment penalty, in the form attached to this Agreement as Exhibit "A".

2.2.2 Third Party Financing Contingency. This Agreement is contingent upon Buyer obtaining a firm written commitment for satisfactory financing from a lender or lenders of its choice, for the purchase of the Assets within thirty (30) days after the date of full execution of this Agreement. In the event Buyer is unable to obtain such financing commitment, and provides written notice thereof to Seller, this Agreement shall be null and void, and such funds, if any, previously paid to Seller in connection with this Agreement shall immediately be returned to Buyer.

Section 2.3 Closing Adjustments.

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Section 2.3.1 Destruction of any Asset. If between the date hereof and the Closing Date, there is any loss, destruction or other physical damage to any Assets resulting from theft, fire, accident or any other casualty, whether or not insured, or any lien or encumbrance exists or is placed on any Assets and is not removed or released on or prior to the Closing Date (collectively, a "Casualty Loss"), then Seller shall promptly give notice to Buyer of such Casualty Loss and the amount of insurance, if any, payable to Seller with respect thereto. If such Casualty Loss does not prevent the fulfillment of a condition to Buyer's obligations to consummate the transactions contemplated by this Agreement, or if it does and Buyer waives such condition, Buyer shall have the option, which shall be exercised by giving Seller written notice within ten (10) days after receipt of the above notice from Seller, or if there is not ten (10) days prior to the Closing Date, as soon as possible but not less than (24) hours prior to the Closing, of either (i) accepting the Assets with the affected Asset in its damaged condition (or without the affected Asset in the case of theft, destruction, liens or encumbrances) in which event any insurance proceeds payable to Seller with respect to such Asset (together with a payment by Seller at Closing of an amount equal to the deductible or retained amount with respect to such Casualty Loss) shall be assigned and/or paid to Buyer, (ii) requiring Seller to pay Buyer at Closing an amount equal to a binding estimate to be obtained by Seller from a qualified third party reasonably satisfactory to Buyer of the cost required to restore the affected Asset substantially to its condition prior to such Casualty Loss or the reasonably estimated value of the affected Asset, in which case Seller shall retain all such insurance proceeds, or (iii) causing the affected Asset to become an Excluded Asset and Buyer shall be entitled to reduce the Purchase Price payable to Seller at Closing pursuant to Subsection 2.2.1 in an amount equal to a binding estimate to be obtained by Seller from a qualified third party reasonably acceptable to Buyer of the cost required to restore the affected Asset substantially to its condition prior to such Casualty Loss or the reasonably estimated value of the affected Asset.

Section 2.3.2 Prorations. The parties agree to prorate telephone, web hosting expenses and other similar expenses, for Assets purchased by Buyer; if not available at Closing, any such item will be prorated and reimbursed to the applicable party within thirty (30) days after Closing.

ARTICLE III

CONSULTING AGREEMENT & AGREEMENT NOT TO COMPETE

Section 3.1 At the Closing, the Consulting Agreement and Agreement Not to Compete, for a period of three (3) years, from Seller and Spouse shall be executed and delivered (the "Consulting Agreement & Agreement Not to Compete"). The form of Consulting Agreement & Agreement Not to Compete are attached hereto as collective Exhibit B and incorporated herein.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Buyer, as of the date hereof and as of the Closing Date, as set forth below:

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Section 4.1 Organization. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma and authorized to transact business in the State(s) of United States, and has the requisite power and authority to own, use, operate or lease the Assets as Seller is now conducting its business, operations and affairs. Seller has no subsidiaries; however, Cynergy Corporation has other business units currently operating.

Section 4.2 Qualification of Seller. Seller is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the Assets, or the nature of its activities makes such qualification or license necessary.

Section 4.3 Authorization.

Section 4.3.1 Authority. Seller has all requisite corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery, consummation and performance of this Agreement have been duly authorized and approved by all necessary actions of Seller's board of directors. This Agreement is a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms.

Section 4.3.2 No Breach or Violation. Execution, delivery and performance of this Agreement by Seller and consummation of the transactions contemplated hereby will not lead to or cause a violation, breach, or default or result in the termination of, or accelerate the performance required by, or result in the creation or imposition of any Encumbrance, whether by notice or lapse of time Or both, or otherwise conflict with any term or provision of (a) Seller's articles or incorporation or bylaws, or (b) any note, bond, mortgage, contract, indenture or agreement to lease, license or other instrument or obligation to which Seller is a party or is bound, or any court or administrative order, writ or injunction or process or any permit, license or consent decree to which Seller is a party or is bound; (i) where such violation, breach or default would have a material adverse effect on the Assets or financial condition of Seller; or (ii) except as to which required consents, amendments or waivers shall have been obtained by Seller prior to the Closing.

Section 4.4 Financial Statements.

Section 4.4.1 Schedules. The Cynergy Software profit and loss statement for the period 20 II through 2013, and invoices and proof of payments (the "Seller Financial Statements") are true and correct, and fairly present the assets, liabilities, financial condition and results of Cynergy Software operations of the assets of the Seller for those time periods (the "Financials Date").

Section 4.4.2 Accuracy. The data set forth in the Seller Financial Statements fairly present the statement of income or loss of the assets of the Seller for and the financial position of Seller for and as of the date or period covered thereby. The Seller Financial Statements were prepared in accordance with GAAP from the books and records of Seller, and on a basis consistent with prior periods. The books of account of Seller have been maintained in accordance with sound business practices, and all transactions involving Seller set forth therein are true and correct.

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Section 4.4.3 No Undisclosed Liabilities. Seller does not have any material liabilities or material obligations which relate to the Assets or the Assumed Liabilities of any nature, secured or unsecured (absolute, accrued, or unaccrued, liquidated or unliquidated, executory, contingent or otherwise and whether due or to become due), of a nature required to be reflected in a balance sheet prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis, which were not adequately and completely disclosed and reserved for in Seller Financial Statements, except for those liabilities and obligations of Seller which relate to Seller or the Assets and were incurred since the Financials Date in the ordinary course of business and which have been disclosed in writing to Buyer.

Section 4.4.4 Absence of Changes. There has not been and, as of the Closing Date, there will not be: (a) any material adverse change in the Assets or financial condition of Seller; (b) any change in the contingent obligations or liabilities of Seller which relate to Seller or the Assets by way of guaranty, documentary credit, standby credit, endorsement, indemnity, warranty or otherwise; (c) any waiver or cancellation by Seller of valuable rights or debts owed to it which, taken as a whole, are material to the Assets or financial condition of Seller; (d) any amendment to any agreement, commitment, or transaction by Seller which, if such action were taken on the date hereof, would require disclosure pursuant to this Agreement (including without limitation, any borrowing, lease, capital expenditure or capital financing); or (e) any change by Seller in its accounting methods or practices, assumptions or methods of calculating, or any change by Seller in its accounting principles, relating to the Assets.

Section 4.4.5 Discharge of Liabilities. Since the Financials Date and as of the Closing Date: (i) Seller has not paid, discharged or satisfied any claims, liabilities or obligations (absolute, accrued, contingent or otherwise) other than the payment, discharge, or satisfaction in the ordinary course of business and consistent with past practice; and (ii) Seller has not terminated, amended or suffered the termination or amendment of, or failed to perform all of its obligations under, any of the Contracts or any agreement, contract, lease or license affecting the Assets.

Section 4.5 Leases/Real Property. Seller acknowledges that Buyer is not assuming any lease of real property and is not purchasing any real property.

Section 4.6 Tangible Assets. Seller has good, valid and marketable title to all of the Assets, and at Closing, Seller will convey good, valid and marketable title to each of the Assets to Buyer. The title to each Asset is free and clear of all title defects, objections, liens, mortgages, security interests, pledges, charges and encumbrances, adverse claims, equities, or any other rights of others or other adverse interests of any kind including without limitation, leases, chattel mortgages, conditional sales contracts, collateral security arrangements and other title or interest retention arrangements (collectively the "Encumbrances"). The Assets constitute all of the assets and rights necessary for the conduct of the business of Seller as presently conducted. The tangible Assets are free from known defects, have been maintained in accordance with normal industry practice, are in good operating condition and repair (subject to normal wear and tear), and are suitable for the purposes for which it presently is used and presently is proposed to be used.

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Section 4.7 Equipment, Schedule 1.1.3 delivered hereunder sets forth in reasonable detail the Equipment by manufacturer, model, functional use and serial number, and there exists no condition which interferes with the economic value or usefulness of any item of Equipment, except as disclosed on Schedule 1.1.3.

Section 4.8 Accounts Receivable. Set forth on Schedule 1.1.9 is a complete and accurate list of all Receivables as of the Closing showing the name of each account debtor and the amount due from each by invoice number and date. All Receivables arose out of the sales of inventories or services in the ordinary course of business and, to the best of the knowledge of Seller, are collectible in the face value thereof within 365 days of the date of the invoice, using normal collection procedures, net of the reserve for doubtful accounts as set forth thereon, which reserve is adequate and was calculated in accordance with past practices of Seller.

Section 4.9 Intellectual Property

Section 4.9.1 Software and Know-How. Schedule 1.1.1 sets forth a complete and accurate list of each license or licensing agreement, by date, term and the parties thereto, for each patent, patent application, invention, trade-secret, rights to know-how, processes, computer programs or use of technology, held or employed by Seller (each such patent, patent application, license or licensing agreement listed thereon hereinafter termed the "Licenses"). With respect to the Licenses, and with respect to all other technology including but not limited to all (i) research and development results, processes, trade secrets, methods, operating techniques, know-how, algorithms, formulae, specifications, drawings, designs, chip designs, mask works, inventions, discoveries and engineering information, and (ii) quality control, testing, operational, logistical, maintenance, Software and other technical data and information and technology held or employed by Seller ("Seller's Technology") as set forth on Schedule 1.1.1:

4.9.1.1 Seller owns, free and clear of all liens, pledges or other encumbrances, all right, title and interest in the Software and Licenses and in Seller's Technology, with all rights to make, use, and sell products and other property embodied in or described in the Software and Licenses and in Seller's Technology. No use of the Assets and Licenses and the Seller's Technology conflicts with, infringes upon or violates any patent, patent license, patent application, or any pending application relating thereto, or any trade secret, know how, programs or processes of any third person, entity or corporation;

4.9.1.2 There are no outstanding or threatened material governmental, judicial or adversary proceedings, hearings, arbitrations, disputes or other disagreements and no notice of infringement has been served upon or otherwise come to the knowledge of Seller with respect to any of the Software and Licenses or Seller's Technology;

4.9.1.3 Upon the consummation of the Closing, Buyer will be vested with all right, title and interest, and rights and authority to use all of the Software and Licenses and Seller's Technology.

Section 4.9.2 Trademarks and Copyrights. Schedule 1.1.2 delivered hereunder sets forth a complete and accurate list of each unregistered trademark and trade name, any trademark or trade name conceived or otherwise in process, and all trademark and trade name registrations or applications, and copyright registration and application for copyright registration, by date and germane case or docket number and country of origin, and the status of each of the foregoing trademarks, trade names and copyrights, and each license or licensing agreement, by date and the parties thereto, for each trademark and copyright license or license of application, held or employed by Seller (each such trademark, copyright, application, and license or licensing agreement hereafter termed the "Trademarks and Licenses").

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4.9.2.1 Seller owns, free and clear of all liens, pledges or other encumbrances, all right, title and interest in the Trademarks and Licenses. Seller has no reason to know that the use of the Trademarks and Licenses conflicts with, infringes upon or violates any trademark, trade name, trademark or trade name registration or application, copyright, copyright registration or application relating thereto, of any third person, firm or corporation;

4.9.2.2 There are no outstanding or threatened, governmental, hearings, arbitrations, disputes or other judicial or adversary proceedings, disagreements with respect to any of the Trademarks and Licenses; and

4.9.2.3 Upon the consummation of the Closing, Buyer will be vested with all rights, title and interest, and rights and authority to use all of the Trademarks and Licenses.

Section 4.10 Contracts and Obligations. Schedule 1.1.6 includes an accurate and complete list as of the date hereof and as of the Closing Date, of the Contracts and identifies each Contract by the parties thereto and the date, subject matter and term thereof. All Contracts are valid and binding upon Seller and are valid and binding on each other party thereto. With respect to each of the Contracts, neither Seller, nor any other party thereto is in breach thereof or default thereunder, and there does not exist any event, condition or omission which would constitute such breach or default (whether by lapse of time or notice or both), except for such breaches, defaults and events as to which requisite waivers or consents have been obtained. Buyer shall have no obligation to retain any employee and there are no employment contracts that will be binding on Buyer after Closing.

Section 4.11 Litigation. There are no claims, actions, suits, hearings, arbitrations, disputes, proceedings (public or private) or governmental investigations pending or threatened, against or affecting the Assets, at law or in equity, before or by any federal, state, municipal or other governmental or non-governmental department, commission, board, bureau, agency, court or other instrumentality, or by any private person or entity, there is no basis for any such action, suit or proceeding, and there are no existing or overtly threatened, orders, judgments or decrees of any court or governmental agency affecting any of the Assets. There are no legal, administrative, arbitration or other proceedings or governmental investigations pending or overtly threatened, against Seller or the Assets which seeks to enjoin or rescind the transactions contemplated by this Agreement or otherwise prevent Seller from complying with the terms and provisions of this Agreement.

Section 4.12 Third Party Consents. Schedule 4.12 hereto lists all approvals, authorizations, certificates and consents of all third parties necessary or required to effect the transfer to Buyer of all the rights, powers and franchises of Seller related to the Assets.

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Section 4.13 Permits; Compliance; Reports; Clearances. Schedule 4.13 sets forth all approvals, authorizations, certificates, consents, licenses, orders and permits of all governmental agencies, whether Federal, state or local, necessary to the ownership, use or operation of the Assets and all such approvals, authorizations, certificates, consents, licenses, orders and permits are in full force and effect.

Section 4.14 Government Authorizations. Execution, delivery and performance of this Agreement by Seller, and consummation of the transactions contemplated hereby, will not require any consent, approval, authorization, or permit from, or any filing with or notification to, any United States, foreign, state or local governmental or regulatory authority.

Section 4.15 Taxes. As used in this Agreement, "Taxes" and all derivations thereof means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs, duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, ad valorem, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto. However, for purposes of this Section 3.15, Taxes shall include only Taxes (i) that are or may become liens on the Assets or (ii) for which Buyer is or may become liable as the purchaser of the Assets. The term "Tax Returns" shall include all federal, state, local and foreign returns, declarations, statements, reports, schedules, and information returns required to be filed with any taxing authority in connection with any Tax or Taxes. Seller has timely filed all Tax Returns and reports required to have been filed by it, and has paid all Taxes due to any taxing authority required to have been paid by it on or prior to the date hereof. None of such Tax Returns contain, or will contain, a disclosure statement under Section 6662 of the Code (or any equivalent or predecessor statute). Seller has not received notice that the Internal Revenue Service or any other taxing authority has asserted or proposed to assert against Seller any deficiency or claim for Taxes and no issue has been raised by any taxing authority in any audit which, by application of similar principles, reasonably could be expected to result in a proposed deficiency of Seller for any period not so examined. There are no pending or threatened, actions, audits, proceedings or investigations with respect to Seller involving the assessment or collection of Taxes. There are no liens for Taxes due and payable upon the Assets. Seller has not applied for a ruling relating to Taxes from any taxing authority or entered into any closing agreement with any taxing authority, None of the Assets is or will be required to be treated as (i) owned by another person pursuant to the safe harbor leasing provisions of the Code or (ii) property subject to Section !68(f), (g) or (h) of the Code. At Closing, Seller will pay all Taxes, if any, due upon the transfer of the Assets, or the second position financing accepted by Seller; however, Seller is not responsible to pay any sales tax that might arise from a third party leasing arrangement.

Section 4.15.1 Seller is an S corporation as defined in Code Section 1361. The only shareholders of Seller are Steve Davidson and Spouse.

Section 4.16 Customers and Suppliers. A list of all customers and suppliers of the Seller are set forth on Schedule 4.16. No single supplier (singularly a "Supplier" and collectively "Suppliers") is of material importance to Seller. The relationships of Seller with its material customers and its Suppliers are good commercial working relationships. No material customer or Supplier (i) has canceled or threatened in writing to cancel or otherwise modify its relationship with Seller, or (ii) to the best of Seller's knowledge, intends to cancel or otherwise modify its relationship with Seller. The acquisition of the Assets by Buyer will not, to the best knowledge of Seller, adversely affect the relationship of Buyer (as successor to the owner of the Assets) with any such Suppliers or material customers.

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Section 4.17 Brokers. Black Diamond Mergers & Acquisitions, LLC has acted for Seller in connection with this Agreement or the transactions contemplated hereby. Seller is obligated to pay a commission pursuant to separate agreement to Black Diamond Mergers & Acquisitions, LLC in connection with the transactions contemplated by this Agreement. Seller agrees to indemnify, defend and hold Buyer harmless from and against all claims, demands, actions, liabilities, damages, costs and expenses (including reasonable attorneys' fees) arising from a claim for a fee or commission made by any broker claiming to have acted by or on behalf of Seller in connection with the transactions contemplated by this Agreement.

Section 4.18 Disclosures. No statement, representation or warranty made by Seller in this Agreement, in any Exhibit hereto or Schedule delivered hereunder, or in any certificate, statement, list, schedule or other document furnished or to be furnished to Buyer hereunder, contains any untrue statement of a material fact, or fails to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading.

Section 4.19 Audit/Inspections. Buyer has the right to have an audit and such other inspection(s) as it deems reasonably necessary performed on the Seller's accounting books, accounting system and financial statements for the last two fiscal years and year to date financials and on the Assets. Buyer must conduct the audit or inspections, if at all, before Closing. Seller must make a good faith effort to respond to any reasonable request for information within 24 hours of the request. This request can include filling out surveys, questionnaires and forms and responding to emails or telephone calls. Seller will not charge Buyer for any work in connection with audit or inspections. If Buyer, in its sole discretion, is dissatisfied with any audit or inspection, and so notifies Seller in writing within twenty (20) business days after the date of full execution of this Agreement, this Agreement shall be null and void and the down payment shall immediately be returned to Buyer.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to Seller, as of the date hereof, and as of the Closing Date, as follows:

Section 5.1 Organization. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of Illinois, and has the requisite corporate power and authority to own, operate or lease the properties that Buyer requires to carry on its businesses in all material respects as such is now being conducted.

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Section 5.2 Corporate Authorization.

Section 5.2.1 Authority. Buyer has all requisite corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby. This Agreement is a valid and binding obligation of Buyer, enforceable in accordance with its terms. This Agreement and all transactions contemplated hereby have been duly authorized by all requisite corporate authority and all corporate proceedings required to be taken by the Buyer to authorize and to carry out this Agreement and the transactions contemplated hereby have been duly and properly taken. The execution and delivery of this Agreement and the performance by the Buyer of its obligations hereunder will not conflict with or violate any provisions of, or result in a default or acceleration of any obligation under, any mortgage, lease, contract, agreement, indenture, or other instrument or undertaking, or other instrument or undertaking or any order, decree or judgment to which the Buyer is a party or by which it or its property is bound.

Section 5.2.2 No Breach or Violation. Execution, delivery and performance of this Agreement by Buyer and consummation of the transactions contemplated hereby will not cause a breach or default or otherwise conflict with any term or provision of the following: (a) Buyer's Certificate of Incorporation or By-laws; (b) any court or administrative order, writ or injunction or process, or any consent decree to which Buyer is a party or is bound (i) where such violation, breach or default would have a material adverse effect on the business, results of operations or financial condition of Buyer, or (ii) except .as to which required consents, amendments or waivers shall have been obtained by Buyer prior to the Closing for any such violation, breach or default.

Section 5.3 Brokers. No broker or finder has acted for Buyer in connection with this Agreement or the transactions contemplated hereby. Buyer has not paid or become obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary in connection with the transactions contemplated by this Agreement.

ARTICLE VI

COVENANTS

Section 6.1 Seller's Affirmative Covenants. With respect to the Assets, except as may be agreed in writing by Buyer, Seller shall at all times from the date hereof through the Closing Date use its commercially reasonable efforts to take all actions proper and advisable in order to consummate the transaction contemplated by this Agreement, including without limitation:

Section 6.1.1 Operate the Assets in the ordinary course of business and use its best efforts to preserve and protect the goodwill, rights, properties, assets and business organization of Seller and to prevent the occurrence of any event or condition which would have a material adverse effect on the Assets or the financial condition or results of operations of Seller;

Section 6.1.2 Use its best efforts to preserve and protect the present goodwill and relationships of Seller with creditors, suppliers, customers, licensors, licensees, contractors, distributors, lessors and lessees and others having business relationships with it;

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Section 6.1.3 Maintain clear unencumbered title to the Assets and use its reasonable best efforts to maintain all tangible Assets in good and customary repair, order and condition, reasonable wear and tear and damage by fire and other casualty excepted and promptly repair, restore or replace any Assets which are damaged or destroyed by fire or other casualty, whether insured or uninsured. In the event Seller shall fail to replace or repair any such damaged or destroyed Assets to the reasonable satisfaction of Buyer, Buyer by written notice to Seller may terminate this Agreement and the down payment shall be immediately returned to Buyer.

Section 6.1.4 Comply in all material respects with all applicable Federal, state, foreign and local laws, rules and regulations germane to the Seller and to this sales transaction;

Section 6.1.5 Maintain the books and records of Seller in the usual and ordinary course consistent with past practices in such manner as is necessary to ensure satisfaction of the representations and warranties set forth in Article IV of this Agreement and in a manner that fairly and accurately reflects its income, expenses, assets, and liabilities in accordance with generally accepted accounting principles consistently applied;

Section 6.1.6 File all Tax Returns required to be filed and make timely payment of all Taxes shown to be due on such returns;

Section 6.1.7 Obtain, prior to the Closing Date, all consents, approvals and waivers, including all such consents, approvals or waivers required to be obtained from the government (whether federal, state or local) its customers, vendors, suppliers, lessors, and consents of the other parties to the Contracts and any teaming agreements, partnerships or other arrangements between Seller and any other person or entity, necessary or required to vest in Buyer all of Seller's rights and title to, and interest in, the Assets in conformity with the representations and warranties of Seller herein;

Section 6.1.8 Promptly notify Buyer in writing of any material adverse change in the Assets of which it has knowledge, or any material adverse change, of which it has knowledge, with respect to the relationships of Seller and its employees or its creditors, suppliers, customers, subcontractors, licensors, licensees, lessors and lessees, and others having business relationships with it;

Section 6.1.9 Promptly notify Buyer in writing of the institution or receipt of any material claim, action, suit, inquiry, proceeding, notice of violation, demand letter, subpoena, government audit or disallowance by or before any court or governmental or other regulatory or administrative agency; and

Section 6.1.10 Promptly supplement or amend and deliver to Buyer the Schedules that Seller is required to prepare hereunder with respect to any matter arising hereafter which, if existing or occurring as at the date of this Agreement, would have been required to have been set forth and described in such Schedule. No supplement or amendment of a Schedule made pursuant to this Section 6.1.10 shall be deemed to cure any intentional fraud or deliberate breach of any representation or warranty made in this Agreement but shall cure any inadvertent or negligent breach of any representation or warranty or covenant made in this Agreement.

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Section 6.2 Seller's Negative Covenants. With respect to Seller and the Assets, Seller will not do the following, without the written consent of Buyer, from the date hereof through the Closing Date:

Section 6.2.1 Incur or agree to incur any obligation or liability (absolute or contingent) in connection with any of the Assets, except liabilities arising out of, incurred in connection with, or related to the consummation of this Agreement;

Section 6.2.2 Sell, transfer, assign, license or otherwise dispose of, or encumber in any way, any of the Assets except in the ordinary course of business, consistent with past practices;

Section 6.2.3 Amend in a material respect, modify in a material respect, or terminate any of the Contracts; Assets; or

Section 6.2.4 Waive or cancel any of its material rights or claims relating to the Assets; or

Section 6.2.5 Seek, solicit or agree to any offer for the sale of the Assets or any material part thereof, or seek, solicit or agree to any merger of Seller with any other entity whereby Seller or its successor shall not be fully capable of and obligated to perform all of Seller's obligations under this Agreement;

Section 6.2.6 Undertake any transaction, including, but not limited to, the incurring of any indebtedness for borrowed money, except in the ordinary course of business, consistent with past practices;

Section 6.2.7 Offer or enter into any contract, understanding, plan, or agreement to take any action described in this Section 6.2.

Section 6.3 Access to Information.

Section 6.3.1 Access. From and after the date of this Agreement and until the Closing Date, Buyer and its agents and representatives shall have full and complete access (i) to all properties (whether real or personal), books and records of Seller (the confidentiality of which Buyer agrees to maintain), for purposes of conducting such investigations, appraisal or audits at its own expense as Buyer, in good faith, deems necessary or advisable under the circumstances, and (ii) to discuss Seller, related business affairs, and condition (financial or otherwise) of Seller and the Assets with such persons, including but not limited to the directors, officers, accountants, landlords, counsel, and creditors of Seller as Buyer considers necessary for the purposes of conducting its investigations, appraisals or audits in connection with the transactions contemplated by this Agreement. Access to Seller's employees who are not directors or officers or to Seller's customers shall be granted by Seller after reasonable advance notice by Buyer. Any such investigation conducted by Buyer and its agents and representatives shall be conducted in a manner that is not unduly or unreasonably disruptive to Seller's business.

Section 6.3.2 Customer Introductions. Seller shall, upon reasonable request of Buyer, introduce Buyer, or arrange for a personal introduction of Buyer's representatives, to customers of Seller for the purpose of insuring good relationships with such parties immediately following the Closing.

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Section 6.3.3 After Closing. Seller shall furnish to Buyer, all financial and Tax Return information as reasonably may be requested after the Closing for the purpose of filing or defending tax returns of Buyer, or a subsequent purchaser of any of the Assets. Seller shall assist Buyer in the transfer of the Assets to Buyer for a period of thirty (30) days following the Closing Date at no additional cost to Buyer. After the initial thirty (30) day period, Seller will assist Buyer with the transition of the Assets on a consulting basis by telephone at the rate of $75.00 per hour for one (I) year.

Section 6.4 Filings and Authorizations. Seller and Buyer each shall use commercially reasonable efforts, promptly after the date hereof, to comply with all Federal, state, and local laws and regulations and to obtain all necessary governmental authorizations, approvals, permits, licenses and waivers, with regard to the transactions contemplated by this Agreement.

Section 6.5 Administration of Accounts. All payments and reimbursements made in the ordinary course by any third party in the name of or to Seller after the Closing Date for any product sold or service performed after the Closing Date shall be held by Seller in trust to the benefit of Buyer and, immediately upon receipt by Seller of any such payment or reimbursement, Seller shall pay over to Buyer the amount of such payment or reimbursement without right of set off. All payments and reimbursements, if any, made in the ordinary course by any third party in the name of or to Seller after the Closing Date for any product sold (except prepaid contracts) or service performed prior to the Closing Date shall belong to Seller.

Section 6.6 Tax Matters.

Section 6.6.1 Seller Obligations. Seller acknowledges its legal obligations to pay Taxes relating to all items of income, loss, gain, deduction and credit attributable to or relating to the ownership of the Assets up to and including the Effective Date, including but not limited to any taxes, assessments and other amounts payable for all periods prior to the Effective Date.

Section 6.6.2 Buyer Obligations. Buyer acknowledges its legal obligations to pay Taxes relating to all items of income, loss, gain, deduction and credit attributable to or relating to ownership of the Assets after the Effective Date.

Section 6.6.3 Tax on Transaction. Seller shall pay any and all Taxes imposed upon or assessed against Seller by the federal government due to the sale, of the Assets under this Agreement. Seller shall promptly file when due any and all returns with respect to such Taxes, assessments, fees, charges or penalties. Seller shall pay all sales or other taxes, if any, imposed by the State of Oklahoma or its political subdivisions because of the sale of the Assets under this Agreement and all excise taxes and stamp taxes and intangible taxes attributable to the Note.

Section 6.7 Further Assurances. Seller and Buyer shall each use commercially reasonable efforts to take all actions necessary, proper, or deemed by them advisable, to fulfill promptly their obligations hereunder and to consummate the transactions contemplated by this Agreement. Seller and Buyer will coordinate and cooperate with each other in exchanging such information and supplying such reasonable assistance as may be requested by the other in connection with the foregoing. From time to time after the Closing, each party will, at the expense of the other party, execute and deliver, or cause to be executed and delivered, such documents to the other party as the other party may reasonably request in order to more effectively consummate the transactions contemplated by this Agreement.

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Section 6.8 Confidentiality. Buyer acknowledges that Seller would be irreparably damaged if confidential information concerning Seller or the Assets were disclosed to or utilized by any person to the detriment of Seller prior to the Closing or if the Closing does not occur. Therefore, Buyer shall not, at any time prior to the Closing, or at any time if the Closing does not occur, directly or indirectly, without the prior written consent of Seller, make use of or divulge, or permit any of its affiliates, employees or agents to make use of or divulge, any information concerning the Assets, or the financial or other affairs of Seller that would be used to the detriment of Seller, including without limitation, the Customer Information and Know-How, except to the extent required by law or in order to preserve or enforce its rights under this Agreement. Seller acknowledges that Buyer would be irreparably damaged if confidential information concerning Buyer or the Assets were disclosed to or utilized by any person to the detriment of Buyer. Therefore, Seller shall not, at any time directly or indirectly, without the prior written consent of Buyer, make use of or divulge, or permit any of its affiliates, employees or agents to make use of or divulge, any information concerning the Assets, the Assets or the financial or other affairs of Buyer that could be used to the detriment of Buyer, including without limitation, the Customer Information and Know-How, except to the extent required by law or in order to preserve or enforce its rights under this Agreement.

Section 6.9 Buyer's Preservation of Assets until Note Has Been Paid.

Section 6.9.1 Buyer will not resell any item of the Assets except in the ordinary course of business, without Seller's approval, not unreasonably withheld or unduly delayed, until the Purchase Price has been paid in full as provided below.

Section 6.9.2 Except for the first position security interest at the time of the acquisition of the Assets, or the refinance thereof, Buyer will not pledge as collateral any of the Assets without Seller's approval, not unreasonably withheld or unduly delayed, in advance of any such pledge, until the Purchase Price has been paid in full.

Section 6.10 Searches. At least five (5) days prior to Closing, at Seller's cost, Seller shall obtain and deliver to Buyer:

Section 6.10.1 Current Uniform Commercial Code and Federal and State Tax Lien searches (State and County) showing any liens of any nature that may affect the interest of Seller and______

Section 6.10.2 Current State, Federal and Bankruptcy pending suit and judgment searches showing any judgments or suits that may affect the interest of Seller and ___________________.

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ARTICLE VII

CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

Section 7.1 Conditions. The obligations of Buyer under this Agreement to perform Articles I and II herein shall be subject to the fulfillment, to its reasonable satisfaction, on or prior to the Closing Date, of all of the following conditions precedent:

Section 7.1.1 Inspection. This Agreement is contingent on Buyer or Buyer's agents and/or representatives inspecting, reviewing and approving the Assets and examining any other aspects of the business of Seller (Buyer's Due Diligence), including without limitation, Buyer's on site inspection(s), within fifteen (15) days of the full execution of this Agreement. In the event Buyer in its sole discretion is dissatisfied with the condition of the Assets or Seller's business, and so notifies Seller before the end of the Buyer's Due Diligence time period, this Agreement shall be null and void and the down payment immediately returned to Buyer.

Section 7.1.2 Financing. This Agreement and Buyer's obligation to close are contingent upon receipt within thirty (30) days from the execution hereof of a firm written commitment for the financing of the acquisition of the Assets from a lender or lenders of Buyer's choice as provided for at Section 2.2.2 hereof.

Section 7.1.3 Representations and Warranties. All representations and warranties of Seller contained in this Agreement and in all certificates, schedules and other documents delivered by Seller to Buyer or its representatives pursuant to this Agreement and or in connection with the transactions contemplated hereby shall be true, complete and accurate in all material respects as of the date when made and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date, except for changes expressly permitted by this Agreement.

Section 7.1.4 No Material Adverse Change. During the period from the date hereof to the Closing Date, Seller shall not have sustained any material loss or damage to the Assets, whether or not insured, nor shall there have been any material adverse change in the Assets or business of Seller. In the event of any such change, Buyer, upon written notice at or prior to Closing, may terminate this Agreement, and the Escrowed Funds shall be immediately returned to Buyer.

Section 7.1.5 Schedules Delivered. All Schedules to be delivered prior to Closing to Buyer by Seller hereunder shall have been so delivered with time sufficient for Buyer's review and in no event later than two (2) business days prior to Closing, and each such Schedule shall be satisfactory in form, and content, to Buyer, such satisfaction to be determined at Buyer's reasonable discretion. To the extent Seller updates any such Schedule immediately prior to Closing, each such update shall be satisfactory in form, and content, to Buyer, such satisfaction to be determined at Buyer's reasonable discretion.

Section 7.1.6 No Adverse Facts Disclosed. No investigation of Seller by Buyer, no disclosure Schedule, and no other document delivered to Buyer in connection with this Agreement shall have revealed any facts and circumstances that reflect in a material adverse way on the Assets.

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Section 7.1.7 Obtaining of Consents and Approvals. Except as otherwise contemplated by this Agreement, Seller shall have executed and delivered to Buyer, or shall have caused to be executed and delivered, any consents, waivers, approvals, permits, licenses or authorizations which, if not obtained on or prior to the Closing Date, would have a material adverse effect on the Assets.

Section 7.1.8 Performance by Seller. Seller shall have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be performed or complied with by Seller on or before the Closing Date.

Section 7.1.9 Absence of Litigation. There shall not be in effect any order enjoining or restraining the transactions contemplated by this Agreement; and there shall not be instituted or pending any action or proceeding before any Federal, state or foreign court or governmental agency or other regulatory or administrative agency or instrumentality (i) challenging the acquisition by Buyer of the Assets or otherwise seeking to restrain, materially condition or prohibit consummation of the transactions contemplated by this Agreement, or seeking to impose any material limitations on any provision of this Agreement, or (ii) seeking to compel Buyer or Seller to dispose of or hold separate a material portion or the Assets as a result of the transactions contemplated by this Agreement.

Section 7.1.10 Officer's Certificates. Buyer shall have received a certificate, dated the Closing Date, executed on behalf of Seller by an appropriate officer stating that the representations and warranties set forth herein continue to be true and correct in all material respects and that the warrants and conditions set forth herein are true and correct and/or have been satisfied.

Section 7.1.11 Agreements Not to Compete. Buyer shall have received the delivery of duly executed, valid and binding Agreements Not to Compete from Seller and Spouse in form and substance reasonably acceptable to Buyer.

Section 7.1.12 Delivery of Documents. The execution and delivery to the Buyer by Seller of the following, all dated as of the Closing Date:

7.1.12..1 A Bill of Sale with respect to the Assets in the form requested by Buyer; and all other documents required by the terms of this Agreement to be executed and delivered by Seller;

7.1.12.2 Such other conveyances, instruments of title, assignments, consents, recordings, and other documents as may be, in the reasonable opinion of the Buyer, necessary or proper to transfer to Buyer ownership of the Assets and rights being acquired by Buyer hereunder;

7.1.12.3 Certified resolutions of the Board of Directors and all shareholders, of Seller duly authorizing the execution and delivery of this Agreement and the performance by Seller of its obligations hereunder;

7.1.12.4 A duly executed Assignment and Assumption Agreement for all assumed contracts, if any;

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7.1.12.5 Certificates of Good Standing of Seller issued by the Secretary of the State of Oklahoma dated within I 0 days of the Closing Date;

7.1.12.6 All files pertaining to the prepaid maintenance contracts, including without limitation, all vouchers, invoices, bills and paid receipts, if any, in the possession of Seller to be picked up by Buyer at Seller's office;

7.1.12.7 UCC, State and Federal Tax Lien and State and Federal (including bankruptcy) Pending Suit and Judgment searches covering Seller and ____________________;

7.1.12.8 Officer's Certificates, dated the Closing Date, executed on behalf of Seller by an appropriate officer stating that the representations and warranties set forth herein continue to be true and correct in all material respects and that the conditions set forth herein have been satisfied;

7.1.12.9 Duly executed documentation, if any, for the transfer of the web hosting from the Seller to the Buyer and a transfer of all related advertising and promotional materials; all hosting accounts will be transferred to the buyers hosting servers when the final payment is received and posted;

7.1.12.10 An Affidavit listing all suppliers and creditors of Seller and amounts due, if any;

7.1.12.11 A Stop Order or a satisfaction (tax clearance) of all sales, income and other taxes due from all applicable taxing authorities as of the actual date of Closing;

7.1.12.12 A clearance from all applicable State departments regarding employment security/unemployment;

7.1.12.13 Consulting Agreements and Agreements Not to Compete;

7.1.12.14 Closing Statement;

7.1.12.15 Payment by Seller of any applicable State or local tax(es) regarding the transfer of the Assets and/or the financing hereof by the subordinated Note accepted by Seller; and

7.1.12.16 Such other documents, instruments and certificates as may be reasonably requested by Buyer or its counsel to effectuate the transactions contemplated by this Agreement.

Section 7.2 Waiver. Buyer may, in its sole discretion, waive in writing fulfillment of any or all of the conditions set forth in Section 7.1 of this Agreement, provided that such waiver granted by the Buyer pursuant to this Section 7.2 shall have no effect upon or as against any of the other conditions not so waived.

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ARTICLE VIII

CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER

Section 8.1 Conditions. The obligations of Seller under this Agreement to perform Articles I and II herein shall be subject to the fulfillment, to its reasonable satisfaction, on or prior to the Closing Date, of all of the following conditions precedent:

Section 8.1.1 Representations and Warranties. The representations and warranties of the Buyer contained in this Agreement shall be true and correct in an material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date.

Section 8.1.2 Performance by Buyer. Buyer shall have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be performed or complied with by Buyer on or before the Closing Date.

Section 8.1.3 Officer's Certificates. Seller shall have received a certificate, dated the Closing Date, executed on behalf of Buyer by an appropriate officer stating that the representations and warranties set forth in Article V hereof continue to be true and correct in all material respects and that the conditions set forth in this Article VIII hereof have been satisfied

Section 8.1.4 Absence of Litigation. There shall not be in effect any judicial or regulatory order enjoining or restraining the transactions contemplated by this Agreement.

Section 8.1.5 Delivery of Documents. The execution and delivery to Seller by the Buyer.

8.1.5.1 Certified resolutions of the directors of Buyer duty authorizing the execution and delivery of this Agreement and the performance by Buyer of its obligations hereunder;

8.1.5.2 The Notes; and

8.1.5.3 Such documents, instruments and certificates as may be reasonably requested by Seller or its counsel to effectuate the transactions contemplated by this Agreement.

Section 8.2 Waiver. Seller may, in its sole discretion, waive in writing fulfillment of any or all of the conditions set forth in Section 7.1 of this Agreement, provided that such waiver granted pursuant to this Section 8.2 shall not constitute a waiver by Seller of any other conditions not so waived.

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ARTICLE IX

INDEMNIFICATION

Section 9.1 Survival of Certain Provisions.

Section 9.1.1 Survival of Representations and Warranties. Each and every such representation and warranty shall survive Closing and remain in full force and effect until the second anniversary of the Closing Date, except for those representations and warranties made in connection with or arising out of the first two sentences of Section 4.6, (Title) and Section 4.15 (Taxes) (collectively, the "Non-Expiring Warranties"), which shall survive Closing and remain in full force and effect either (i) until expiration of any rights of Buyer or any third party under law or equity with respect thereto, it being understood and agreed that Buyer, upon written notice to Seller, may waive or toll any applicable statute of limitation in Buyer's sole discretion, or (ii) for an indefinite period without end if no statute of limitation applies.

Section 9.1.2 Covenants and Indemnification Provisions. Each of Seller's covenants and each of Seller's indemnification provisions contained herein shall survive Closing and remain in full force and effect in accordance with its terms until the second anniversary of the Closing Date.

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Section 9.2 Seller's Indemnification of Buyer. After the Closing Date, Seller shall indemnify and hold Buyer harmless on demand for, from and against all losses, actual damages, liabilities, claims, demands, obligations, deficiencies, payments, judgments, settlements, costs and expenses of any nature whatsoever (including without limitation the costs and expenses of any and all investigations, actions, suits, proceedings, demands, assessments, judgments, settlements and compromises relating thereto, and reasonable attorneys' and others fees in connection therewith) ("Losses") resulting or arising, directly or indirectly from the following: (a) Any inaccuracy or misrepresentation in, or breach or nonfulfillment of, any representation or warranty of Seller or any breach or nonfulfillment of any covenant of Seller, contained in this Agreement, in any Exhibit or Schedule delivered hereunder by Seller, or in any certificates or documents delivered by Seller pursuant to this Agreement; (b) Any and all employment obligations and excluded liabilities including but not limited to all liabilities delineated in Section 1.3 (whether or not disclosed to Buyer); and (c) The use, ownership or operation of the Assets or the conduct of business prior to Closing.

Section 9.3 Buyer's Indemnification of Seller, Buyer will indemnify and hold harmless Seller, and will reimburse Seller, for any damages (including without limitation, reasonable attorney's fees and costs) arising from or in connection with:

Section 9.3.1 any material breach of any representation or warranty made by Buyer in this Agreement or in any certificate, document, writing or instrument delivered by Buyer pursuant to this Agreement not cured by Buyer within 30 days after written notice from Seller;

Section 9.3.2 any material breach of any covenant or obligation of Buyer in this Agreement or in any other certificate, document, writing or instrument delivered by Buyer pursuant to this Agreement not cured by Buyer within 30 days after written notice from Seller;

Section 9.3.3 any claim by any person for brokerage or finder's fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by such person with Buyer (or any person acting on Buyer's behalf) in connection with this transactions.

Section 9.4 Matters Involving Third Parties.

Section 9.4.1 If any third party notifies any Party (the "Indemnified Party") with respect to any matter (a "Third-Party Claim") that may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this §9.4, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party is thereby prejudiced.

Section 9.4.2 Any Indemnifying Party shall have the right to defend the Indemnified Party against the Third-Party Claim with counsel of its choice (reasonably] satisfactory to the Indemnified Party so long as (A) the Indemnifying Party notifies the Indemnified Party in writing within I 5 days after the Indemnified Party has given notice of the Third-Party Claim that the Indemnifying Party shall indemnify the Indemnified Party from and against the entirety of any adverse consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third-Party Claim, (B) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third-Party Claim and fulfill its indemnification obligations hereunder, (C) the Third-Party Claim involves only money damages and does not seek an injunction or other equitable relief, (D) settlement of, or an adverse judgment with respect to, the Third-Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice materially adverse to the continuing business interests or the reputation of the Indemnified Party, and (E) the Indemnifying Party conducts the defense of the Third-Party Claim actively and diligently.

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Section 9.4.3 So long as the Indemnifying Party is conducting the defense of the Third-Party Claim in accordance with §9.4.2 above, (A) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third-Party Claim, (B) the Indemnified Party shall not consent to the entry of any judgment on or enter into any settlement with respect to the Third-Party Claim without the prior written consent of the Indemnifying Party (not to be unreasonably withheld)] and (C) the Indemnifying Party shall not consent to the entry of any judgment on or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be unreasonably withheld).

Section 9.4.4 In the event any of the conditions in §9.4.2 above is or becomes unsatisfied, however, (A) the Indemnified Party may defend against, and consent to the entry of any judgment on or enter into any settlement with respect to, the Third-Party Claim in any manner it may reasonably deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), (B) the Indemnifying Party shall reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third-Party Claim (including reasonable]attorneys' fees and expenses), and (C) the Indemnifying Parties shall remain responsible for any adverse consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third-Party Claim to the fullest extent provided in this Article IX.

ARTICLE X

TERMINATION

Section 10.1 Termination Events. Subject to the provisions of Section 9.2, this Agreement may, by written notice given at or prior to the Closing in the manner hereinafter provided, be terminated and abandoned only as follows:

Section 10.1.1 By Seller, upon written notice, if a material default or breach shall be made by the Buyer, with respect to the due and timely performance of any of the Buyer's covenants and agreements contained herein, or with respect to the due compliance with any of Buyer's representations and warranties, as applicable, unless such default has been cured prior to Closing or has been waived by Seller in writing;

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Section 10.1.2 By written mutual consent of Seller and Buyer; or

Section 10.1.3 In addition to, and not in limitation of its termination rights regarding Due Diligence and Financing, Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing in the event a material default or breach made by Seller, with respect to the due and timely performance of any of the Seller's covenants and agreements contained herein, or with respect to the due compliance with any of Seller's representations and warranties, as applicable, unless such default has been cured prior to Closing or has been waived by Buyer in writing.

Section 10.1.4 Closing Date. Ten (10) days after the end of the Financing Contingency period, or such earlier or later date as may be agreed upon by the parties.

Section 10.2 Effect of Termination. In the event this Agreement is terminated pursuant to Section I 0.1 herein, all further rights and obligations of the parties hereunder shall terminate, and neither Buyer nor Seller, nor any of their affiliates, nor any of the respective directors, officers or employees of Buyer or Seller or their affiliates shall have any liability to any of the others; it being specifically agreed that if this Agreement is so terminated by either Buyer or Seller because one or more of the conditions to its obligations hereunder as set forth in Articles VI and VII herein is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the rights of the terminating party to pursue all legal remedies for breach of contract and damages shall survive such termination and the breaching party shall be fully liable for any and all damages, costs and expenses sustained or incurred by the terminating party as a result of such breach. Notwithstanding the foregoing, Seller's sole remedy upon a breach of this Agreement by Buyer shall be termination of this Agreement.

ARTICLE XI

MISCELLANEOUS

Section 11.1 Expenses. Except as otherwise provided in this Agreement, Buyer shall pay Buyer's own costs and expenses (including all legal, accounting, broker, finder and investment banker fees) relating to this Agreement, the negotiations leading up to this Agreement, and the closing of the transaction contemplated by this Agreement. Seller shall pay all liabilities of Seller and of ____________for costs and expenses (including but not limited to legal fees, paralegal fees, CPA fees, and similar expenses) that Seller and ______________ have incurred in connection with the consummation of the transaction contemplated hereby

Section 11.2 Amendment. This Agreement shall not be amended or modified except by a writing duly executed by Seller and Buyer.

Section 11.3 Entire Agreement. This Agreement, including the Exhibits hereto and the Schedules delivered hereunder, contain all of the terms, conditions and representations and warranties agreed upon by the parties relating to the subject matter of this Agreement and supersede all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter.

Section 11.4 Notices. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered by hand or by e-mail or facsimile to the persons identified below, or three (3) days after mailing if mailed by certified or registered mail, postage prepaid, return receipt requested, addressed as follows:

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If to Buyer: Shaun Passley, 205 West Wacker Drive, Suite 1320, Chicago, Illinois 60606; fax number: 312"873-4283,

With a copy to: Daniel M. Loewenstein
Evans, Loewenstein, Shimanovsky   & Moscardini, Ltd. 130 South Jefferson Street, Suite 350 Chicago, Illinois 60661 Fax (312) 466-0819

If to Seller: Cynergy Corporation, Attention: Steven J. Davidson, 5770 NW EXPWY, Oklahoma City, Oklahoma 73132, or by email to:

_____________________________

With a copy to: ______________________
______________________
______________________
 

Such addresses may be changed, from time to time, by means of a notice given in the manner provided in this Section. Copies to counsel shall not constitute notice.

Section 11.5 Severability. If any term, provision, condition or covenant of this Agreement or the application thereof to any party or circumstances shall be held to be invalid or unenforceable to any ·extent in any jurisdiction, then the remainder of this Agreement and the application of such term, provision, condition or covenant in any other jurisdiction or to persons or circumstances other than those as to whom or which it is held to be invalid or unenforceable, shall not be affected thereby, and each term, provision, condition and covenant of this Agreement shall be valid and enforceable to the fullest extent permitted by law. Cumulative Remedies. The remedies provided herein are cumulative and not exclusive and shall not preclude assertion by either party hereto of any other rights or the seeking of any other remedies against the other party.

Section 11.6 Waiver. Waiver of any term or condition of this Agreement by either of the respective parties shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition, of this Agreement.

Section 11.7 Successors and Assigns. The rights, liabilities and obligations of the parties hereto arising under this Agreement shall attach to and be binding upon the respective parties' successors and assigns.

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Section 11.8 Assignment. This Agreement shall not be assignable by Seller without first having obtained the prior written consent of the Buyer not unreasonably withheld or unduly delayed.

Section 11.9 No Third Party Beneficiaries. Nothing in this Agreement shall confer any rights upon any person or entity who is not a party to this Agreement.

Section 11.10 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures to each counterpart were upon a single instrument, and all such counterparts together shall be deemed an original of this Agreement.

Section 11.11 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois and of the United States without giving effect to the doctrine of conflicts of laws.

Section 11.12 Attorneys' Fees. In the event any proceeding is instituted by any of the parties hereto for the enforcement of any of the rights or remedies in and under this Agreement, the party in whose favor an award shall be rendered shall be entitled to recover from the losing party or parties all costs reasonably incurred by said prevailing party in said action, including, but not limited to, reasonable attorneys' and court costs.

Section 11.13 JURISDICTION AND VENUE. THE PARTIES HEREBY AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT SHALL BE LITIGATED IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS. THE PARTIES HEREBY EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING. THE PARTIES WAIVE ANY CLAIM THAT CHICAGO, ILLINOIS OR THE NORTHERN DISTRICT OF ILLINOIS IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE.

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Section 11.14 EXECUTION AND DELIVERY

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement with legal and binding effect as of the date and year first above written.

 

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EXHIBIT A

PROMISSORY NOTE

$25.000.00 DATE: February 19, 2014

1. For value received, Epazz, Inc. (hereinafter referred to as the "Make ') promises to pay to the order of Steve Davidson (hereinafter referred to as the "Payee"), Payee together with any subsequent holder hereof ("Holder''), the principal sum of TWENTY FIVE THOUSAND AND 00/100 DOLLARS ($25,000.00 less any credited amount as described by Cynergy Software accounts receivable) as defined in the Asset Purchase Agreement}, payable as follows:

Maker shall pay to Holder the entire outstanding principal balance of this note (the "Note") together with interest thereon at the rate of zero percent (0%) in one total payment on or before 40 days after closing. One installment payment of $25.000 less any credits will be paid in full as one payment at the end of the term, which is due on or before 40 days after closing. The webs e. www.cynergysoftware com will be transferred upon the promissory note being paid in full,

2. All payments and other amounts due hereunder from Maker to Holder shall be in good, and immediately available funds, and in lawful money of the United States.

3. Maker may prepay the indebtedness evidenced by this Note in whole or in part at any time without penalty or premium. Any partial pre-payment shall be applied first to accrued interest, penalties and late charges (and any collection cost incurred by Holder) and then to reduction of the outstanding principal balance of this Note. Any such partial pre-payment of principal shall not postpone the due date of any subsequent monthly installments or change the amount of such installments unless otherwise agreed in writing by Holder.

4. Principal and interest are payable at the address of the Payee, or such other addresses as may be designated by Payee or any subsequent Holder from time to time. Any payment that is not received by Holder within fifteen (15) days following the due date shall be subject to a five percent (5%) late charge.

5. This Note may not be changed orally and shall be governed by and construed in all respects and enforced according to the laws of the State of Oklahoma. Time is of the essence of this Note.

6. This Note is non-negotiable, non-transferable and non-assignable by Payee; however, Steve Davidson, may transfer its interest in this Note only to Payee, and/or to Payee's immediate family, Payee's estate and/or a trust established by Payee (for estate planning purposes), and not further assigned; such assignment, however, shall not make this Note a negotiable instrument.

7. All the terms and conditions of the Asset Purchase Agreement and the other attached exhibits executed by and between Maker (as "Purchaser'') and Holder (as "Seller'') are by this reference made a part hereof, including, without limiting the generality of the foregoing, certain provisions concerning Holder's right upon the happening of certain events to accelerate the maturity of the indebtedness evidenced by this Note, and the Maker's right upon the happening of certain events to offset against this Note and/or cancel any remaining payments then due under this Note.

8. In case of a default of payment due under this Note, and after giving Maker written notice and ten (10) days to cure, Holder shall have the option to declare the unpaid balance of the principal sum and all accrued and unpaid interest thereon and other fees and sums due hereunder to be immediately due and payable in full. Said principal sum and all accrued interest thereon, or so much thereof as may remain unpaid at the time of such default, shall bear interest at the maximum legal interest rate allowed by law, from the default date until paid. Interest so paid or compounded shall not exceed an amount equal to simple interest on the unpaid principal at the maximum rate permitted by law; any interest paid in an amount which exceeds the maximum rate permitted by law shall be applied to principal.

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9. Neither failure or delay in accelerating the maturity of the indebtedness evidenced hereby or in otherwise exercising any rights of Holder hereunder or under the terms of the Asset Purchase Agreement, nor the acceptance by Holder of installment payments made hereunder after Maker's default hereunder shall be deemed a waiver of such right or default unless such waiver be in writing and signed by Holder.

10. If this Note is collected by or through an attorney or order of a court of competent jurisdiction, all costs of collection, including but not limited to court costs and reasonable attorney's fees, shall be paid by whichever party does not prevail.

IN WITNESS WHEREOF, Maker has executed this Promissory Note on the same date the attached Asset Purchase Agreement was signed and executed.

	Epazz, Inc.
____________________________	by:______________
Witness	Maker
	Shaun Passley

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EX-10.38

Exhibit 10.38

BILL OF SALE

Seller, Cynergy Corporation, an Oklahoma corporation, of 5770 NW Expwy, Oklahoma City, Oklahoma 73132, in consideration of TEN & 001100 DOLLARS, and other good and valuable consideration, receipt whereof is hereby acknowledged, does hereby sell, assign, transfer and set over to the Buyer, Epazz, Inc., of 205 West Wacker Drive, Suite 1320, Chicago, Illinois 60606, all property and other assets of Cynergy Corporation pursuant to that certain Asset Purchase Agreement dated March 13, 2014 between Buyer and Seller, and without limiting the foregoing, all items listed on the attached Schedules 1.1.1, 1.1.2, 1.1.3, 1.1.4, 1.1.6, 1.1.8, and 1.1.9.

Seller hereby represents and warrants to Buyer that Seller is the absolute owner of said property, that said property is free and clear of all liens, charges and encumbrances, and that Seller has full right, power and authority to sell said property and to make this Bill of Sale.

If this Bill of Sale is signed by more than one person, all persons so signing shall be jointly and severally bound hereby.

IN WITNESS WHEREOF, Seller has signed and sealed this Bill of Sale this 25th day of March, 2014.

CYNERGY CORPORATION,

 

I, the undersigned, a Notary Public, for said County, in the State aforesaid, CERTIFY THAT Steve Davidson, personally known to me to be the same person(s) whose name(s) are subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that they signed, sealed and delivered the instrument as their free and voluntary act, for the uses and purposes therein set forth.

Given under my hand and notarial seal this 4^th day of April, 2014.

/s/ Charity F. Avery

Notary Public

EX-10.39

Exhibit 10.39

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT ("Agreement") is entered into as of May 9, 2014, by and among Jadian, Inc., an Illinois corporation ("Buyer") and Jadian Enterprises, Inc., a Michigan corporation ("Seller").

RECITALS:

A.Jerry Norris ("Jerry"), Kim Griggs ("Kim"), Karen Griggs ("Karen"), and Guy Metz ("Guy") are the shareholders of Seller.

B.Upon the terms and subject to the conditions set forth in this Agreement, Seller desires to sell, assign, convey and transfer to Buyer, and Buyer desires to purchase and acquire from Seller, substantially all of the intangible assets and certain tangible assets used in connection with the business of Seller as more specifically described in this Agreement.

C.As a condition precedent Jerry, Kim, Karen and Guy, the sole shareholders of the Seller, have agreed not to compete with Buyer, and in connection therewith to execute and deliver certain documents to Buyer, as more specifically described in this Agreement.

NOW, THEREFORE, in consideration of the premises, and the mutual representations, warranties, covenants and agreements hereinafter set forth, and each intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

PURCHASE AND SALE OF ASSETS

Section 1.1 Assets To Be Acquired. Subject to the terms and conditions and in reliance upon the representations, warranties and agreements hereinafter set forth, Seller hereby agrees to sell, assign, transfer, convey and deliver to Buyer, and Buyer hereby agrees to purchase, acquire, and accept from Seller, all of the right, title and interest of Seller in and to all of Seller's assets, including without limitation the following described assets, properties, rights, and contracts, wherever located, whether tangible or intangible, which are owned by, licensed by, leased by, or in the possession of, Seller, whether or not reflected on the books and records of Seller (the "Assets"), free and clear of all liens, claims, charges, security interests, restrictions and other encumbrances of any kind or nature, except for those specifically set forth on the relevant schedules to this Agreement or otherwise specifically assumed pursuant to the express terms of this Agreement, including without limitation, the following Assets:

Section 1.1.1 Know-How. All right, title and interest in and to (i) all patents, patent applications and docketed inventions, domestic and foreign (the "Patents"), including but not limited to those listed on Schedule 1.1.1., and (ii) all research and development results, processes, trade secrets, methods, operating techniques, know-how, algorithms, formulae, specifications, drawings, designs, inventions, discoveries and engineering information, and quality control, testing, operational, logistical, maintenance and other technical data and information and technology (the "Know-How") and all documents, notebooks, logbooks, tapes, discs, records, reports and other media relating thereto including without limitation that which is described on Schedule 1.1.1.

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Section 1.1.2 Trademarks and Copyrights. All right, title, interest and goodwill in and to all trademarks, trade names and service marks, and registrations and applications for such trademarks, trade names and service marks domestic and foreign (the "Trademarks"), including without limitation those that are listed on Schedule 1.1.2, and all right, title, and interest in and to all copyrights, and registrations and applications for such copyrights, domestic and foreign (the "Copyrights"), including without limitation those that are listed on Schedule 1.1.2.

Section 1.1.3 Equipment. All of the equipment, computers, machinery, and other tangible assets listed on Schedule 1.1.3 (collectively, the "Equipment").

Section 1.1.4 Computer Assets. All right, title and interest (including copyright interests) in and to all computer programs (including computer modeling programs, design and operational and applications software and computer source and object codes), firmware, computer data bases, and related documentation, acquired or developed or used for the use or operation of (i) products, systems or components based on, derived from or incorporating the Patents, the Know-How or the Copyrights, (ii) communications, and (iii) the Equipment, or (iv) for design, development, engineering, or manufacturing purposes, related thereto, or for any other purpose (the "Computer Assets") including without limitation the computer programs identified on Schedule 1.1.4.

Section 1.1.5 Warranties and Other Rights. To the extent assignable, all rights under or pursuant to all warranties, representations, guarantees and service contacts made by suppliers, manufacturers and contractors in connection with products or services purchased by Seller affecting the Equipment or the Assets.

Section 1.1.6 Contracts. To the extent assignable, all accounts, contracts, subcontracts, licenses and sublicenses, and agreements and other arrangements, proposals, bids, quotations, purchase orders and commitments, and sales orders and commitments, of any kind, whether written or oral, including joint venture, teaming and partnership agreements (the "Contracts"), including without limitation those Contracts identified on Schedule 1.1.6.

Section 1.1.7 Causes of Action. All causes of action, claims or rights of action against third parties arising from or based on the infringement, misappropriation, misuse or unauthorized use of the Patents, the Know-How, the Assets, the Trademarks or the Copyrights.

Section 1.1.8 Inventory. All merchantable inventory of the Assets as of the date hereof, as set forth on Schedule 1.1.8, and updated as of the Closing Date.

Section 1.1.9 Accounts Receivable. All accounts receivable for goods or services rendered prior to the Closing Date by Seller to customers of Seller, whether or not such customers have been presented with an invoice or statement for such payment prior to the Closing Date, as set forth on Schedule 1.1.9, and updated as of the Closing Date (the "Receivables"). Without limiting the foregoing, all amounts previously paid to Seller for prepaid contracts (whether maintenance, support or otherwise) are excluded from the Receivables and are addressed in Section 1.1.10 below.

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Section 1.1.10 Prepaid Maintenance and Support Contracts. Seller shall maintain all prepaid maintenance and support contracts, if any, as set forth on Schedule 1.1.10, up to the date of Closing and shall credit a pro rata amount of those contracts, equal to $40,760.02, to the Buyer at Closing.

Section 1.1.11 Communication Assets. Seller's telephone number(s), facsimile number(s), website, domain name(s), and promotional material.

Section 1.1.12 Records. A copy of Seller's business records and files pertaining to the Assets.

Section 1.2 Excluded Assets. Seller shall not sell, and Buyer is under no obligation to purchase, any of the following ("Excluded Assets"):

Section 1.2.1 Any refunds in regard to income and other taxes;

Section 1.2.2 Cash on hand as of the Closing;

Section 1.2.3 Business records, stock book and charter documents and all real estate (whether owned or leased);

Section 1.2.4 Seller's right to repayment of that cash advances from the Seller to Guy, Jerry, Karen and Kim in the amount of $20,000;

Section 1.2.5 All rights of Seller under this Agreement and all other documents executed in connection herewith to which Seller is a party;

Section 1.2.6 the Purchase Price; and

Section 1.2.7 Seller's right to refund of its security deposit under that Lease between Seller and KEPS Technologies, Inc., dated January 31, 2007.

Section 1.3 Liabilities Excluded. Except for obligations arising from and after the date of closing under the Contracts, which Buyer expressly assumes ("Assumed Liabilities"), Buyer shall not and does not hereby assume or become liable for any obligations, liabilities or indebtedness of Seller, whether due or to become due, asserted or unasserted, accrued or unaccrued, liquidated or unliquidated, contingent, executory or otherwise, howsoever or whenever arising, which are not expressly assumed by Buyer in writing, including but not limited to (a) any of Seller's accounts payable, and (b) Seller's obligations under its mortgages and its lines of credit, if any (the "Lines of Credit"), all of which shall be satisfied by Seller on or before the Closing Date, to the extent such satisfaction is necessary for Seller to convey the Purchased Assets free and clear of any encumbrances.

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Section 1.4 Assignment of Contracts and Rights. This Agreement shall not operate to assign any Asset or any claim, right or benefit arising thereunder or resulting therefrom if an attempted assignment thereof, without the consent of a third party (including a government or governmental unit), would constitute a breach, default or other contravention thereof or in any way adversely affect the rights of Seller or Buyer thereunder. Seller and Buyer will each use their commercially reasonable efforts to obtain the consent of such third parties for the assignment thereof to Buyer prior to Closing, and if such consent is not obtained by Closing or if such attempted assignment thereof would not assign all of Seller's rights thereunder at Closing, Seller and Buyer shall continue to cooperate and use their commercially reasonable efforts in order that Buyer would obtain all of such rights thereunder. To the extent that the consents and waivers referred to herein are not obtained by Seller or until the impediments to the sale, assignment, transfer, delivery or sublease referred to therein are resolved, Seller shall use its commercially reasonable efforts to (i) provide, at the request of Buyer, to Buyer the benefits of any such Asset referred to herein, (ii) cooperate in any lawful arrangement designed to provide such benefits to Buyer, and (iii) enforce, at the request of and for the account of Buyer, any rights of Seller arising from any Asset referred to herein against any third person (including a government or governmental unit) including the right to elect to terminate in accordance with the terms thereof upon the advice of Buyer, and without commission or other charge by Seller, whether to any third party or Buyer. Buyer shall not be required by this Section 1.4 to enter into any arrangement that would impose any additional cost, expense or liability or that would deprive Buyer of any material benefits or profits.

ARTICLE II

CLOSING; PURCHASE PRICE AND PAYMENT; ALLOCATION; CONSULTING

AGREEMENT; AGREEMENT NOT TO COMPETE

Section 2.1 Closing. The Closing ("Closing") of the sale and purchase of the Assets as well as the consummation of the other transactions contemplated herein shall take place using overnight courier services and email, or in person, on or before May 16, 2014 (the "Closing Date").

Section 2.2 Purchase Price.

Section 2.2.1 Amount and Payment. In consideration for the Assets, Buyer will pay Seller the sum of Four Hundred Twenty-Five Thousand Dollars ($425,000.00), as it may be adjusted for prorations, credits and adjustments (the "Purchase Price"), which sum shall be paid as follows:

2.2.1.1 Schedule of Payments.

(a) Two Hundred Fifteen Thousand Dollars ($215,000.00) in cash or by wire transfer at Closing (the "Closing Funds"). Upon the request of the Buyer, which may be in advance of the Closing, Seller will deliver to the Buyer an invoice for the aforesaid amount.

2.2.1.2 Two Hundred Ten Thousand Dollars ($210,000.00) by Buyer's delivery to Seller of its fully subordinated promissory note the form of which is attached hereto as Exhibit A ("Note"), providing for interest at 6%, a 120 month amortization, full right of offset, no payments of either principal or interest for thirty (30) days after Closing, equal payments of principal and interest commencing thereafter and no prepayment penalty and a balloon payment of all amounts due after three (3) years and subject to such offsets as are contained therein. The Note shall be fully guaranteed by Epazz, Inc. All amounts owed to Seller under Section 2.2.1.1, 2.2.1.2 and 2.2.1.3 shall be secured by alien on the Assets as set forth in a security agreement the form of which is attached hereto as Exhibit B ("Security Agreement").

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2.2.1.3 In addition to the Purchase Price as aforesaid, Buyer agrees to pay Seller additional compensation for the Assets based on and contingent upon the following earn-out formula, pursuant to which the Seller will receive up to $100,000.00 per year for each of three (3) years (for a total not to exceed $300,000.00) (the "Potential Earn-out"):

Gross Annual Revenue		Earn-out
$500,000 - $600,000	$25,000
$600,000 - $700,000	$25,000	+ $25,000 =	$50,000
$700,000 - $800,000	$25,000	+ $50,000 =	$75,000
$800,000 - over	$25,000	+ $75,000 =	$100,000

Earn-out payments shall be made within thirty (30) days after the first, second and third anniversary of the Closing Date. The first payment shall be based on the Buyer's gross annual revenue from the Closing Date to the first anniversary thereof, the second payment shall be based on the Buyer's gross annual revenue from the first anniversary of the Closing Date to the second anniversary thereof, and the third payment shall be based on the Buyer's gross annual revenue from the second anniversary of the Closing Date to the third anniversary thereof With each earn-out payment, Buyer shall provide Seller with a calculation of the gross revenue upon which such payment is based. For a period of forty-two (42) months following the Closing Date, Seller and its agents shall have access during normal business hours to Buyer's financial statements, books and records to determine Buyer's gross annual revenues during the earn-out period. Any delinquent earn-out payment shall bear interest at the rate of 10% per annum from the date on which the earn-out payment was due until the date on which the delinquent amount is paid. If Seller determines that Buyer has underreported its gross revenue, Buyer shall bear the cost of Seller's audit and shall cure any underpayment within thirty (30) days of written notice from Seller.

2.2.2 Third Party Financing Contingency. This Agreement is contingent upon Buyer obtaining a firm written commitment for satisfactory financing from a lender or lenders of its choice, for the purchase of the Assets within five (5) days after the date of full execution of this Agreement. Buyer shall use commercially reasonable efforts to obtain such financing commitment. In the event Buyer is unable to obtain such financing commitment, and provides written notice thereof to Seller, this Agreement shall be null and void and any funds paid into escrow shall immediately be returned to Buyer.

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Section 2.3 At Closing. At Closing, Buyer shall execute and deliver (or cause to be delivered) to Seller:

Section 2.3.1 The Closing Funds; and

Section 2.3.2 the Note and Security Agreement.

Section 2.4 Intentionally Omitted.

Section 2.5 Closing Adjustments.

Section 2.5.1 Accounts Receivable. The amount of Sellers' accounts receivable outstanding as of the Closing Date is $33,704.50 ("Closing Date A/R"). The Closing Funds shall be increased on a dollar for dollar basis by the amount of any Closing Date A/R. Buyer shall use commercially reasonable efforts to collect the Closing Date A/R. In the event of nonpayment of any of such receivables within ninety (90) days of Closing, the amount not received shall be deducted from the Note on the 91^st day following Closing; provided, however, that if any Closing Date A/R that remains uncollected on the ninetieth day following closing is collected at any time prior to the first anniversary of the Closing Date, the amount so collected on such Closing Date A/R shall be added back into the Note.

Section 2.5.2 INTENTIONALLY DELETED.

Section 2.5.3 Prorations. The parties agree to prorate telephone and web hosting expenses and other similar expenses, if any, prepaid by Seller for Assets purchased by Buyer; if not available at Closing, any such item will be reimbursed within thirty (30) days after Closing, subject to Buyer's and Seller's approval.

Section 2.6 Post-Closing Adjustment. If Jerry:

Section 2.6.1 Directly or indirectly causes any customer ("Departing Customer") listed on Schedule 2.6.1 to cease doing business with Buyer, and to buy from a direct competitor of Buyer a product then offered by Buyer, within one (1) year following the Closing Date; or

Section 2.6.2 Develops, within two (2) years after Closing, a product that is directly competitive with a product offered by Buyer as of the Closing,

(collectively, "Post-Closing Competition"), Buyer shall receive a credit against any then-outstanding amounts due to Seller under the Note or any earn-out payment ("Post-Closing Credit"). Buyer's entitlement to any Post-Closing Credit shall be conditioned upon Buyer providing Seller with detailed, credible evidence, satisfactory to Seller in its reasonable discretion, of the Post-Closing Competition. The Post-Closing Credit shall be the lesser of (i) the then outstanding amount due under the Note and (ii) the gross revenue received by Seller from the Departing Customer during the period from May 1, 2013 - April 30, 2014, as set forth on Schedule 2.6.1. Notwithstanding the foregoing, this Section 2.6 shall be null and void immediately in the event Jerry signs an agreement with Buyer that contains non-compete provisions consistent with those agreed to by Kim, Karen and Guy, or otherwise mutually agreeable to Jerry and Buyer.

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ARTICLE III

CONSULTING AGREEMENT & AGREEMENT NOT TO COMPETE

Section 3.1 At the Closing, each of Seller, Kim and Karen, shall also deliver a Consulting Agreement, and Agreement Not to Compete, providing for a non compete period of three (3) years, executed by Buyer, Seller, Kim and Karen (the "Consulting Agreement & Agreement Not to Compete"), pursuant to which each shall assist with the transition to Epazz by telephone for a period of thirty (30) days under terms and conditions specified in the Consulting Agreement. The Consulting Agreement & Agreement Not to Compete are attached hereto as collective Exhibit C and incorporated herein. At the Closing, Buyer and Guy shall also execute and deliver an Employment Agreement and Agreement Not To Compete providing for a non compete period of three (3) years (the Employment Agreement and Agreement Not To Compete), providing full time employment for a six (6) month term, under terms and conditions outlined in the Employment Agreement. The Employment Agreement and Agreement Not To Compete is attached hereto as Exhibit D and incorporated herein.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Buyer, as of the Closing Date, as set forth below:

Section 4.1 Organization Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Michigan and authorized to transact business in the State of Texas, and has the requisite power and authority to own, use, operate or lease the Assets as Seller is now conducting its business, operations and affairs. Seller has no subsidiaries.

Section 4.2 Qualification of Seller. Seller is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the Assets, or the nature of its activities makes such qualification or license necessary.

Section 4.3 Authorization.

Section 4.3.1 Authority. Seller has all requisite corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery, consummation and performance of this Agreement have been duly authorized and approved by all necessary actions of Seller's board of directors. This Agreement is a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms.

Section 4.3.2 No Breach or Violation. Execution, delivery and performance of this Agreement by Seller and consummation of the transactions contemplated hereby will not lead to or cause a violation, breach, or default or result in the termination of, or accelerate the performance required by, or result in the creation or imposition of any Encumbrance, whether by notice or lapse of time or both, or otherwise conflict with any term or provision of (a) Seller's articles or incorporation or bylaws, or (b) any note, bond, mortgage, contract, indenture or agreement to lease, license or other instrument or obligation to which Seller is a party or is bound, or any court or administrative order, writ or injunction or process or any permit, license or consent decree to which Seller is a party or is bound: (i) where such violation, breach or default would have a material adverse effect on the Assets or financial condition of Seller; or (ii) except as to which required consents, amendments or waivers shall have been obtained by Seller prior to the Closing.

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Section 4.4 Financial Statements.

Section 4.4.1 Schedules. To the best of Seller's knowledge, the profit and loss statement and balance sheet for calendar years 2012 and 2013 and Bank Statements for the 12 month period ending March 31, 2014 (the "Seller Financial Statements") are true and correct in all material respects, and fairly present in all material respects the assets, liabilities, financial condition and results of operations of the assets of the Seller for those time periods (the "Financials Date"). For purposes of this Agreement, the term "Seller's knowledge" shall mean the actual knowledge of Jerry, Kim, Karen or Guy.

Section 4.4.2 Accuracy. To the best of Seller's knowledge, the data set forth in the Seller Financial Statements fairly present in all material respects the statement of income or loss of the assets of the Seller for and the financial position of Seller for and as of the date or period covered thereby. The Seller Financial Statements were prepared on a basis consistent with prior periods. All transactions involving Seller set forth therein are materially true and correct in all material respects. Seller Financial Statements are not audited financial statements.

Section 4.4.3 No Undisclosed Liabilities. To the best of Seller's knowledge, Seller does not have any material liabilities or material obligations which relate to the Assets or the Assumed Liabilities of any nature, secured or unsecured (absolute, accrued, or unaccrued, liquidated or unliquidated, executory, contingent or otherwise and whether due or to become due), of a nature required to be reflected in a balance sheet prepared in accordance with Seller's past practices applied on a consistent basis, which were not adequately and completely disclosed and reserved for in Seller Financial Statements, except for those liabilities and obligations of Seller which relate to Seller or the Assets and were incurred since the Financials Date in the ordinary course of business.

Section 4.4.4 Absence of Changes. Except as described on Schedule 4.4.4, to the best of Seller's knowledge, since January 1, 2014, there has not been and, as of the Closing Date, there will not be: (a) any material adverse change in the Assets or financial condition of Seller; (b) any material adverse change in the contingent obligations or liabilities of Seller which relate to Seller or the Assets by way of guaranty, documentary credit, standby credit, endorsement, indemnity, warranty or otherwise; (c) any waiver or cancellation by Seller of valuable rights or debts owed to it which, taken as a whole, are material to the Assets or financial condition of Seller; (d) any material adverse amendment to any agreement, commitment, or transaction by Seller which, if such action were taken on the date hereof, would require disclosure pursuant to this Agreement (Including without limitation, any borrowing, lease, capital expenditure or capital financing); or (e) any material adverse change by Seller in its accounting methods or practices, assumptions or methods of calculating, or any change by Seller in its accounting principles, relating to the Assets.

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Section 4.4.5 Discharge of Liabilities. Except as described on Schedule 4.4.5, since the Financials Date and as of the Closing Date: (i) Seller has not paid, discharged or satisfied any material claims, liabilities or obligations (absolute, accrued, contingent or otherwise) other than the payment, discharge, or satisfaction in the ordinary course of business and consistent with past practice; and (ii) Seller has not terminated, amended or suffered the termination or material amendment of, or failed to perform its material obligations under, any of the Contracts or any agreement, contract, lease or license affecting the Assets.

Section 4.5 Leases/Real Property. Seller acknowledges that Buyer is not assuming any lease of real property or is not purchasing any real property.

Section 4.6 Tangible Assets. Seller has good, valid and marketable title to all of the Assets, and at Closing, Seller will convey good, valid and marketable title to each of the Assets to Buyer. The title to each Asset is free and clear of all title defects, objections, liens, mortgages, security interests, pledges, charges and encumbrances, adverse claims, equities, or any other rights of others or other adverse interests of any kind including without limitation, leases, chattel mortgages, conditional sales contracts, collateral security arrangements and other title or interest retention arrangements (collectively the "Encumbrances"). The Assets constitute all of the assets and rights necessary for the conduct of the business of Seller as presently conducted.

Section 4.7 Equipment. Schedule 1.1.3 delivered hereunder sets forth in reasonable detail the Equipment by manufacturer, model, and serial number.

Section 4.8 Accounts Receivable. Set forth on Schedule 1.1.9 is a complete and accurate list of all Receivables as of the Closing showing the name of each account debtor and the amount due from each by invoice number and date. All Receivables arose out of the sales of inventories or services in the ordinary course of business and, to the best of Seller's knowledge, are collectible in the face value thereof within 365 days of the date of the invoice, using normal collection procedures, net of the reserve for doubtful accounts as set forth thereon, which reserve is adequate and was calculated in accordance with past practices of Seller.

Section 4.9 Intellectual Property

Section 4.9.1 Software and Know-How. Schedule 1.1.1 sets forth a complete and accurate list of each license or licensing agreement, by date, term and the parties thereto, for each patent, patent application, invention, trade-secret, rights to know-how, processes, computer programs or use of technology, held or employed by Seller pursuant to a license or licensing agreement (each license or licensing agreement listed thereon hereinafter termed the "Licenses"). With respect to the Licenses, and with respect to all other technology that is material to Seller's business, including but not limited to all of the following to the extent material (i) research and development results, processes, trade secrets, methods, operating techniques, know-how, algorithms, formulae, specifications, drawings, designs, chip designs, mask works, inventions, discoveries and engineering information, and (ii) quality control, testing, operational, logistical, maintenance, Software and other technical data and information and technology held or employed by Seller ("Seller's Technology") as set forth on Schedule 1.1.1:

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4.9.1.1 To the best of Seller's knowledge, Seller owns, free and clear of all liens, pledges or other encumbrances, all right, title and interest in the Software and Licenses and in Seller's Technology, with all rights to make, use, and sell products and other property embodied in or described in the Software and Licenses and in Seller's Technology. To the best of Seller's knowledge, Seller's use of the Assets and Licenses and the Seller's Technology does not conflict with, infringe upon or violate any patent, patent license, patent application, or any pending application relating thereto, or any trade secret, know-how, programs or processes of any third person, entity or corporation;

4.9.1.2 There are no outstanding or, to the best of Seller's knowledge, threatened material governmental, judicial or adversary proceedings, hearings, arbitrations, disputes or other disagreements and no notice of infringement has been served upon or otherwise come to Seller's knowledge with respect to any of the Software and Licenses or Seller's Technology;

4.9.1.3 Upon the consummation of the Closing and receipt of any required third party consents, Buyer will be vested with all right, title and interest, and rights and authority to use all of the Software and Licenses and Seller's Technology in accordance with their terms.

Section 4.9.2 Trademarks and Copyrights. Schedule 1.1.2 delivered hereunder sets forth a complete and accurate list of all trademark and trade name registrations or applications, and copyright registration and application for copyright registration, by date and germane case or docket number and country of origin, and the status of each of the foregoing trademarks, trade names and copyrights, and each license or licensing agreement, by date and the parties thereto, for each trademark and copyright license or license of application, held or employed by Seller (each such trademark, copyright, application, and license or licensing agreement hereafter termed the "Trademarks and Licenses").

4.9.2.1 To the best of Seller's knowledge, Seller owns, free and clear of all liens, pledges or other encumbrances, all right, title and interest in the Trademarks and Licenses. To the best of Seller's knowledge, the Seller's use of the Trademarks and Licenses does not conflict with, infringe upon or violate any trademark, trade name, trademark or trade name registration or application, copyright, copyright registration or application relating thereto, of any third person, firm or corporation;

4.9.2.2 There are no outstanding or, to the best of Seller's knowledge, threatened, governmental hearings, arbitrations, disputes or other judicial or adversary proceedings or disagreements with respect to any of the Trademarks and Licenses; and

4.9.2.3 Upon the consummation of the Closing, Buyer will be vested with all rights, title and interest, and rights and authority to use all of the Trademarks and Licenses in accordance with their terms.

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Section 4.10 Contracts and Obligations. Schedule 1.1.6 includes an accurate and complete list as of the date hereof and as of the Closing Date, of the Contracts and identifies each Contract by the parties thereto and the date, subject matter and term thereof. To the best of Seller's knowledge, all Contracts are valid and binding upon Seller and are valid and binding on each other party thereto. With respect to each of the Contracts, to the best of Seller's knowledge, neither Seller, nor any other party thereto is in breach thereof or default thereunder, and there does not exist any event, condition or omission which would constitute such breach or default (whether by lapse of time or notice or both), except for such breaches, defaults and events as to which requisite waivers or consents have been obtained. Except as expressly required herein, Buyer shall have no obligation to retain any employee and there are no employment contracts that will be binding on Buyer after Closing.

Section 4.11 Litigation. There are no claims, actions, suits, hearings, arbitrations, disputes, proceedings (public or private) or governmental investigations pending or, to the best of Seller's knowledge, threatened, against or affecting the Assets, at law or in equity, before or by any federal, state, municipal or other governmental or non-governmental department, commission, board, bureau, agency, court or other instrumentality, or by any private person or entity, and there are no existing or, to the best of Seller's knowledge, overtly threatened, orders, judgments or decrees of any court or governmental agency affecting any of the Assets. There are no legal, administrative, arbitration or other proceedings or governmental investigations pending or, to the best of Seller's knowledge, overtly threatened, against Seller or the Assets which seeks to enjoin or rescind the transactions contemplated by this Agreement or otherwise prevent Seller from complying with the terms and provisions of this Agreement.

Section 4.12 Third Party Consents. Schedule 4.12 hereto lists all approvals, authorizations, certificates and consents of all third parties necessary or required to effect the transfer to Buyer of all the rights, powers and franchises of Seller related to the Assets, all of which shall be the obligation of Buyer to obtain; provided, however, that Seller shall cooperate and use commercially reasonable efforts to assist Buyer in obtaining such third party consents.

Section 4.13 Permits; Compliance; Reports; Clearances. Schedule 4.13 sets forth all material approvals, authorizations, certificates, consents, licenses, orders and permits of all governmental agencies, whether Federal, state or local, necessary to the ownership, use or operation of the Assets and all such approvals, authorizations, certificates, consents, licenses, orders and permits are in full force and effect.

Section 4.14 Government Authorizations. Execution, delivery and performance of this Agreement by Seller, and consummation of the transactions contemplated hereby, will not require any consent, approval, authorization, or permit from, or any filing with or notification to, any United States, foreign, state or local governmental or regulatory authority.

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Section 4.15 Taxes. As used in this Agreement, "Taxes" and all derivations thereof means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs, duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, ad valorem, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto. However, for purposes of this Section 4.15, Taxes shall include only Taxes (i) that are or may become liens on the Assets or (ii) for which Buyer is or may become liable as the purchaser of the Assets. The term "Tax Returns" shall include all federal, state, local and foreign returns, declarations, statements, reports, schedules, and information returns required to be filed with any taxing authority in connection with any Tax or Taxes. To the best of Seller's knowledge, Seller has timely filed all Tax Returns and reports required to have been filed by it, and has paid all Taxes due to any taxing authority required to have been paid by it on or prior to the date hereof. None of such Tax Returns contain, or will contain, a disclosure statement under Section 6662 of the Code (or any equivalent or predecessor statute). Except as set forth on Schedule 4.15, Seller has not received notice that the Internal Revenue Service or any other taxing authority has asserted or proposed to assert against Seller any deficiency or claim for Taxes and no issue has been raised by any taxing authority in any audit which, by application of similar principles, reasonably could be expected to result in a proposed deficiency of Seller for any period not so examined. There are no pending or, to the best of Seller's knowledge, threatened, actions, audits, proceedings or investigations with respect to Seller involving the assessment or collection of Taxes. There are no liens for Taxes due and payable upon the Assets. Seller has not applied for a ruling relating to Taxes from any taxing authority or entered into any closing agreement with any taxing authority. None of the Assets is or will be required to be treated as (i) owned by another person pursuant to the safe harbor leasing provisions of the Code or (ii) property subject to Section 168(f), (g) or (h) of the Code. At Closing, Seller will pay all Taxes, if any, due upon the transfer of the Assets. Seller is not an S corporation as defined in Code Section 1361. The only shareholders of Seller are Jerry, Kim, Karen and Guy.

Section 4.16 Customers and Suppliers. A list of all customers and suppliers of the Seller is set forth on Schedule 4.16. No material customer or material supplier (i) has canceled or threatened in writing to cancel or otherwise modify its relationship with Seller, or (ii) to the best of Seller's knowledge, intends to cancel or otherwise modify its relationship with Seller.

Section 4.17 Brokers. Rua & Associates has acted for Seller in connection with this Agreement or the transactions contemplated hereby. Seller is obligated to pay a commission pursuant to separate agreement to Rua & Associates in connection with the transactions contemplated by this Agreement. Seller agrees to indemnify, defend and hold Buyer harmless from and against all claims, demands, actions, liabilities, damages, costs and expenses (including reasonable attorneys' fees) arising from a claim for a fee or commission made by any broker claiming to have acted by or on behalf of Seller in connection with the transactions contemplated by this Agreement.

Section 4.18 Disclosures. To the best of Seller's knowledge, no statement, representation or warranty made by Seller in this Agreement, in any Exhibit hereto or Schedule delivered hereunder, or in any certificate, statement, list, schedule or other document furnished or to be furnished to Buyer hereunder, contains any untrue statement of a material fact, or fails to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading.

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Section 4.19 Audit/Inspections. Buyer has the right to have an inspection(s) as it deems reasonably necessary performed on the Seller's accounting books, accounting system and financial statements for the last two fiscal years and year to date financials and on the Assets. Buyer must conduct the inspections, if at all, before Closing. Seller must make a good faith effort to respond to any reasonable request for information within 24 hours of the request. This request can include filling out surveys, questionnaires and forms and responding to emails or telephone calls. Seller will not charge Buyer for any work in connection with inspections. If Buyer, in its sole discretion, is dissatisfied with any inspection, and so notifies Seller in writing prior to Closing, this Agreement shall be null and void and the down payment shall immediately be returned to Buyer.

Section 4.20 No Other Representations or Warranties. Seller has not made, and will not be deemed to have made, any representation or warranty other than the specific representations and warranties included in this Article IV. Without limiting the generality of the foregoing, and notwithstanding any representations and warranties made by Seller in this Article IV, Seller makes no representations and warranties with respect to: (a) any projections, estimates or budgets regarding the Seller's future revenue, expenses or future results of operations, whether or not provided or made available to Buyer; or (b) except as expressly covered by a representation and warranty contained in this Article IV, any other information or documents (financial or otherwise) made available to Buyer either as part of Buyer's due diligence investigation or otherwise.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to Seller, as of the date hereof, and as of the Closing Date, as follows:

Section 5.1 Organization. Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of Illinois, and has the requisite corporate power and authority to own, operate or lease the properties that Buyer requires to carry on its businesses in all material respects as such is now being conducted.

Section 5.2 Corporate Authorization.

Section 5.2.1 Authority. Buyer has all requisite corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby. This Agreement is a valid and binding obligation of Buyer, enforceable in accordance with its terms. This Agreement and all transactions contemplated hereby have been duly authorized by all requisite corporate authority and all corporate proceedings required to be taken by the Buyer to authorize and to carry out this Agreement and the transactions contemplated hereby have been duly and properly taken. The execution and delivery of this Agreement and the performance by the Buyer of its obligations hereunder will not conflict with or violate any provisions of, or result in a default or acceleration of any obligation under, any mortgage, lease, contract, agreement, indenture, or other instrument or undertaking, or other instrument or undertaking or any order, decree or judgment to which the Buyer is a party or by which it or its property is bound.

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Section 5.2.2 No Breach or Violation. Execution, delivery and performance of this Agreement by Buyer and consummation of the transactions contemplated hereby will not cause a breach or default or otherwise conflict with any term or provision of the following: (a) Buyer's Certificate of Incorporation or By-laws; (b) any court or administrative order, writ or injunction or process, or any consent decree to which Buyer is a party or is bound (i) where such violation, breach or default would have a material adverse effect on the business, results of operations or financial condition of Buyer, or (ii) except as to which required consents, amendments or waivers shall have been obtained by Buyer prior to the Closing for any such violation, breach or default.

Section 5.3 Brokers. No broker or finder has acted for Buyer in connection with this Agreement or the transactions contemplated hereby. Buyer has not paid or become obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary in connection with the transactions contemplated by this Agreement. Buyer agrees to indemnify, defend and hold Seller harmless from and against all claims, demands, actions, liabilities, damages, costs and expenses (including reasonable attorneys' fees) arising from a claim for a fee or commission made by any broker claiming to have acted by or on behalf of Buyer in connection with the transactions contemplated by this Agreement.

Section 5.4 Financial Statements of Epazz, Inc.

Section 5.4.1 To the best of Buyer's knowledge, the tax returns of Epazz, Inc. that have been provided to Seller are true and correct in all material respects, and fairly and accurately present in all material respects the financial condition and results of operations of Epazz, Inc. for those time periods. For purposes of this Agreement, the term "Buyer's knowledge" shall mean the actual knowledge of Shaun Passley. Except as described on Schedule 5.4.1, to the best of Buyer's knowledge, since January 1, 2014, there has not been and, as of the Closing Date, there will not be: (a) any material adverse change in the assets or financial condition of Buyer; (b) any material adverse change in the contingent obligations or liabilities of Buyer which relate to Buyer or its assets by way of guaranty, documentary credit, standby credit, endorsement, indemnity, warranty or otherwise; (c) any waiver or cancellation by Buyer of valuable rights or debts owed to it which, taken as a whole, are material to the assets or financial condition of Buyer; (d) any material adverse amendment to any agreement, commitment, or transaction by Buyer which, if such action were taken on the date hereof, would require disclosure pursuant to this Agreement (including without limitation, any borrowing, lease, capital expenditure or capital financing); or (e) any material adverse change by Buyer in its accounting methods or practices, assumptions or methods of calculating, or any change by Buyer in its accounting principles.

Section 5.4.2 Discharge of Liabilities. Except as described on Schedule 5.4.2: (i) Buyer has not paid, discharged or satisfied any material claims, liabilities or obligations (absolute, accrued, contingent or otherwise) other than the payment, discharge, or satisfaction in the ordinary course of business and consistent with past practice; and (ii) Buyer has not terminated, amended or suffered the termination or material amendment of, or failed to perform its material obligations under, any agreement, contract, lease or license affecting the Buyer.

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ARTICLE VI
COVENANTS

Section 6.1 Seller's Affirmative Covenants. With respect to the Assets, except as may be agreed in writing by Buyer, Seller shall at all times from the date hereof through the Closing Date use its commercially reasonable efforts to take all actions proper and advisable in order to consummate the transaction contemplated by this Agreement, including without limitation:

Section 6.1.1 Operate the Assets in the ordinary course of business and use commercially reasonable efforts to preserve and protect the goodwill, rights, properties, assets and business organization of Seller and to prevent the occurrence of any event or condition which would have a material adverse effect on the Assets or the financial condition or results of operations of Seller;

Section 6.1.2 Use commercially reasonable efforts to preserve and protect the present goodwill and relationships of Seller with creditors, suppliers, customers, licensors, licensees, contractors, distributors, lessors and lessees and others having business relationships with it;

Section 6.1.3 Maintain clear unencumbered title to the Assets and use commercially reasonable efforts to maintain all tangible Assets in good and customary repair, order and condition, reasonable wear and tear and damage by fire and other casualty excepted and promptly repair, restore or replace any Assets which are damaged or destroyed by fire or other casualty, whether insured or uninsured. In the event Seller shall fail to replace or repair any such damaged or destroyed Assets to the reasonable satisfaction of Buyer, Buyer by written notice to Seller prior to Closing may terminate this Agreement and the down payment shall be immediately returned to Buyer.

Section 6.1.4 Comply in all material respects with all applicable Federal, state, foreign and local laws, rules and regulations germane to the Seller and to this sales transaction;

Section 6.1.5 Maintain the books and records of Seller in the usual and ordinary course consistent with past practices in such manner as is necessary to ensure satisfaction of the representations and warranties set forth in Article IV of this Agreement and in a manner that fairly and accurately reflects its income, expenses, assets, and liabilities in accordance with generally accepted accounting principles consistently applied;

Section 6.1.6 File all Tax Returns required to be filed and make timely payment of all Taxes shown to be due on such returns;

Section 6.1.7 In cooperation with Buyer as required under Section 4.12 above, use commercially reasonable efforts to obtain, prior to the Closing Date or within thirty (30) days after Closing, all consents, approvals and waivers, including all such consents, approvals or waivers required to be obtained from the government (whether federal, state or local) its customers, vendors, suppliers, lessors, and consents of the other parties to the Contracts and any teaming agreements, partnerships or other arrangements between Seller and any other person or entity, necessary or required to vest in Buyer all of Seller's rights and title to, and interest in, the Assets in conformity with the representations and warranties of Seller herein;

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Section 6.1.8 Promptly notify Buyer in writing of any material adverse change in the Assets of which it has knowledge, or any material adverse change, of which it has knowledge, with respect to the relationships of Seller and its employees or its creditors, suppliers, customers, subcontractors, licensors, licensees, lessors and lessees, and others having business relationships with it;

Section 6.1.9 Promptly notify Buyer in writing of the institution or receipt of any material claim, action, suit, inquiry, proceeding, notice of violation, demand letter, subpoena, government audit or disallowance by or before any court or governmental or other regulatory or administrative agency; and

Section 6.1.10 Promptly supplement or amend and deliver to Buyer the Schedules that Seller is required to prepare hereunder with respect to any matter arising hereafter which, if existing or occurring as at the date of this Agreement, would have been required to have been set forth and described in such Schedule. No supplement or amendment of a Schedule made pursuant to this Section 6.1.10 shall be deemed to cure any intentional fraud or deliberate breach of any representation or warranty made in this Agreement but shall cure any inadvertent or negligent breach of any representation or warranty or covenant made in this Agreement.

Section 6.2 Seller's Negative Covenants. With respect to Seller and the Assets, Seller will not do the following, without the written consent of Buyer, from the date hereof through the Closing Date:

Section 6.2.1 Other than in the ordinary course of business, incur or agree to incur any obligation or liability (absolute or contingent) in connection with any of the Assets, except liabilities arising out of, incurred in connection with, or related to the consummation of this Agreement;

Section 6.2.2 Sell, transfer, assign, license or otherwise dispose of, or encumber in any way, any of the Assets except in the ordinary course of business, consistent with past practices;

Section 6.2.3 Amend in a material respect, modify in a material respect, or terminate any of the Contracts;

Section 6.2.4 Waive or cancel any of its material rights or claims relating to the Assets; or

Section 6.2.5 Seek, solicit or agree to any offer for the sale of the Assets or any material part thereof, or seek, solicit or agree to any merger of Seller with any other entity whereby Seller or its successor shall not be fully capable of and obligated to perform all of Seller's obligations under this Agreement;

Section 6.2.6 Undertake any transaction, including, but not limited to, the incurring of any indebtedness for borrowed money, except in the ordinary course of business, consistent with past practices;

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Section 6.2.7 Offer or enter into any contract, understanding, plan, or agreement to take any action described in this Section 6.2.

Section 6.3 Access to Information.

Section 6.3.1 Access. From and after the date of this Agreement and until the Closing Date, Buyer and its agents and representatives shall have full and complete access (i) to all properties (whether real or personal), books and records of Seller (the confidentiality of which Buyer agrees to maintain), for purposes of conducting such investigations, appraisal or audits at its own expense as Buyer, in good faith, deems necessary or advisable under the circumstances, and (ii) to discuss Seller, related business affairs, and condition (financial or otherwise) of Seller and the Assets with such persons, including but not limited to the directors, officers, accountants, landlords, counsel, and creditors of Seller as Buyer considers necessary for the purposes of conducting its investigations, appraisals or audits in connection with the transactions contemplated by this Agreement. Access to Seller's employees who are not directors or officers shall be granted by Seller after reasonable advance notice by Buyer; provided, however, notwithstanding anything to the contrary contained herein, prior to Closing, Buyer shall not approach or contact, or otherwise discuss the transaction contemplated herein with, any customer of Seller without the Seller's prior written consent. Any such investigation conducted by Buyer and its agents and representatives shall be conducted in a manner that is not unduly or unreasonably disruptive to Seller's business.

Section 6.4 Access to Information.

Section 6.4.1 Customer Introductions. Seller shall, upon reasonable request of Buyer, introduce Buyer, or arrange for a personal introduction of Buyer's representatives, to customers of Seller for the purpose of insuring good relationships with such parties immediately following the Closing.

Section 6.4.2 After Closing. Seller shall furnish to Buyer, all financial and Tax Return information as reasonably may be requested after the Closing for the purpose of filing or defending tax returns of Buyer, or a subsequent purchaser of any of the Assets. Seller and Kim and Karen shall assist Buyer in the transfer of the Assets to Buyer for a period of thirty (30) days following the Closing Date at no additional cost to Buyer. After the initial thirty (30) day period, Seller and Kim and Karen will assist Buyer with the transition of the Assets on a consulting basis by telephone per the terms and conditions specified in the attached Consulting Agreement.

Section 6.5 Filings and Authorizations. Seller and Buyer each shall use commercially reasonable efforts, promptly after the date hereof, to comply with all Federal, state, and local laws and regulations and to obtain all necessary governmental authorizations, approvals, permits, licenses and waivers, with regard to the transactions contemplated by this Agreement.

Section 6.6 Administration of Accounts. All payments and reimbursements made in the ordinary course by any third party in the name of or to Seller after the Closing Date for any product sold or service performed after the Closing Date shall be held by Seller in trust to the benefit of Buyer and, immediately upon receipt by Seller of any such payment or reimbursement, Seller shall pay over to Buyer the amount of such payment or reimbursement without right of set off Except for payments and reimbursements relating to Excluded Assets and/or Excluded Liabilities, all payments and reimbursements, if any, made in the ordinary course by any third party in the name of or to Seller after the Closing Date for any product sold or service performed prior to the Closing Date shall belong to Buyer.

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Section 6.7 Tax Matters.

Section 6.7.1 Seller Obligations. Seller acknowledges its legal obligations to pay Taxes relating to all items of income, loss, gain, deduction and credit attributable to or relating to the ownership of the Assets up to and including the Closing Date, including but not limited to any taxes, assessments and other amounts payable for all periods prior to the Closing Date.

Section 6.7.2 Buyer Obligations. Buyer acknowledges its legal obligations to pay Taxes relating to all items of income, loss, gain, deduction and credit attributable to or relating to ownership of the Assets after the Closing Date.

Section 6.7.3 Tax on Transaction. Seller shall pay any and all Taxes imposed upon or assessed against Seller by the federal government due to the sale, of the Assets under this Agreement. Seller shall promptly file when due any and all returns with respect to such Taxes, assessments, fees, charges or penalties. Seller shall pay all sales or other taxes, if any, imposed by the State of Michigan or its political subdivisions because of the sale of the Assets under this Agreement and all excise taxes and stamp taxes and intangible taxes attributable to the Note.

Section 6.8 Further Assurances. Seller and Buyer shall each use commercially reasonable efforts to take all actions necessary, proper, or deemed by them advisable, to fulfill promptly their obligations hereunder and to consummate the transactions contemplated by this Agreement. Seller and Buyer will coordinate and cooperate with each other in exchanging such information and supplying such reasonable assistance as may be requested by the other in connection with the foregoing. From time to time after the Closing, each party will, at the expense of the other party, execute and deliver, or cause to be executed and delivered, such documents to the other party as the other party may reasonably request in order to more effectively consummate the transactions contemplated by this Agreement.

Section 6.9 Searches. Prior to Closing, at Seller's cost, Seller shall obtain and deliver to Buyer:

Section 6.9.1 Current Uniform Commercial Code and Federal and State Tax Lien searches (State and County) showing any liens of any nature that may affect the interest of Seller.

Section 6.9.2 Current State, Federal and Bankruptcy pending suit and judgment searches showing any judgments or suits that may affect the interest of Seller.

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ARTICLE VII

CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

Section 7.1 Conditions. The obligations of Buyer under this Agreement to perform Articles I and II herein shall be subject to the fulfillment, to its reasonable satisfaction, on or prior to the Closing Date, of all of the following conditions precedent:

Section 7.1.1 Inspection. This Agreement is contingent on Buyer or Buyer's agents and/or representatives inspecting, reviewing and approving the Assets and examining any other aspects of the business of Seller (Buyer's Due Diligence), including without limitation, Buyer's on site inspection(s), prior to Closing. In the event Buyer in its sole discretion is dissatisfied with the condition of the Assets or Seller's business, and so notifies Seller prior to Closing, this Agreement shall be null and void and the down payment immediately returned to Buyer.

Section 7.1.2 Representations and Warranties. All representations and warranties of Seller contained in this Agreement and in all certificates, schedules and other documents delivered by Seller to Buyer or its representatives pursuant to this Agreement and or in connection with the transactions contemplated hereby shall be true, complete and accurate in all material respects as of the date when made and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date, except for changes expressly permitted by this Agreement.

Section 7.1.3 No Material Adverse Change. During the period from the date hereof to the Closing Date, Seller shall not have sustained any material loss or damage to the Assets, whether or not insured, nor shall there have been any material adverse change in the Assets or business of Seller. In the event of any such change, Buyer, upon written notice at or prior to Closing, may terminate this Agreement, and the Escrowed Funds shall be immediately returned to Buyer.

Section 7.1.4 Schedules Delivered. All Schedules to be delivered prior to Closing to Buyer by Seller hereunder shall have been so delivered with time sufficient for Buyer's review and in no event later than Closing, and each such Schedule shall be satisfactory in form, and content, to Buyer, such satisfaction to be determined at Buyer's reasonable discretion. To the extent Seller updates any such Schedule immediately prior to Closing, each such update shall be satisfactory in form, and content, to Buyer, such satisfaction to be determined at Buyer's reasonable discretion.

Section 7.1.5 No Adverse Facts Disclosed. No investigation of Seller by Buyer, no disclosure Schedule, and no other document delivered to Buyer in connection with this Agreement shall have revealed any facts and circumstances that reflect in a material adverse way on the Assets.

Section 7.1.6 Obtaining of Consents and Approvals. Except as otherwise set forth in Sections 4.12 and 6.1.7 above and as otherwise contemplated by this Agreement, Seller shall have executed and delivered to Buyer, or shall have caused to be executed and delivered, any consents, waivers, approvals, permits, licenses or authorizations which, if not obtained on or prior to the Closing Date, would have a material adverse effect on the Assets.

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Section 7.1.7 Performance by Seller. Seller shall have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be performed or complied with by Seller on or before the Closing Date.

Section 7.1.8 Absence of Litigation. There shall not be in effect any order enjoining or restraining the transactions contemplated by this Agreement, and there shall not be instituted or pending any action or proceeding before any Federal, state or foreign court or governmental agency or other regulatory or administrative agency or instrumentality (i) challenging the acquisition by Buyer of the Assets or otherwise seeking to restrain, materially condition or prohibit consummation of the transactions contemplated by this Agreement, or seeking to impose any material limitations on any provision of this Agreement, or (ii) seeking to compel Buyer or Seller to dispose of or hold separate a material portion or the Assets as a result of the transactions contemplated by this Agreement.

Section 7.1.9 Officer's Certificates. Buyer shall have received a certificate, dated the Closing Date, executed on behalf of Seller by an appropriate officer stating that the representations and warranties set forth herein continue to be true and correct in all material respects and that the warrants and conditions set forth herein are true and correct and/or have been satisfied.

Section 7.1.10 Agreements Not to Compete. Buyer shall have received the delivery of duly executed, valid and binding Agreements Not to Compete from Seller and Kim, Karen and Guy in form and substance reasonably acceptable to Buyer.

Section 7.1.11 Delivery of Documents. The execution and delivery to the Buyer by Seller of the following, all dated as of the Closing Date:

7.1.11.1 A Bill of Sale with respect to the Assets in the form requested by Buyer; and all other documents required by the terms of this Agreement to be executed and delivered by Seller;

7.1.11.2 Such other conveyances, instruments of title, assignments, consents, recordings, and other documents as may be, in the reasonable opinion of the Buyer, necessary or proper to transfer to Buyer ownership of the Assets and rights being acquired by Buyer hereunder;

7.1.11.3 Certified resolutions of the Board of Directors and the requisite shareholders, of Seller duly authorizing the execution and delivery of this Agreement and the performance by Seller of its obligations hereunder;

7.1.11.4 A duly executed Assignment and Assumption Agreement for all assumed contracts, if any;

7.1.11.5 Certificates of good standing of Seller issued by the Secretary of the State of Michigan dated within 10 days of the Closing Date;

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7.1.11.6 All files pertaining to the prepaid maintenance contracts, including without limitation, all vouchers, invoices, bills and paid receipts, if any, in the possession of Seller to be picked up by Buyer at Seller's office;

7.1.11.7 UCC, State and Federal Tax Lien and State and Federal (including bankruptcy) Pending Suit and Judgment searches covering Seller;

7.1.11.8 Officer's Certificates, dated the Closing Date, executed on behalf of Seller by an appropriate officer stating that the representations and warranties set forth herein continue to be true and correct in all material respects and that the conditions set forth herein have been satisfied;

7.1.11.9 Duly executed documentation, if any, for the transfer of the Telephone Number and web hosting from the Seller to the Buyer and a transfer of all related advertising and promotional materials;

7.1.11.10 INTENTIONALLY DELETED;

7.1.11.11 A Stop Order or a satisfaction (tax clearance) of all sales, income and other taxes due from all applicable taxing authorities as of the actual date of Closing (can be post-Closing);

7.1.11.12 A clearance from all applicable State departments regarding employment security/unemployment (can be post Closing);

7.1.11.13 Consulting Agreements;

7.1.11.14 Agreements Not to Compete;

7.1.11.15 Payment by Seller of any applicable State or local tax(es) regarding the transfer of the Assets; and

7.1.11.16 Such other documents, instruments and certificates as may be reasonably requested by Buyer or its counsel to effectuate the transactions contemplated by this Agreement.

Section 7.2 Waiver. Buyer may, in its sole discretion, waive in writing fulfillment of any or all of the conditions set forth in Section 7.1 of this Agreement, provided that such waiver granted by the Buyer pursuant to this Section 7.2 shall have no effect upon or as against any of the other conditions not so waived.

ARTICLE VIII

CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER

Section 8.1 Conditions. The obligations of Seller under this Agreement to perform Articles I and II herein shall be subject to the fulfillment, to its reasonable satisfaction, on or prior to the Closing Date, of all of the following conditions precedent:

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Section 8.1.1 Inspection. This Agreement is contingent on Seller's or Seller's agents and/or representatives inspecting, reviewing and approving the financial statements of Buyer and Epazz, Inc., and examining any other aspects of the business of Buyer (Seller's Due Diligence), prior to Closing. In the event Seller in its sole discretion is dissatisfied with the results of the Seller's Due Diligence, and so notifies Buyer prior to Closing, this Agreement shall be null and void and the down payment immediately returned to Buyer.

Section 8.1.2 Representations and Warranties. The representations and warranties of the Buyer contained in this Agreement shall be true and correct in an material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date.

Section 8.1.3 Performance by Buyer. Buyer shall have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be performed or complied with by Buyer on or before the Closing Date.

Section 8.1.4 Officer's Certificates. Seller shall have received a certificate, dated the Closing Date, executed on behalf of Buyer by an appropriate officer stating that the representations and warranties set forth in Article V hereof continue to be true and correct in all material respects and that the conditions set forth in this Article VIII hereof have been satisfied

Section 8.1.5 Absence of Litigation. There shall not be in effect any judicial or regulatory order enjoining or restraining the transactions contemplated by this Agreement.

Section 8.1.6 Delivery of Documents. The execution and delivery to Seller by the Buyer:

8.1.6.1 Certified resolutions of the directors of Buyer duly authorizing the execution and delivery of this Agreement and the performance by Buyer of its obligations hereunder;

8.1.6.2 The Note and Security Agreement;

8.1.6.3 A full and unconditional guaranty of the Note from Epazz, Inc.;

8.1.6.4 The Closing Funds;

8.1.6.5 The Employment Agreement;

8.1.6.6 Such documents, instruments and certificates as may be reasonably requested by Seller or its counsel to effectuate the transactions contemplated by this Agreement.

Section 8.2 Waiver. Seller may, in its sole discretion, waive in writing fulfillment of any or all of the conditions set forth in Section 8.1 of this Agreement, provided that such waiver granted pursuant to this Section 8.2 shall not constitute a waiver by Seller of any other conditions not so waived.

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ARTICLE IX

INDEMNIFICATION

Section 9.1 Survival of Certain Provisions.

Section 9.1.1 Survival of Representations and Warranties. Each and every such representation and warranty shall survive Closing and remain in full force and effect until the first anniversary of the Closing Date, except for those representations and warranties made in connection with or arising out of the first two sentences of Section 4.6 (Title) and Section 4.15 (Taxes) (collectively, the "Non-Expiring Warranties"), which shall survive Closing and remain in full force and effect until expiration of any applicable statute of limitation.

Section 9.1.2 Covenants and Indemnification Provisions. Each of the Seller's covenants and each of Seller's indemnification provisions contained herein shall survive Closing and remain in full force and effect in accordance with its terms until the first anniversary of the Closing Date. Each of Buyer's covenants and each of Buyer's indemnification provisions contained herein shall survive Closing and remain in full force and effect in accordance with its terms until the first anniversary of the Closing Date; provided, however, that notwithstanding the foregoing, Buyer's covenants in Section 2.2.1.3 shall survive Closing and remain in full force and effect until the fourth anniversary of the Closing Date.

Section 9.2 Seller's Indemnification of Buyer. After the Closing Date, Seller shall indemnify and hold Buyer harmless on demand for, from and against all losses, actual damages, liabilities, claims, demands, obligations, deficiencies, payments, judgments, settlements, costs and expenses of any nature whatsoever (including without limitation the costs and expenses of any and all investigations, actions, suits, proceedings, demands, assessments, judgments, settlements and compromises relating thereto, and reasonable attorneys' and others fees in connection therewith) ("Losses") resulting or arising, directly or indirectly from the following: (a) Any inaccuracy or misrepresentation in, or breach or nonfulfillment of, any representation or warranty of Seller or any breach or nonfulfillment of any covenant of Seller, contained in this Agreement, in any Exhibit or Schedule delivered hereunder by Seller, or in any certificates or documents delivered by Seller pursuant to this Agreement; (b) Any and all employment obligations and excluded liabilities including but not limited to all liabilities delineated in Section 1.3 (whether or not disclosed to Buyer); and (c) The use, ownership or operation of the Assets or the conduct of business prior to Closing. Notwithstanding anything to the contrary contained herein, Seller shall have no indemnification obligations hereunder:

Section 9.2.1 Until the aggregate amount of Buyer's Losses exceeds $10,000, in which cases the full amount of the Losses shall be reimbursable hereunder up to a cap in the amount of $100,000; and

Section 9.2.2 For any Losses resulting from Seller's breach of a representation, warranty or covenant contained herein if the Buyer obtained knowledge of such breach on or before the Closing Date.

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Section 9.3 Buyer's Indemnification of Seller. Buyer will indemnify and hold harmless Seller, and will reimburse Seller, for any Losses resulting from or arising, directly or indirectly, from the following: (a) Any inaccuracy or misrepresentation in, or breach or nonfulfillment of, any representation or warranty of Buyer or any breach or nonfulfillment of any covenant of Buyer, contained in this Agreement, in any Exhibit or Schedule delivered hereunder by Buyer, or in any certificates or documents delivered by Buyer pursuant to this Agreement; (b) any Assumed Liabilities; and (c) The use, ownership or operation of the Assets or the conduct of business after Closing.

Section 9.4 Matters Involving Third Parties.

Section 9.4.1 If any third party notifies any Party (the "Indemnified Party") with respect to any matter (a "Third-Party Claim") that may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 9.4, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party is thereby prejudiced.

Section 9.4.2 Any Indemnifying Party shall have the right to defend the Indemnified Party against the Third-Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying Party notifies the Indemnified Party in writing within 15 days after the Indemnified Party has given notice of the Third-Party Claim that the Indemnifying Party shall indemnify the Indemnified Party from and against the entirety of any adverse consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third-Party Claim, (B) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third-Party Claim and fulfill its indemnification obligations hereunder, (C) the Third-Party Claim involves only money damages and does not seek an injunction or other equitable relief, (D) settlement of, or an adverse judgment with respect to, the Third-Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice materially adverse to the continuing business interests or the reputation of the Indemnified Party, and (E) the Indemnifying Party conducts the defense of the Third-Party Claim actively and diligently.

Section 9.4.3 So long as the Indemnifying Party is conducting the defense of the Third-Party Claim in accordance with Section 9.4.2 above, (A) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third-Party Claim, (B) the Indemnified Party shall not consent to the entry of any judgment on or enter into any settlement with respect to the Third-Party Claim without the prior written consent of the Indemnifying Party (not to be unreasonably withheld) and (C) the Indemnifying Party shall not consent to the entry of any judgment on or enter into any settlement with respect to the Third-Party Claim without the prior written consent of the Indemnified Party (not to be unreasonably withheld).

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Section 9.4.4 In the event any of the conditions in Section 9.4.2 above is or becomes unsatisfied, however, (A) the Indemnified Party may defend against, and consent to the entry of any judgment on or enter into any settlement with respect to, the Third-Party Claim in any manner it may reasonably deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), (B) the Indemnifying Party shall reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third-Party Claim (including reasonable]attorneys' fees and expenses), and (C) the Indemnifying Parties shall remain responsible for any adverse consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third-Party Claim to the fullest extent provided in this Article IX.

ARTICLE X
TERMINATION

Section 10.1 Termination Events. Subject to the provisions of Section 10.2, this Agreement may, by written notice given at or prior to the Closing in the manner hereinafter provided, be terminated and abandoned only as follows:

Section 10.1.1 By Seller, upon written notice, if a material default or breach shall be made by the Buyer, with respect to the due and timely performance of any of the Buyer's covenants and agreements contained herein, or with respect to the due compliance with any of Buyer's representations and warranties, as applicable, unless such default has been cured prior to Closing or has been waived by Seller in writing;

Section 10.1.2 By written mutual consent of Seller and Buyer; or

Section 10.1.3 In addition to, and not in limitation of its termination rights regarding Due Diligence and Financing, Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing in the event a material default or breach made by Seller, with respect to the due and timely performance of any of the Seller's covenants and agreements contained herein, or with respect to the due compliance with any of Seller's representations and warranties, as applicable, unless such default has been cured prior to Closing or has been waived by Buyer in writing.

Section 10.1.4 Closing Date. On May 16, 2014, or such earlier or later date as may be agreed upon by the parties.

Section 10.2 Effect of Termination. In the event this Agreement is terminated pursuant to Section 10.1 herein, all further rights and obligations of the parties hereunder shall terminate, and neither Buyer nor Seller, nor any of their affiliates, nor any of the respective directors, officers or employees of Buyer or Seller or their affiliates shall have any liability to any of the others; it being specifically agreed that if this Agreement is so terminated by either Buyer or Seller because one or more of the conditions to its obligations hereunder as set forth in Articles VI and VII herein is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the rights of the terminating party to pursue all legal remedies for breach of contract and damages shall survive such termination and the breaching party shall be fully liable for any and all damages, costs and expenses sustained or incurred by the terminating party as a result of such breach.

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ARTICLE XI

MISCELLANEOUS

Section 11.1 Expenses. Except as otherwise provided in this Agreement, Buyer shall pay Buyer's own costs and expenses (including all legal, accounting, broker, finder and investment banker fees) relating to this Agreement, the negotiations leading up to this Agreement, and the closing of the transaction contemplated by this Agreement. Seller shall pay all costs and expenses that Seller, Jerry, Kim, Karen and Guy have incurred in connection with the consummation of the transaction contemplated hereby

Section 11.2 Amendment. This Agreement shall not be amended or modified except by a writing duly executed by Seller and Buyer.

Section 11.3 Entire Agreement. This Agreement, including the Exhibits hereto and the Schedules delivered hereunder, contain all of the terms, conditions and representations and warranties agreed upon by the parties relating to the subject matter of this Agreement and supersede all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter.

Section 11.4 Notices. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered by hand or by telex or telecopy (with machine confirmation) to the persons identified below, or three (3) days after mailing if mailed by certified or registered mail, postage prepaid, return receipt requested, addressed as follows:

If to Buyer:	Shaun Passley
	205 W. Wacker Dr., Suite 1320
	Chicago, Illinois 60606
	Fax (312) 873-4283
With a copy to:	Daniel M. Loewenstein
	Evans, Loewenstein, Shimanovsky & Moscardini
	130 South Jefferson Street, Suite 350
	Chicago, Illinois 60661
	Fax (312) 466-0819
If to Seller:	Cathy Stull
	Anderson, Stull & Associates
	320 W. Ottawa St.
	Lansing, MI 48933
	Fax: (517) 484-9776
With a copy to:	Jonathan J. Siebers
	Smith Haughey Rice & Roegge
	100 Monroe Center NW
	Grand Rapids, Michigan 49503
	Fax (616) 774-2461

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Such addresses may be changed, from time to time, by means of a notice given in the manner provided in this Section. Copies to counsel shall not constitute notice.

Section 11.5 Severability. If any term, provision, condition or covenant of this Agreement or the application thereof to any party or circumstances shall be held to be invalid or unenforceable to any extent in any jurisdiction, then the remainder of this Agreement and the application of such term, provision, condition or covenant in any other jurisdiction or to persons or circumstances other than those as to whom or which it is held to be invalid or unenforceable, shall not be affected thereby, and each term, provision, condition and covenant of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

Section 11.6 Remedies. After the Closing, Article IX will provide the exclusive remedy against the Sellers or the Buyer, as applicable, for any breach of any representation, warranty, covenant or other claim arising out of or relating to this Agreement, other than for fraud Any indemnity payment made under this Agreement shall be treated as an adjustment to the Purchase Price for all tax purposes to the extent permitted by applicable Law.

Section 11.7 Waiver. Waiver of any term or condition of this Agreement by either of the respective parties shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or failure of the same term or condition, or a waiver of any other term or condition, of this Agreement.

Section 11.8 Successors and Assigns. The rights, liabilities and obligations of the parties hereto arising under this Agreement shall attach to and be binding upon the respective parties' successors and assigns.

Section 11.9 Assignment. This Agreement shall not be assignable by either party without first having obtained the prior written consent of the other party not unreasonably withheld or unduly delayed.

Section 11.10 No Third Party Beneficiaries. Nothing in this Agreement shall confer any rights upon any person or entity who is not a party to this Agreement.

Section 11.11 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures to each counterpart were upon a single instrument, and all such counterparts together shall be deemed an original of this Agreement.

Section 11.12 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan and of the United States without giving effect to the doctrine of conflicts of laws.

Section 11.13 Attorneys' Fees. In the event any proceeding is instituted by any of the parties hereto for the enforcement of any of the rights or remedies in and under this Agreement, the party in whose favor an award shall be rendered shall be entitled to recover from the losing party or parties all costs reasonably incurred by said prevailing party in said action, including, but not limited to, reasonable attorneys' and court costs.

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Section 11.14 JURISDICTION AND VENUE. THE PARTIES HEREBY AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT SHALL BE LITIGATED IN THE CIRCUIT COURT OF INGHAM COUNTY, MICHIGAN, OR THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MICHIGAN. THE PARTIES HEREBY EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING. THE PARTIES WAIVE ANY CLAIM THAT LANSING, MICHIGAN OR THE WESTERN DISTRICT OF MICHIGAN IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE.

Section 11.15 EXECUTION AND DELIVERY.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement with legal and binding effect as of the date and year first above written.

Jadian Enterprises, Inc., a Michigan corporation

By:                                          , President

Jadian, Inc., an Illinois corporation

/s/ Shaun Passley

By: Shaun Passley, President

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Section 11.14 JURISDICTION AND VENUE. THE PARTIES HEREBY AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT SHALL BE LITIGATED DI LtiE CIRCUIT COURT OF INGRAIVI COUNTY, MICHIGAN, OR THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MICHIGAN. THE PARTIES HEREBY EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING. THE PARTIES WAIVE ANY CLAIM THAT LANSING, MICHIGAN OR THE WESTERN DISTRICT OF MICHIGAN IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE.

Section 11.15 EXECUTION AND DELIVERY.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement with legal and binding effect as of the date and year first above written,

Jadian Enterprises, Inc., a Michigan corporation

/s/ Jerry Norris

By: Jerry Norris                       , President

Jadian, Inc., an Illinois corporation

By: Shaun Passley, President

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EXHIBIT A

NOTE

30

PROMISSORY NOTE

Note Amount	$210,000.00
Date of Note	May 9,2014
Maturity Date	May 9, 2017
Place of Execution:	Grand Rapids, Michigan

FOR VALUE RECEIVED, the undersigned, Jadian, Inc., an Illinois corporation, whose address is 205 W. Wacker Drive, Suite 1320, Chicago, Illinois 60606 (BORROWER) promises to pay to the order of Jadian Enterprises, Inc., a Michigan corporation, whose address is 320 W. Ottawa Street, Lansing, Michigan 48933 (LENDER) the principal sum of Two Hundred Ten Thousand and 00/100 Dollars ($210,000.00), plus interest and costs. BORROWER shall pay this obligation (Note) to LENDER as follows:

1. Terms.

1.1 Interest Rate. Beginning on May 9, 2014, the principal sum outstanding shall bear interest at the rate of six percent (6%) per annum (Interest Rate). Interest shall be calculated based on a 360-day year and charged for the actual number of days elapsed.

1.2 Principal and Interest Payments. Beginning on June 1, 2014, and continuing on the first day of each month thereafter until May 9, 2017, BORROWER shall make equal principal and interest payments to LENDER in the amount of $6,388.61.

1.3 Maturity. On May 9, 2017, the entire outstanding balance owed under this Note shall become immediately due and payable, without demand, unless otherwise becoming immediately due and payable prior to such time by reason of the occurrence of an Event of Default (as defined below) and BORROWER shall pay LENDER an amount equal to the remaining principal balance owed under this Note and any other sums otherwise due and owing.

2. Additional Principal Payments.

2.1 Prepayment. Borrower may prepay any portion of the principal of this Note without premium or penalty. However, all prepayments will be applied first to any accrued interest and then to principal.

2.2 Obligations. BORROWER' s pre-payments (if any) shall not relieve BORROWER from the obligation to timely make any installment payments as described in Section 1 of this Note. To the extent BORROWER is delinquent in making any payments required hereunder, additional principal payments shall first be applied toward payment of accrued but unpaid interest, late charges, and any costs before being applied toward reduction of the principal amount owing under this Note. To the extent BORROWER is current in making all payments required hereunder, all additional principal payments shall be applied toward reduction of principal owing under this Note.

Promissory Note

Page 1 of 4

3.Waiver. Presentment for payment, protest, and notice of protest are each waived by BORROWER.

4.Notices. All notices, payments or statements required under this Note shall be deemed to have been given if either delivered personally or mailed by certified or registered mail at the respective addresses first set forth above. Either party may change the address for notices, payments or statements by giving written notice of such address change in the manner described above.

5.Non-Waiver. No waiver of any provision of this Note shall be valid unless in writing and signed by the persons or parties against whom charged. No delay on the part of the holder in the exercise of any right or remedy under this Note shall operate as a waiver. No single or partial exercise by the holder of any right or remedy under the Note shall preclude any other or future exercises or the exercise of any other right or remedy. No waiver or indulgence by the holder of any default shall be effective unless it is in writing and signed by the holder. No waiver of any right or remedy on one (1) occasion shall be construed as a bar to, or waiver of, any such right or remedy on any future occasion. No waiver by LENDER of any breach or default by BORROWER, or any extension of the due date of any payment under this Note, or the acceptance by LENDER of a payment after its due date, shall in any manner operate as a waiver of any breach, default, or failure of BORROWER thereafter occurring; and the same shall not affect the right of LENDER to accelerate the balance owed under this Note or declare a default under this Note, or pursue any other remedy afforded to LENDER by the terms of this Note, or at law, by reason of any subsequent act, omission, breach, or default of BORROWER.

6.Michigan Law. This Note shall be governed by and construed under the laws (statute and common) of the State of Michigan. No provision of this Note is to be interpreted for or against either party because that party's legal representative drafted the Note, or any of the terms or conditions of any instrument.

7.Expenses. BORROWER agrees to pay any and all expenses, including reasonable attorneys' fees and court costs, paid or incurred by the holder of this Note in enforcing the rights of and obligations to the holder under any provisions of this Note.

8.Venue. BORROWER agrees and consents that any action against it for collection or enforcement of this Note may be brought in the state court in Ingham County, Michigan, having jurisdiction over the subject matter and that such court shall have personal jurisdiction over it for purposes of such legal action.

9.Events of Default. Each of the following events shall constitute an Event of Default:

(a) Any failure to make any payment when due of principal or accrued interest on this Note.

(b) BORROWER fails to observe or perform any other term or condition of this Note and such failure continues for a period of thirty (30) days following BORROWER'S receipt of written notice of such failure.

Promissory Note

Page 2 of 4

(c) A commencement by BORROWER of a voluntary case under any applicable bankruptcy, insolvency or other similar law now or in effect in the future; or the entry of a decree or order for relief with regard to BORROWER in a case under any such law or appointing a receiver, liquidator, assignee, trustee (or other similar official) of BORROWER; or the filing and pendency for thirty (30) days without dismissal of a petition initiating an involuntary case under any such bankruptcy, insolvency or similar law; or the making by BORROWER of any general assignment for the benefit of creditors; or the taking of action by BORROWER in furtherance of any of the foregoing.

10.Consequences of an Event of Default. Upon the occurrence of any Event of Default, LENDER may, at its option, without any demand or notice whatsoever, accelerate the entire unpaid principal balance, and declare this Note to be immediately due and payable, together with accrued interest and all fees and costs applicable thereto, and LENDER shall have access to any and all remedies then available to enforce payment of this Note.

11.Late Payments; Default Rate; Fees. If any payment is not paid when due (whether by acceleration or otherwise) or within 10 days thereafter, BORROWER agrees to pay to LENDER a late payment fee of 5% of the delinquent payment amount. After an Event of Default, BORROWER agrees that LENDER may, without notice, increase the Interest Rate by two percentage points (2%) (the "Default Rate").

12.Amendment. This Note may be amended only by a written document signed by BORROWER and LENDER.

13.Usury. This Note is subject to the express condition that at no time shall BORROWER be obligated to pay interest on the principal balance of this Note at a rate which could subject LENDER to either civil or criminal liability as a result of the rate being in excess of the maximum rate which borrowers are permitted by law to contract or agree to pay in commercial transactions. If, by the terms of this Note, BORROWER is at any time required or obligated to pay interest on the Note's principal balance at a rate in excess of such maximum legal rate of interest, then the rate of interest under the Note shall be deemed immediately reduced to such maximum legal rate.

14.Security. BORROWER'S obligations herein are secured by a lien in favor of LENDER on all assets of BORROWER as set forth in that Security Agreement of even date herewith.

Promissory Note

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15.Set-Off. This Note is given in connection with that Asset Purchase Agreement dated May 9, 2014, between BORROWER and LENDER ("APA"). Pursuant to the terms of the APA, BORROWER shall have the right to credit the following against BORROWER'S obligations hereunder:

(a) An amount equal to the Closing Date A/R purchased by BORROWER under the APA which remain uncollected after 90 days from Closing despite BORROWER'S best efforts to collect same;

(b) Any amounts for which LENDER is obligated to indemnify the BORROWER for under the terms of the APA; and

(c) Any Post-Closing Credit to which BORROWER is entitled under Section 2.6 of the APA.

16.          Assignment. BORROWER may not assign this Note or its obligations hereunder without the prior written consent of LENDER.

BORROWER

JADIAN, INC.

By:

Its:

Dated:                    , 2014

Promissory Note

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,

EXHIBIT B

SECURITY AGREEMENT

SECURITY AGREEMENT

This Security Agreement ("Agreement") is made and entered into as of this 9^th day of May, 2014, by and between JADIAN, INC., an Illinois corporation, whose address is 205 W. Wacker Drive, Suite 1320, Chicago, Illinois 60606 ("Debtor"), and JADIAN ENTERPRISES, INC., a Michigan corporation, whose address is 320 W. Ottawa Street, Lansing, Michigan 48933 ("Secured Party").

RECITALS

A.Pursuant to a Promissory Note of even date herewith (the "Promissory Note"), Debtor is indebted to Secured Party in the amount of up to $210,000 (the Promissory Note and this Security Agreement are, collectively, the "Loan Documents"); and

B.Pursuant to an Asset Purchase Agreement of even date herewith (the "APA"), Debtor may be obligated to pay Secured Party certain earn-out payments up to a maximum amount of $300,000 ("Earn-out"); and

C.Debtor agrees to grant Secured Party a security interest in all of Debtor's assets to secure all indebtedness of Debtor to Secured Party, as more fully set forth herein.

NOW, THEREFORE, the parties hereto agree as follows:

1.Grant of Security Interest. Debtor, for valuable consideration, hereby grants to Secured Party a security interest in and so pledges and assigns to Secured Party the following assets of Debtor, and all proceeds and products thereof ("Collateral"): all personal and fixture property of every kind and nature, including, without limitation, all goods (including inventory, machinery, equipment, and any accessions thereto), instruments (including promissory notes), documents, accounts receivable, accounts, chattel paper (whether tangible or electronic), deposit accounts, letter of credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, tort claims, and all general intangibles (including all payment intangibles).

2.Indebtedness Secured. Debtor grants the foregoing security interest to Secured Party to secure Debtor's payment and performance of all of Debtor's obligations to Secured Party under the Loan Documents and the APA, including without limitation any Earn-out that becomes due and payable under the APA, and all amounts owed under any modifications, renewals or extensions of the Loan Documents and/or the APA (collectively referred to as the "Indebtedness").

3.Representations, Covenants and Warranties of Debtor. Debtor represents, covenants and warrants to Secured Party as follows:

3.1 Debtor is the owner of the Collateral and the Collateral is not subject to any prior lien, security interest, encumbrance.

Security Agreement
Page 1 of 4

3.2 Debtor's address set forth in Section 8 of this Agreement is the location of Debtor's principal place of business.

3.3 Debtor shall keep the Collateral insured, at Debtor's expense, against risk of damage, destruction or theft.

3.4 Debtor shall not sell or offer to sell, assign, pledge, lease or otherwise transfer or encumber the Collateral without the prior written consent of Secured Party.

3.5 Debtor shall pay promptly when due all taxes and assessments upon the Collateral or for its use or operation.

3.6 Debtor shall immediately notify Secured Party in writing of any name change or any change in business organization.

3.7 Secured Party may inspect any Collateral at any time upon reasonable notice.

4.Secured Party's Right to Perform. If Debtor fails to perform any obligation of Debtor under this Agreement, Secured Party may, without giving notice to or obtaining the consent of Debtor, perform that obligation on behalf of Debtor. Debtor shall reimburse Secured Party within ten (10) days for any expense that Secured Party reasonably incurs in performing any such obligation upon written notice, plus eight percent (8%) per year on any sums from the date Secured Party incurred such obligation or obligations.

5.Default. Debtor shall be in default under this Agreement if:

5.1 Debtor fails to perform any obligation of Debtor under this Agreement;

5.2 There is any incorrectness or inaccuracy in any representation or warranty contained in this Agreement;

5.3 There is an attachment, execution or levy on any of the Collateral;

5.4 Debtor voluntarily or involuntarily becomes subject to any proceeding under (a) the Bankruptcy Code, or (b) any similar remedy under state statutory or common law;

5.5 Debtor shall fail to comply with, or become subject to: (a) any administrative or judicial proceeding under any federal, state or local law; (b) asset forfeiture or similar law which can result in the forfeiture of property, or (c) any other law, where noncompliance may have any significant effect on the Collateral;

5.6 Debtor otherwise breaches this Agreement in any respect; or

5.7 Debtor defaults under the APA, the Promissory Note, or any of the other Loan Documents.

Security Agreement
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6.Secured Party's Rights and Remedies. Secured Party shall have all rights and remedies of a secured party under applicable laws. Without limiting these rights and remedies:

6.1 If all or any part of the Indebtedness is not paid when due, subject to rights of Senior Lender, Debtor, upon demand by Secured Party, shall deliver the Collateral and proceeds of the Collateral to Secured Party at such place as Secured Party shall designate in writing to Debtor, and Secured Party may dispose of the Collateral in any commercially reasonable manner, subject to the rights of any superior lien holder. Any notification required to be given by Secured Party to Debtor regarding any sale or other disposition of the Collateral shall be considered reasonable if mailed at least seven (7) days before the sale or other disposition.

6.2 Subject to the rights of any superior lien holder, the proceeds of any collection or disposition of the Collateral shall be applied first to Secured Party's reasonable expenses, and then to the Indebtedness, and Debtor shall be liable for any remaining deficiency.

6.3 All rights of Secured Party shall inure to the benefit of Secured Party's successor and assigns, and all obligations of Debtor shall bind Debtor's successor and assigns.

7.Amendment and Non-Waiver. No provision of this Agreement may be modified or waived except by written agreement signed by Secured Party. No delay or omission by Secured Party to exercise any right or remedy accruing upon any default shall; (a) impair any right or remedy, (b) waive any default or operate as an acquiescence to the default; or (c) affect any subsequent default of the same or of a different nature.

8.Notices. Any notice to Debtor or to Secured Party shall be deemed to be given if and when either personally delivered or mailed, with postage prepaid, to the respective address of Debtor or Secured Party as set forth above.

9.Assignment.

9.1 Binds Assignees. This Agreement shall bind and shall inure to the benefit of the successors and assigns of Secured Party and shall bind all persons who become bound as a debtor to this Agreement.

9.2 No Assignments by Debtor. Secured Party does not consent to any assignment by Debtor except as expressly provided in this Agreement.

9.3 Secured Party Assignments. Secured Party may assign its rights and interests under this Agreement. If an assignment is made, Debtor shall render performance under this Agreement to the assignee. Debtor waives and will not assert against any assignee any claims, defenses or set-offs which Debtor could assert against Secured Party except defenses which cannot be waived.

10.Severability. Should any provision of this Agreement be found to be void, invalid or unenforceable by a court or panel of arbitrators of competent jurisdiction, that finding shall only affect the provisions found to be void, invalid or unenforceable and shall not affect the remaining provisions of this Agreement.

Security Agreement
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11.No Marshalling. Secured Party has no obligation to marshal any assets in favor of Debtor, or against or in payment of: the Note; any of the Indebtedness, or any other obligations owed to Secured Party by Debtor or any other person.

12.General Construction. This Agreement shall be governed by and construed under the laws (statue and common) of the State of Michigan. Headings are for convenience only; in no event shall any such title or caption be deemed to be part of this Agreement or interpretive of any of its language or intent. Reference to the singular shall include the plural, and vice versa, when the context so suggests. No provision of this Agreement is to be interpreted for or against any party because that party or that party's legal representative drafted the Agreement or any of its provisions. Time shall be of the essence.

13.Authorization to File Financing Statements. Debtor hereby irrevocably authorizes Secured Party at any time and from time to time to file in any Uniform Commercial Code jurisdiction any initial financing statements and amendments for secured Party to perfect its security interest in the Collateral. Debtor agrees to furnish any such information to Secured Party promptly upon request.

IN WITNESS WHEREOF, the parties have executed this Agreement as of date first set forth above.

DEBTOR:

JAIDAN, INC., an Illinois corporation

By:

Its:

SECURED PARTY:

JAIDAN ENTERPRISES, INC., a Michigan corporation

By:

Its:

Security Agreement
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EXHIBIT C

CONSULTING AGREEMENT

AGREEMENT NOT TO COMPETE

CONSULTING SERVICES AGREEMENT

This Consulting Services Agreement is made as of May 9, 2014, by and between Epazz, Inc., an Illinois corporation (the "Company"), and Kim Griggs (the "Consultant").

WHEREAS, the Company is in need of certain services in order to be successful in the management of the business being transferred pursuant to the Asset Purchase Agreement dated May 9,2014;

NOW, THEREFORE, in consideration of the premises, and of the covenants, agreements, representations, and warranties made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. SERVICES PROVIDED/DUTIES

The Consultant shall be available by phone between the hours of 9 AM and 5 PM EDT, Monday through Friday to provide the following services between May 12, 2014 and May 30, 2014. Consultant will thereafter supply services on mutually agreeable projects on an as-needed basis taking into consideration Consultant's other employment responsibilities and availability:

A. Consulting services, including, but not limited to:

i. Active participation in , conferences with Company officers and others as designated by Company officers.

ii. Provide non-legal, experience-based professional advice on client relationships, including, but not limited to, advice regarding:

a. Insights on the client contract terms

b. Methods of resolving contractual terms, such as insurance requirements.

c. Techniques used to maximize the duration of the contractual relationship.

iv. Provide insights on methods of collecting outstanding revenue.

v. Such other reasonable services as requested by Officers of the Company and agreed to by Consultant.

B. The Consultant shall maintain an accurate and complete record of the time expended; and to report such information to the Company on a weekly basis (or such other basis as the Company may from time to time direct), in such manner and on such form as the Company may from time to time require. Time is charged for work performed whether it takes the form of in person meetings, telephone consultations, research, drafting, negotiations, discussions with third parties, or travel on your behalf and is charged in 6 minute increments.

C. The Consultant shall at all times use commercially reasonable efforts to perform all duties referenced herein.

-1-

2. COMPENSATION AND PAYMENT

The Consultant and Karen Griggs shall collectively provide the Company with eighty (80) hours of consulting services free of charge between the date of this Agreement and June 9, 2014. If Consultant and Karen Griggs collectively provide Buyer with more than eighty (80) hours of consulting services prior to June 9, 2014, Consultant shall be compensated for any such additional consulting services at the rate of $75/hour through June 9, 2014, and at the rate of $150/hour after June 9,2014.

Consultant shall bill Epazz semi-monthly to provide an opportunity to monitor costs and fees involved. Payment for the fees and costs identified in the monthly invoice is due within 5 days of receipt.

3. TERM

This Agreement shall commence as of the date hereof, and shall continue through June 9, 2014.

4. RELATIONSHIP

It is understood by and between the parties hereto that:

a. The relationship between Company and the Consultant is that of an Independent Consultant, and accordingly, the Company will not deduct any sums from the compensation paid the Consultant for Federal, State and/or local taxes;

b. The Consultant shall have no authority to bind Company, without the prior written consent of Company;

c. Company shall fully reimburse Consultant for all fees and expenses directly related to conduct of business and includes such things as travel, photocopying, supplies, courier or delivery services, long distance telephone charges; and

d. Company, on behalf of itself and its clients, reserves the right from time to time to establish reasonable rules and regulations governing the provision of services by the Consultant. The Consultant agrees to fully comply with such rules and regulations as Company may prescribe from time to time taking into consideration Consultant's other employment obligations

5. ASSIGNMENT

This Agreement may not be assigned by either party without the prior written consent of the other. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

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6. LAW GOVERNING

This Agreement shall be governed by and construed in accordance with the internal laws of the State of Michigan, without regard to the choice of law principles of the State of Michigan.

7. NONDISCLOSURE OF PROPRIETARY PROPERTY

a. The Consultant acknowledges and agrees that in the course of providing services for the Company that the Consultant may acquire and/or the Company may provide the Consultant with, or access to information regarding the business, procedures, activities and services of the Company, including but not limited to, memoranda; files; forms, techniques, methods and procedures; programs; client accounts and customer lists; costs and prices of the Company; client needs, requirements and business affairs; records; manuals; computer data, software, and databases, and other trade secrets and confidential information which gives or could give the Company a competitive advantage in the marketplace (hereinafter referred to collectively as the "Proprietary Property") as is necessary or desirable to assist him in his activities on behalf of the Company. The Consultant hereby acknowledges that the Proprietary Property is the sole and exclusive property of the Company, that the Proprietary Property is a valuable, special and unique asset of the business of the Company, developed at considerable expense to the Company, and is not available to the public at large or other persons engaging in businesses which are the same as or similar to the business of the Company.

b. The Consultant covenants and agrees that the Consultant shall not, while in the service of the Company, or thereafter, communicate or divulge to, or use for the benefit of himself or any other person, firm, association or corporation, without the prior written consent of the Company, any information in any way relating to the Proprietary Property. The Proprietary Property shall remain the sole property of the Company and upon termination of this Consulting Services Agreement with the Company, for any reason the Consultant shall thereupon return all Proprietary Property (including, without limitation, all lists, documents or other types of records and any written, typed, printed or computer stored materials identifying the clients of the Company or the personnel of clients, together with any and all data involving advertising techniques, processing techniques, manuals, materials, programs, methods or contracts) in his possession or control to the Company. The Consultant shall have no right to retain copies of such Proprietary Property after the termination of this Consulting Services Agreement with the Company, without the express written consent of the Company.

c. The covenants on the part of the Consultant contained in this Section 7 shall be construed as an agreement independent of any other provision in this Agreement. Should a claim or cause of action arise between the Company and the Consultant, the content of Section 7 shall not apply to disclosure, etc to Consultant's legal counsel and evidence in any legal proceeding.

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8. COVENANT NOT TO COMPETE

a. The Consultant expressly covenants and agrees that for a period of two (2) years after the termination of this Consulting Services Agreement with the Company, within the United States, the Consultant will not engage in any business or perform any service, directly or indirectly, in competition with the business of the Company, or have any interest, whether as proprietor, partner, member, manager, employee, stockholder, principal, agent, consultant, director, officer, or in any other capacity or manner whatsoever, in any enterprise that is, directly or indirectly, in competition with the business of the Company.

b. In the furtherance of the foregoing and not in limitation thereof, the Consultant agrees that during the term hereof and for a period of two (2) years after the termination of this Consulting Services Agreement with the Company, the Consultant shall not, directly or indirectly, solicit or service in any way, on behalf of himself or on behalf of or in conjunction with others, any client or customer, or prospective client or customer who has been solicited or serviced by the Company within one (1) year prior to the termination of this Consulting Services Agreement.

c. In furtherance of the foregoing and not in limitation thereof, the Consultant agrees that for a period of two (2) years after the termination of this Consulting Services Agreement with the Company, the Consultant shall not, directly or indirectly, for himself or any enterprise engaged in competition with the Company, solicit for employment or employ any employee or independent contractor who is then employed or retained by the Company or who has been employed or retained by the Company within one (1) year prior to the termination of this Consulting Services Agreement.

d. The covenants on the part of the Consultant contained in this Section 8 shall be construed as an agreement independent of any other provision in this Agreement. Notwithstanding anything to the contrary contained herein, however, if Company defaults on its obligations under that Promissory Note from Company to Jadian Enterprises, Inc., or Security Agreement between Company and Jadian Enterprises, Inc., both of even date herewith, and such default remains for a period of thirty (30) days following the date on which Company receives written notice of such default from Jadian Enterprises, Inc., the restrictions contained in this Section 8 shall automatically terminate.

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9. REMEDIES

a. Except as specified in Paragraph 7c, the Consultant understands that thisAgreement contains a restrictive covenant and prohibits the disclosure of the Proprietary Property of the Company and acknowledges the reasonability of said provisions, and does herewith expressly acknowledge that his breach of this Agreement will not be adequately compensated by money damages. The Consultant acknowledges that the restrictions contained in this Agreement are a reasonable and necessary protection of the legitimate interests of the Company and that any violation of these restrictions would cause substantial irreparable injury to the Company. The Consultant further acknowledges that the Company would not have entered into this Agreement with the Consultant without receiving the consideration offered by the Consultant in binding himself to these restrictions.

b. The Consultant acknowledges that in the event of any suit which may be brought by the Company for any violation or threatened violation of this Agreement, including but not limited to a violation of the restrictive covenant and nondisclosure provisions hereof, any such breach or threatened breach may entitle the Company to any and all of the following:

(i) an order in any such suit enjoining him from violating said provisions, upon a court order to that effect, which may be entered at any stage of such litigation without the requirement to post bond, and any application for such injunction shall be without prejudice to any other right of action which may accrue to the Company by reason of the breach or threatened breach of this Agreement;

(ii) an order in any such suit providing for the forfeiture of any and all of the compensation that may be due the Consultant under this Agreement in the future; and

(iii) an order in any such suit providing for such other damages as may be determined by an accounting for lost profits or diverted business.

c. In the event it becomes necessary for the Company to enforce the covenant not to compete or any other provision of this Agreement, the Consultant shall be liable for the payment of reasonable attorneys' fees, court costs and all ancillary expenses incurred by the Company should the Company prevail in their enforcement action.

d. The remedies contained in this Agreement are cumulative and not exclusive.

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e. If any portion or portions of the covenant not to compete or the nondisclosure of Proprietary Property provisions contained herein shall be, for any reason, held invalid or unenforceable or deemed to be too excessive and, therefore, unenforceable, such portion or portions of the covenant(s) shall be reinterpreted by the court who shall have made such determination to requalify the limitations provided therein so as to make the covenant(s) enforceable, and the parties agree to be bound by such reinterpretations.

Sections 7, 8 and 9 of this Agreement shall survive any termination of this Agreement as long as such termination is not the fault of the Company.

10. PRONOUNS

All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or entity may require.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written below.

EPAZZ, INC.

By:

Its:

Date:

/s/ Kim Griggs

KIM GRIGGS

Date:

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EXHIBIT D

EMPLOYMENT AGREEMENT

AGREEMENT NOT TO COMPETE

EMPLOYMENT AGREEMENT

THIS AGREEMENT made and entered into this 9th day of May, 2014 at Chicago, Illinois, by and between EPAZZ, INC. (hereinafter referred to as the "Company") and GUY METZ, an individual, residing at 2929 Marfitt Road, East Lansing, MI 48823 (hereinafter referred to as the "Employee").

WHEREAS, the Company is engaged in the business of an enterprise-wide software company specializing in providing customized web applications and related services on behalf of its various clients;

WHEREAS, the Company desires to employ the Employee and the Employee desires employment with the Company on the terms and conditions set forth herein; and

WHEREAS, the parties hereto desire to set forth their mutual understandings with respect to the Employee's employment in writing.

NOW THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1.RECITALS. The foregoing recitals are hereby incorporated herein.

2.EMPLOYMENT. The Company hereby employs the Employee and the Employee hereby accepts employment by the Company on the terms and conditions set forth herein. The parties hereto expressly revoke any and all prior employment agreements between them.

3.TERM. The term of this Agreement shall be for a period of six (6) months and will commence on May 10, 2014 and will continue until November 10, 2014, unless sooner terminated as provided herein.

4.DUTIES. The Employee shall report directly to the President of the Company and render such full time services and duties to the Company as may be assigned to the Employee from time to time by the Company's officers. The Employee shall at all times faithfully, industriously, and to the best of his ability, experience, and talent, perform all duties that may be required of and from the Employee, pursuant to the orders, advise and direction of the officers of the Company, and the express and explicit terms hereof; all to the reasonable satisfaction of the Company. In connection herewith, the Employee shall at all times conduct himself in a manner that upholds the high ethical, moral and professional standards of the Company. The Company has advised the Employee and the Employee hereby acknowledges the Company's policy that its business affairs (including, without limitation, its internal hiring practices) shall be conducted without regard to race, color, religion, sex, age, natural origin or marital status.

1

In furtherance of the foregoing and not in limitation thereof, the Employee shall also be responsible for the specific duties set forth on Schedule A, attached hereto and incorporated herein. The Company may prospectively change the duties set forth in Schedule A, as the Company in its sole discretion determines from time to time.

5. COMPENSATION.

a. As compensation for services, the Company shall pay the Employee and the Employee agrees to accept in full payment for services, compensation in accordance with the terms of Schedule B, which is attached hereto and hereby incorporated herein.

b. The parties may prospectively change the compensation set forth in Schedule B, at any time, from time to time, upon the mutual written agreement of the parties. Such change(s) shall not terminate or otherwise affect the obligations contained in this Agreement.

c. The Company, in its discretion, may deduct from the compensation paid the Employee all applicable federal, state and local taxes, as required by law, prior to payment to the Employee. In the event any taxing agencies, whether Federal, State and/or local, impose any tax(es) upon the Company based on the gross volume of business, number of employees or payroll of the Company (or any similar measure), then the Company reserves the right to deduct such amounts as may be required to pay said tax(es) from the compensation of the Employee to the extent such tax(es) are directly attributable to the employment of the Employee.

d. If the Company terminates the Employee without Cause prior to the expiration of the Term, the Company shall continue to pay Employee all compensation and benefits to which Employee is entitled hereunder for the remainder of the Term. For purposes of this Agreement, the term "Cause" shall mean material misconduct; violation of the Company's rules, regulations, and employment policies; or Employee's material failure to render and perform services to the Company according to his obligations under this Agreement.

6.               RELATIONSHIP. Subject to Section 5(d) above, the Company and the Employee shall maintain the relationship of employer and employee at will, notwithstanding any provision other than Section 5(d) herein to the contrary, including without limitation, the term hereof The parties agree that in the course of performing services for the clients of the Company, that the Employee will exercise his professional judgment regarding the performance of the Employee's duties. The foregoing notwithstanding, the Company reserves the right from time to time to establish rules and regulations governing the Employee, the Employee's duties and activities, and the provision of services by the Employee. The Employee agrees to fully comply with such rules and regulations as the Company may prescribe from time to time. In connection with employment, the Employee agrees that the position with the Company is a full time position. Accordingly, the Employee shall not be employed, whether as an employee, client, agent or otherwise, by any other party, without the prior written consent of the Company. The Employee shall not have authority to enter into any contract without the written consent of the Company, in accordance with the rules and regulations of the Company.

2

7. NONDISCLOSURE OF PROPRIETARY PROPERTY.

a. The Employee acknowledges and agrees that in the course of employment with the Company that the Employee may acquire and/or the Company may provide the Employee with, or access to information regarding the business, procedures, activities and services of the Company, including but not limited to, memoranda; files; forms, techniques, methods and procedures; programs; client accounts and customer lists; costs and prices of the Company; client needs, requirements and business affairs; records; manuals; computer data, software, and databases, and other trade secrets and confidential information which gives or could give the Company a competitive advantage in the marketplace (hereinafter referred to collectively as the "Proprietary Property") as is necessary or desirable to assist him in his activities on behalf of the Company. The Employee hereby acknowledges that the Proprietary Property is the sole and exclusive property of the Company, that the Proprietary Property is a valuable, special and unique asset of the business of the Company, developed at considerable expense to the Company, and is not available to the public at large or other persons engaging in businesses which are the same as or similar to the business of the Company.

b. The Employee covenants and agrees that the Employee shall not, while in the employ of the Company, or thereafter, communicate or divulge to, or use for the benefit of himself or any other person, firm, association or corporation, without the prior written consent of the Company, any information in any way relating to the Proprietary Property. The Proprietary Property shall remain the sole property of the Company and upon termination of employment with the Company, for any reason the Employee shall thereupon return all Proprietary Property (including, without limitation, all lists, documents or other types of records and any written, typed, printed or computer stored materials identifying the clients of the Company or the personnel of clients, together with any and all data involving advertising techniques, processing techniques, manuals, materials, programs, methods or contracts) in his possession or control to the Company. The Employee shall have no right to retain copies of such Proprietary Property after the termination of employment with the Company, without the express written consent of the Company.

c. The covenants on the part of the Employee contained in this Section 7 shall be construed as an agreement independent of any other provision in this Agreement. The existence of any claim or cause of action of the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of this Section 7 by the Company.

3

,

8. COVENANT NOT TO COMPETE.

a. The Employee expressly covenants and agrees that for a period of two (2) years after the termination of employment with the Company, within a the United States, the Employee will not engage in any business or perform any service, directly or indirectly, in competition with the Current Business of the Company, or have any interest, whether as proprietor, partner, member, manager, employee, stockholder, principal, agent, consultant, director, officer, or in any other capacity or manner whatsoever, in any enterprise that shall engage, directly or indirectly, in competition with the Current Business of the Company. For purposes of this Agreement, the term "Current Business" shall mean the principal business in which the Company is engaged as of the date hereof

b. In the furtherance of the foregoing and not in limitation thereof, the Employee agrees that for a period of two (2) years after the termination of employment with the Company, the Employee shall not, directly or indirectly, solicit or service in any way, on behalf of himself or on behalf of or in conjunction with others, any client or customer, or prospective client or customer who has been solicited or serviced by the Company within one (1) year prior to the termination of employment.

c. In furtherance of the foregoing and not in limitation thereof, the Employee agrees that for a period of two (2) years after the termination of employment with the Company, the Employee shall not, directly or indirectly, for himself or any enterprise engaged in competition with the Company, solicit for employment or employ any employee or independent contractor who is then employed or retained by the Company or who has been employed or retained by the Company within one (1) year prior to the termination of the employment of the Employee hereunder.

d. The covenants on the part of the Employee contained in this Section 8 shall be construed as an agreement independent of any other provision in this Agreement. The existence of any claim or cause of action of the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of this Section 8 by the Company. Notwithstanding anything to the contrary contained herein, however, if Company defaults on its obligations under that Promissory Note from Company to Jadian Enterprises, Inc., or the Security Agreement between Company and Jadian Enterprises, Inc., both of even date herewith, and such default remains for a period of thirty (30) days following the date on which Company receives written notice of such default from Jadian Enterprises, Inc., the restrictions contained in this Section 8 shall automatically terminate.

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9. REMEDIES.

a. The Employee understands that this Agreement contains a restrictive covenant and prohibits the disclosure of the Proprietary Property of the Company, agrees to the reasonability of said provisions, and does herewith expressly agree and acknowledge that his breach of this Agreement will not be adequately compensated by money damages. The Employee acknowledges that the restrictions contained in this Agreement are a reasonable and necessary protection of the legitimate interests of the Company and that any violation of these restrictions would cause substantial irreparable injury to the Company. The Employee further acknowledges that the Company would not have entered into this Agreement with the Employee without receiving the consideration offered by the Employee in binding himself to these restrictions.

b. The Employee expressly agrees that in the event of any suit which may be brought by the Company for any violation or threatened violation of this Agreement, including but not limited to a violation of the restrictive covenant and nondisclosure provisions hereof, any such breach or threatened breach shall entitle the Company to any and all of the following:

(i) an order in any such suit enjoining him from violating said provisions, upon a court order to that effect, which may be entered at any stage of such litigation without the requirement to post bond, and any application for such injunction shall be without prejudice to any other right of action which may accrue to the Company by reason of the breach or threatened breach of this Agreement;

(ii) an order in any such suit providing for the forfeiture of any and all of the compensation that may be due the Employee in the future; and

(iii) an order in any such suit providing for such other damages as may be determined by an accounting for lost profits or diverted business.

c. In the event it becomes necessary for the Company to enforce the covenant not to compete or any other provision of this Agreement, the Employee shall be liable for the payment of reasonable attorneys' fees, court costs and all ancillary expenses incurred by the Company.

d. The remedies contained in this Agreement are cumulative and not exclusive.

e. If any portion or portions of the covenant not to compete or the nondisclosure of Proprietary Property provisions contained herein shall be, for any reason, held invalid or unenforceable or deemed to be too excessive and, therefore, unenforceable, such portion or portions of the covenant(s) shall be reinterpreted by the court who shall have made such determination to requalify the limitations provided therein so as to make the covenant(s) enforceable, and the parties agree to be bound by such reinterpretations.

5

Sections 7, 8 and 9 of this Agreement shall survive any termination of this Agreement.

10.           TERMINATION. This Agreement may be terminated at any time by either party without prior notice. The Employee recognizes and agrees that employment is strictly at the will of the Company.

Termination hereunder shall terminate any further obligations of the Company except as specifically set forth in this Agreement. However, in no event shall the Employee's obligations under Sections 7, 8 and 9 of this Agreement terminate.

11.           NOTICES. All notices required to be given by this Agreement shall be made in writing either:

a. by personal delivery to the party requiring notice; or

b. by mailing notice to the party requiring notice, by certified mail, return receipt requested.

If to the Company: Epazz, Inc.	309 West Washington Street, Suite 1225
	Chicago, Illinois 60606
	Attn: Shaun Passley

With a copy to:	Daniel M. Loewenstein
	Evans, Loewenstein, Shimanovsky & Moscardini, Ltd.
	130 S. Jefferson Street, Suite 350
	Chicago, Illinois 60661

If to the Employee:	Guy Metz
	2929 Martin Road
	East Lansing, MI 48823

The effective date of the notice shall be the date of delivery in (a) above or the date of mailing in (b) above.

12.           REPRESENTATION. The Employee represents that he does not have any mployment obligations which would conflict with his performance for the Company. The Employee further represents that he is not bound by any prior agreement which would prohibit him from entering into this Agreement with the Company, or fully performing his duties for the Company, and he agrees to hold the Company harmless from any litigation or claims arising from the breach of this representation.

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13.ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all previous communications, negotiations, representations or agreements, either verbal or written, between the parties. No modification or waiver of this Agreement, or any part hereof, shall be effective unless in writing signed by the parties hereto.

14.ASSIGNABILITY. The Employee acknowledges that the services to be rendered by him are unique and personal. Accordingly, he may not assign this Agreement or any of his rights, duties or obligations hereunder. This Agreement shall be binding upon and inure to the benefit of the Company, its successor and assigns.

15.WAIVER. No waiver by either party of any failure to perform any requirement or provision of this Agreement shall be deemed a waiver of any preceding or succeeding breach of the same or any other requirement or provision.

16.SEVERABILITY. If any provision of this Agreement shall be adjudged by a court of competent jurisdiction to be void or unenforceable, the same shall not affect any other provision thereof or the validity or enforceability of this Agreement.

17.CAPTIONS. The headings and titles used in this Agreement have been inserted for convenience of reference only and are to be ignored in any construction or interpretation of the provisions hereof.

18.COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original.

19.CONSTRUCTION. Gender references used herein shall be modified as required to meet the circumstances. Whenever the context so requires, the plural shall include the singular and vice versa.

20.APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Illinois.

21.FORUM. The parties agree that any litigation between the parties shall be conducted before the Courts of the State of Illinois and do hereby consent to jurisdiction and venue in Cook County, Illinois

[Signature Page to follow on next page.]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written.

ATTEST:	EPAZZ, INC.
	By:
Secretary	President

The Employee, by his signature hereto, acknowledges that he has had an adequate opportunity to review the foregoing Agreement with a lawyer or other business advisor of his choice, that he understands the content of this Agreement and he is signing this Agreement of his own free will without any duress or coercion.

EMPLOYEE:

GUY METZ

SOCIAL SECURITY NUMBER:

8

EXHIBIT A

DUTIES

EXHIBIT B

COMPENSATION

1. Annual Gross Salary of Seventy-Five Thousand and no/100 Dollars ($75,000.00), payable biweekly, prorated for the Term.

2. Employee shall have the right to select health insurance a list of healthcare plans in which the Company, Epazz, Inc., or any affiliates or subsidiaries of either, participates.

SCHEDULES

Schedule 1.1.1 Software and Know-How

Schedule 1.1.2 Copyrights/Trademarks/Licenses

Schedule 1.1.3 Equipment

Schedule 1.1.4 Computer Assets

Schedule 1.1.6 Contracts

Schedule 1.1.8 Inventory

Schedule 1.1.9 Accounts Receivable

Schedule 1.1.10 Prepaids

Schedule 2.6.1 Departing Customers

Schedule 4.4.4 Absence of Changes

Schedule 4.4.5 Discharge of Liabilities of Seller

Schedule 4.12 Third Party Consents

Schedule 4.13 Permits; Compliance; Reports; Clearances

Schedule 4.15 IRS/Tax Notices

Schedule 4.16 Customers and Suppliers

Schedule 5.4.1 Change in Financial Condition of Buyer

Schedule 5.4.2 Discharge of Liabilities of Buyer

SCHEDULE 1.1.1

SOFTWARE AND KNOW-HOW

Patents: None.

SCHEDULE 1.1.2

COPYRIGHTS/TRADEMARKS/LICENSES

None.

SCHEDULE 1.1.3

 

SCHEDULE 1.1.4

COMPUTER ASSETS

Enterprise Quality Manager (compliance and inspection management solution)

SCHEDULE 1.1.6

CONTRACTS

Software License Agreements (SLA) have no expiration date.

Unless specifically stated, all Hosting & Support agreements have automatic 1year renewal clauses that require 90 day notice to terminate. Subscription agreements will automatically renew for 1 year if not terminated 30 days prior to the end of the current subscription.

Customer Contracts

• ANAB/ACLASS- SLA, Hosting, Support, ELAP, DHS

o Support expires 12/31/2014 o Hosting expires 7/1/2014

• ASI Food Safety Consultants- Hosting, Support

o Hosting expires 1/1/2015

o Support expires 7/14/2014

• ASR - SLA, Hosting, Support

o Hosting & Support expires 12/31/2014

• City of Baltimore

o Hosting & Support expires 12/31/2014

• Dubai Municipality- SLA and 3 addendums

o N/A- customer is not currently supported

• Eagle - SLA, Service Agmt, Support

o Support expires 12/31/2014

• HHC- SLA, Service Agmt, Support and Support Addendum o Support expires 12/31/2014

• IAAR- SLA

• IAOB - SLA,Hosting, Support

o Hosting & Support expires 12/31/2014

• NABCB- Service Agmt

o N/A- customer is not currently supported

• NQA- Service Agmt, Subscription, Source Code Escrow Agmt

o Hosting expires 12/31/2014

o Subscription expires 1/26/2015

o Source Code Escrow Agmt- no expiration date

• PRI -Service Agmt, Subscription, Hosting o Hosting expires 12/31/2014

o Subscription expires 8/6/2014

• RTA- SLA and 4 addendums

o Support expires 9/16/2014

SCHEDULE 1.1.8

INVENTORY

None

SCHEDULE 1.1.9

ACCOUNTS RECEIVABLE

As of May 9, 2014

Name	Inv#	Inv Date	Due Date	Est Pmt	Amount
ANSI-ASQ  National Accreditation Board	9260	4/30/20\4	5/15/2014	N/A	$2,500.00
ANSI-ASQ National  Accreditation Board	9253	3/28/2014	4/28/2014	5/15/2014	$3,000.00
City of Baltimore	9231	2/26/2014	4/15/2014	5/15/2014	$12,958.50
City of Baltimore	9262	5/5/2014	6/19/2014	7119/2014	$17,775.00
IAPMO	9261	4/30/2014	5/3112014	5/3112014	$562.50
IAPMO	9259	4/30/2014	5/31/2014	5/31/2014	$2,100.00
Independent  Association  of Accredited Reg	9167	11/1/2013	12/1/2013	N/A	$522.22
International Automotive  Oversight Bureau	9264	5/5/2014	5/5/2014	N/A	$600.00
International  Automotive  Oversight Bureau	9215	12/3112013	4/30/2014	N/A	$3,750.00
ISO	9265	5/5/2014	6/5/2014	6/5/2014	$2,500.00
National Quality Assurance  USA	9228	2/5/2014	2/14/2014	5/15/2014	$847.50
National Quality Assurance  USA	9245	3110/2014	3/25/2014	3/10/2014	$1,000.00
National Quality Assurance  USA	9263	5/6/2014	5/21/2014	5/2112014	$1,000.00
Performance Review  Institute	9257	4/24/2014	5/9/2014	5/12/2014	$600.00

Credit re City of Baltimore	($8,639.00)
TOTAL  AIR Credited to jadian	$41,076.72
Closing Day Credits:
IAAR Invoice (to be collected by jadian)	($522.22)
ANSI-ASQ National Accreditation Board (collected 5/9/2014)	($2500.00)
International Automotive Oversight Bureau (collected 5/9/2014)	($600.00)
International Automotive Oversight Bureau (collected 5/9/2014)	($3,750.00)
FINAL A/R credited to jadian	$33,704.50

SCHEDULE 2.6.1

DEPARTING CUSTOMER

Name	12 Mo Trailing
American Systems Registrar LLC	24,250.00
ANSI-ASQ National Accreditation Board	85,085.51
ASI Food Safety Consultants Inc.	8,297.14
City of Baltimore	29,093.00
EAGLE Registrations Inc.	10,929.14
Health and Hospital Corporation of Marion	17,374.72
IAPMO	16,324.50
Independent Association of Accredited Reg	5,168.79
International Automotive Oversight Bureau	18,109.38
lntertec Systems LLC I RTA	71,281.41
National Quality Assurance USA	197,879.50
Performance Review Institute	22,775.00
TOTAL	506,568.09

SCHEDULE 4.4.4

ABSENCE OF CHANGES

None

SCHEDULE 4.4.5

DISCHARGE OF LIABILITIES OF SELLER

Seller made the following payments on the SBA Loan:

March 3, 2014 in the amount of $17,807

March 6, 2014 in the amount of $65,243

SCHEDULE 4.12

THIRD PARTY CONSENTS

The Contracts listed in Schedule 1.1.6 require the consent of the counter-party. Per the Agreement, Seller will work with Buyer to obtain such consents post-closing.

SCHEDULE 4.13

PERMITS; COMPLIANCE; REPORTS; CLEARANCES

None

SCHEDULE 4.16

CUSTOMERS AND SUPPLIERS.

• American Systems Registrar, LLC

• ANSI-ASQ National Accreditation Board

• ASI Food Safety Consultants, Inc.

• City of Baltimore

• EAGLE Registrations, Inc

• Health and Hospital Corporation of Marion County

• IAPMO

• Independent Association of Accredited Registrars

• International Automotive Oversight Board

• Intertec Systems LLC

• ISO

• National Quality Assurance, USA

• Performance Review Institute

Database Customers

• ABS Quality Evaluations

• American Petroleum Institute

• American Systems Registrar, LLC

• DEKRA Certification Inc

• EAGLE Registrations Inc

• HSB Registration Services

• National Quality Assurance, USA

• Orion Registrar

• Performance Review Institute

• Perry Johnson Registrars

• Smithers Quality Assessments

• TUV Rheinland of North America

• TUV SUD America

Suppliers

• Accident Fund

• ACD.Netlnc

• Anderson Stull & Associates

• Blue Cross & Blue Shield

• Boingo

• Capital Imaging

• Comodo

• Crash Plan Pro

• Enom

• Federal Express

• Fifth Third Bank

• GITHub

• Kall8

• Microsoft

• MyFax

• NewEgg

• Provantage

• Salesforce.com

• Staples

• The Hartford

• WebEx

• Z-payroll

SCHEDULE 5.4.1

CHANGE IN FINANCIAL CONDITION OF BUYER

None

SCHEDULE 5.4.2

DISCHARGE OF LIABILITIES OF BUYER

None

CONSULTING SERVICES AGREEMENT

This Consulting Services Agreement is made as of May 9, 2014, by and between Epazz, Inc., an Illinois corporation (the "Company"), and Karen Griggs (the "Consultant").

WHEREAS, the Company is in need of certain services in order to be successful in the management of the business being transferred pursuant to the Asset Purchase Agreement dated May 9, 2014;

NOW, THEREFORE, in consideration of the premises, and of the covenants, agreements, representations, and warranties made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. SERVICES PROVIDED/DUTIES

The Consultant shall be available by phone between the hours of 9 AM and 5 PM EDT8am to 5pm central, Monday through Friday, to provide the following services between May 12, 2014 and May 30, 2014. Consultant will thereafter supply services on mutually agreeable projects on an as-needed basis taking into consideration Consultant's other employment responsibilities and availability:

A. Consulting services, including, but not limited to:

i. Active participation in conferences with Company officers and others as designated by Company officers.

ii. Provide non-legal, experience-based professional advice on client relationships, including, but not limited to, advice regarding:

a. Insights on the client contract terms

b. Methods of resolving contractual terms, such as insurance requirements.

c. Techniques used to maximize the duration of the contractual relationship. insights on relationship with clients that are either:

v. iv. Such other reasonable services as requested by Officers of the Company within the marketing and sales functional area and agreed to by Consultant.

B. The Consultant shall maintain an accurate and complete record of the time expended; and to report such information to the Company on a weekly basis (or such other basis as the Company may from time to time direct), in such manner and on such form as the Company may from time to time require. Time is charged for work performed whether it takes the form of in person meetings, telephone consultations, research, drafting, negotiations, discussions with third parties, or travel on your behalf and is charged in 6 minute increments.

C. The Consultant shall at all times use commercially reasonable efforts to perform all duties referenced herein.

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2. COMPENSATION AND PAYMENT

The Consultant and Kim Griggs shall collectively provide the Company with eighty (80) hours of consulting services free of charge between the date of this Agreement and June 9, 2014. If Consultant and Kim Griggs collectively provide Buyer with more than eighty (80) hours of consulting services prior to June 9, 2014, Consultant shall be compensated for any such additional consulting services at the rate of $75/hour through June 9, 2014, and at the rate of $150/hour after June 9, 2014.

Consultant shall bill Epazz semi-monthly to provide an opportunity to monitor costs and fees involved. Payment for the fees and costs identified in the monthly invoice is due within 5 days of receipt.

3. TERM

This Agreement shall commence as of the date hereof, and shall continue through June 9, 2014. 

4. RELATIONSHIP

It is understood by and between the parties hereto that:

a. The relationship between Company and the Consultant is that of an Independent Consultant, and accordingly, the Company will not deduct any sums from the compensation paid the Consultant for Federal, State and/or local taxes;

b. The Consultant shall have no authority to bind Company, without the pnor written consent of Company;

c. Company shall fully reimburse Consultant for all fees and expenses directly related to conduct of business and includes such things as travel, photocopying, supplies, courier or delivery services, long distance telephone charges; and

d. Company, on behalf of itself and its clients, reserves the right from time to time to establish reasonable rules and regulations governing the provision of services by the Consultant. The Consultant agrees to fully comply with such rules and regulations as Company may prescribe from time to time taking into consideration Consultant's other employment obligations

5. ASSIGNMENT

This Agreement may not be assigned by either party without the prior written consent of the other. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

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6. LAW GOVERNING

This Agreement shall be governed by and construed in accordance with the internal laws of the State of Texas, without regard to the choice of law principles of the State of Texas.

7. NONDISCLOSURE OF PROPRIETARY PROPERTY

a. The Consultant acknowledges and agrees that in the course of providing services for the Company that the Consultant may acquire and/or the Company may provide the Consultant with, or access to information regarding the business, procedures, activities and services of the Company, including but not limited to, memoranda; files; forms, techniques, methods and procedures; programs; client accounts and customer lists; costs and prices of the Company; client needs, requirements and business affairs; records; manuals; computer data, software, and databases, and other trade secrets and confidential information which gives or could give the Company a competitive advantage in the marketplace (hereinafter referred to collectively as the "Proprietary Property") as is necessary or desirable to assist him in his activities on behalf of the Company. The Consultant hereby acknowledges that the Proprietary Property is the sole and exclusive property of the Company, that the Proprietary Property is a valuable, special and unique asset of the business of the Company, developed at considerable expense to the Company, and is not available to the public at large or other persons engaging in businesses which are the same as or similar to the business of the Company.

b. The Consultant covenants and agrees that the Consultant shall not, while in the service of the Company, or thereafter, communicate or divulge to, or use for the benefit of himself or any other person, firm, association or corporation, without the prior written consent of the Company, any information in any way relating to the Proprietary Property. The Proprietary Property shall remain the sole property of the Company and upon termination of this Consulting Services Agreement with the Company, for any reason the Consultant shall thereupon return all Proprietary Property (including, without limitation, all lists, documents or other types of records and any written, typed, printed or computer stored materials identifying the clients of the Company or the personnel of clients, together with any and all data involving advertising techniques, processing techniques, manuals, materials, programs, methods or contracts) in his possession or control to the Company. The Consultant shall have no right to retain copies of such Proprietary Property after the termination of this Consulting Services Agreement with the Company, without the express written consent of the Company.

c. The covenants on the part of the Consultant contained in this Section 7 shall be construed as an agreement independent of any other provision in this Agreement. Should a claim or cause of action arise between the Company and the Consultant, the content of Section 7 shall not apply to disclosure, etc to Consultant's legal counsel and evidence in any legal proceeding.

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8. COVENANT NOT TO COMPETE

a. The Consultant expressly covenants and agrees that for a period of two (2) years after the termination of this Consulting Services Agreement with the Company, within the United States, the Consultant will not engage in any business or perform any service, directly or indirectly, in competition with the business of the Company, or have any interest, whether as proprietor, partner, member, manager, employee, stockholder, principal, agent, consultant, director, officer, or in any other capacity or manner whatsoever, in any enterprise that is, directly or indirectly, in competition with the business of the Company.

b. In the furtherance of the foregoing and not in limitation thereof, the Consultant agrees that during the term hereof and for a period of two (2) years after the termination of this Consulting Services Agreement with the Company, the Consultant shall not, directly or indirectly, solicit or service in any way, on behalf of himself or on behalf of or in conjunction with others, any client or customer, or prospective client or customer who has been solicited or serviced by the Company within one (1) year prior to the termination of this Consulting Services Agreement.

c. In furtherance of the foregoing and not in limitation thereof, the Consultant agrees that for a period of two (2) years after the termination of this Consulting Services Agreement with the Company, the Consultant shall not, directly or indirectly, for himself or any enterprise engaged in competition with the Company, solicit for employment or employ any employee or independent contractor who is then employed or retained by the Company or who has been employed or retained by the Company within one (1) year prior to the termination of this Consulting Services Agreement.

d. The covenants on the part of the Consultant contained in this Section 8 shall be construed as an agreement independent of any other provision in this Agreement. Notwithstanding anything to the contrary contained herein, however, if Company defaults on its obligations under that Promissory Note from Company to Jadian Enterprises, Inc., or Security Agreement between Company and Jadian Enterprises, Inc., both of even date herewith, and such default remains for a period of thirty (30) days following the date on which Company receives written notice of such default from Jadian Enterprises, Inc., the restrictions contained in this Section 8 shall automatically terminate.

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9. REMEDIES

a. Except as specified in Paragraph 7c, the Consultant understands that this Agreement contains a restrictive covenant and prohibits the disclosure of the Proprietary Property of the Company and acknowledges the reasonability of said provisions, and does herewith expressly acknowledge that his breach of this Agreement will not be adequately compensated by money damages. The Consultant acknowledges that the restrictions contained in this Agreement are a reasonable and necessary protection of the legitimate interests of the Company and that any violation of these restrictions would cause substantial irreparable injury to the Company. The Consultant further acknowledges that the Company would not have entered into this Agreement with the Consultant without receiving the consideration offered by the Consultant in binding himself to these restrictions.

b. The Consultant acknowledges that in the event of any suit which may be brought by the Company for any violation or threatened violation of this Agreement, including but not limited to a violation of the restrictive covenant and nondisclosure provisions hereof, any such breach or threatened breach may entitle the Company to any and all of the following:

(i) an order in any such suit enjoining from violating said provisions, upon a court order to that effect, which may be entered at any stage of such litigation without the requirement to post bond, and any application for such injunction shall be without prejudice to any other right of action which may accrue to the Company by reason of the breach or threatened breach of this Agreement;

(ii) an order in any such suit providing for the forfeiture of any and all of the compensation that may be due the Consultant under this Agreement in the future; and

(iii) an order in any such suit providing for such other damages as may be determined by an accounting for lost profits or diverted business.

c. In the event it becomes necessary for the Company to enforce the covenant not to compete or any other provision of this Agreement, the Consultant shall be liable for the payment of reasonable attorneys' fees, court costs and all ancillary expenses incurred by the Company should the Company prevail in their enforcement action.

d. The remedies contained in this Agreement are cumulative and not exclusive.

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e. If any portion or portions of the covenant not to compete or the nondisclosure of Proprietary Property provisions contained herein shall be, for any reason, held invalid or unenforceable or deemed to be too excessive and, therefore, unenforceable, such portion or portions of the covenant(s) shall be reinterpreted by the court who shall have made such determination to requalify the limitations provided therein so as to make the covenant(s) enforceable, and the parties agree to be bound by such reinterpretations.

Sections 7, 8 and 9 of this Agreement shall survive any termination of this Agreement as long as such termination is not the fault of the Company.

10. PRONOUNS

All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or entity may require.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written below.

 

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EX-10.40

Exhibit 10.40

ASSIGNMENT AND BILL OF SALE

FOR VALUABLE CONSIDERATION, pursuant to that certain Asset Purchase Agreement of even date herewith, by and between Jadian Enterprises, Inc., a Michigan corporation, ("Seller") and Jadian, Inc., an Illinois corporation ("Buyer") (the "Purchase Agreement"), Seller hereby grants, bargains, sells, transfers, assigns, and sets over unto Buyer and its successors and assigns, all of the Seller's rights, title, and interest in the Assets (as defined in the Purchase Agreement) except for those rights expressly retained by Seller pursuant to the terms of the Purchase Agreement.

Nothing contained in this Assignment and Bill of Sale will in any way amend, supersede, rescind, waive, or otherwise modify any provisions set forth in the Purchase Agreement, including (without limitation) the representations, warranties, covenants, and agreements set forth in the Purchase Agreement, this Assignment and Bill of Sale being intended only to effect the transfer and assignment by Seller to Buyer of the Assets.

This Assignment and Bill of Sale will be governed by and construed in accordance with the laws of the State of Illinois, without regard to its conflicts of laws principles.

IN WITNESS WHEREOF, Seller and Buyer have executed this Assignment and Bill of Sale, effective as of May 9, 2014. SELLER

SELLER

Jadian Enterprises, Inc.

By: /s/ Karen Griggs

Name: Karen Griggs

Its: Director

BUYER

Jadian, Inc.

By: /s/ Shaun Passley

Name: Shaun Passley

Its: President

EX-10.41

Exhibit 10.41

CLOSING STATEMENT

ASSET SALE- JADIAN ENTERPRISES, INC.

Closing Date: May 9, 2014

SELLER:	BUYER:
Jadian Enterprises, Inc.	Jadian,Inc.

This Closing Statement is provided pursuant to a certain Asset Purchase Agreement dated May

9, 2014, by and among the parties set forth above.

CLOSING STATEMENT

Credits to Seller Asset Purchase Price (including non-compete)	$425,000.00
Plus AIR Credit	$33,704.50
Less Promissory Note	$210,000.00
Less Prepaid Adjustment	$40,760.02

Cash to Seller from Buyer at Closing                                                       $207,944.80

1

INCOMING FUNDS AT CLOSING		DISBURSEMENTS AT CLOSING
Buyer:	$207,944.80	Seller:	$131,837.80
		Jerry Norris	$10,000.00
		Capitol National Bank	$17,856.68
		Rua & Associates	$42,500.00
		Smith Haughey	$5,750.00
		Total	$207,944.80

Seller and Buyer acknowledge and agree that:

1. Neither Buyer nor Seller's attorney shall be responsible for any income tax reporting requirements, and that each party to this transaction shall be responsible for any applicable tax reporting requirements; and

2. They have read the foregoing statement and approve the same and authorize the disbursement of funds and documents in accordance therewith.

SELLER:	BUYER:
Jadian Enterprises, Inc.	Jadian, Inc.
/s/ Karen Griggs	/s/ Shaun Passley
By: Karen Griggs	By: Shaun Passley
Its: Director	Its: President
Dated: may 9, 2014	Dated: May 9, 2024

EX-10.42

Exhibit 10.42

SECURITY AGREEMENT

This Security Agreement ("Agreement") is made and entered into as of this 9^th day of May, 2014, by and between JADIAN, INC., an Illinois corporation, whose address is 205 W. Wacker Drive, Suite 1320, Chicago, Illinois 60606 ("Debtor"), and JADIAN ENTERPRISES, INC., a Michigan corporation, whose address is 320 W. Ottawa Street, Lansing, Michigan 48933 ("Secured Party").

RECITALS

A. Pursuant to a Promissory Note of even date herewith (the "Promissory Note"), Debtor is indebted to Secured Party in the amount of up to $210,000 (the Promissory Note and this Security Agreement are, collectively, the "Loan Documents"); and

B. Pursuant to an Asset Purchase Agreement of even date herewith (the "APA"), Debtor may be obligated to pay Secured Party certain earn-out payments up to a maximum amount of $300,000 ("Earn-out"); and

C. Debtor agrees to grant Secured Party a security interest in all of Debtor's assets to secure all indebtedness of Debtor to Secured Party, as more fully set forth herein.

NOW, THEREFORE, the parties hereto agree as follows:

1. Grant of Security Interest. Debtor, for valuable consideration, hereby grants to Secured Party a security interest in and so pledges and assigns to Secured Party the following assets of Debtor, and all proceeds and products thereof ("Collateral"): all personal and fixture property of every kind and nature, including, without limitation, all goods (including inventory, machinery, equipment, and any accessions thereto), instruments (including promissory notes), documents, accounts receivable, accounts, chattel paper (whether tangible or electronic), deposit accounts, letter of credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, tort claims, and all general intangibles (including all payment intangibles).

2. Indebtedness Secured. Debtor grants the foregoing security interest to Secured Party to secure Debtor's payment and performance of all of Debtor's obligations to Secured Party under the Loan Documents and the APA, including without limitation any Earn-out that becomes due and payable under the APA, and all amounts owed under any modifications, renewals or extensions of the Loan Documents and/or the APA (collectively referred to as the "Indebtedness").

3. Representations, Covenants and Warranties of Debtor. Debtor represents, covenants and warrants to Secured Party as follows:

3.1 Debtor is the owner of the Collateral and the Collateral is not subject to any prior lien, security interest, encumbrance.

Security Agreement
Page 1 of 4

3.2 Debtor's address set forth in Section 8 of this Agreement is the location of Debtor's principal place of business.

3.3 Debtor shall keep the Collateral insured, at Debtor's expense, against risk of damage, destruction or theft.

3.4 Debtor shall not sell or offer to sell, assign, pledge, lease or otherwise transfer or encumber the Collateral without the prior written consent of Secured Party.

3.5 Debtor shall pay promptly when due all taxes and assessments upon the Collateral or for its use or operation.

3.6 Debtor shall immediately notify Secured Party in writing of any name change or any change in business organization.

3.7 Secured Party may inspect any Collateral at any time upon reasonable notice.

4. Secured Party's Right to Perform. If Debtor fails to perform any obligation of Debtor under this Agreement, Secured Party may, without giving notice to or obtaining the consent of Debtor, perform that obligation on behalf of Debtor. Debtor shall reimburse Secured Party within ten (10) days for any expense that Secured Party reasonably incurs in performing any such obligation upon written notice, plus eight percent (8%) per year on any sums from the date Secured Party incurred such obligation or obligations.

5. Default. Debtor shall be in default under this Agreement if:

5.1 Debtor fails to perform any obligation of Debtor under this Agreement;

5.2 There is any incorrectness or inaccuracy in any representation or warranty contained in this Agreement;

5.3 There is an attachment, execution or levy on any of the Collateral;

5.4 Debtor voluntarily or involuntarily becomes subject to any proceeding under (a) the Bankruptcy Code, or (b) any similar remedy under state statutory or common law;

5.5 Debtor shall fail to comply with, or become subject to: (a) any administrative or judicial proceeding under any federal, state or local law; (b) asset forfeiture or similar law which can result in the forfeiture of property, or (c) any other law, where noncompliance may have any significant effect on the Collateral;

5.6 Debtor otherwise breaches this Agreement in any respect; or

5.7 Debtor defaults under the APA, the Promissory Note, or any of the other Loan Documents.

Security Agreement
Page 2 of 4

6. Secured Party's Rights and Remedies. Secured Party shall have all rights and remedies of a secured party under applicable laws. Without limiting these rights and remedies:

6.1 If all or any part of the Indebtedness is not paid when due, subject to rights of Senior Lender, Debtor, upon demand by Secured Party, shall deliver the Collateral and proceeds of the Collateral to Secured Party at such place as Secured Party shall designate in writing to Debtor, and Secured Party may dispose of the Collateral in any commercially reasonable manner, subject to the rights of any superior lien holder. Any notification required to be given by Secured Party to Debtor regarding any sale or other disposition of the Collateral shall be considered reasonable if mailed at least seven (7) days before the sale or other disposition.

6.2 Subject to the rights of any superior lien holder, the proceeds of any collection or disposition of the Collateral shall be applied first to Secured Party's reasonable expenses, and then to the Indebtedness, and Debtor shall be liable for any remaining deficiency.

6.3 All rights of Secured Party shall inure to the benefit of Secured Party's successor and assigns, and all obligations of Debtor shall bind Debtor's successor and assigns.

7. Amendment and Non-Waiver. No provision of this Agreement may be modified or waived except by written agreement signed by Secured Party. No delay or omission by Secured Party to exercise any right or remedy accruing upon any default shall; (a) impair any right or remedy, (b) waive any default or operate as an acquiescence to the default; or (c) affect any subsequent default of the same or of a different nature.

8. Notices. Any notice to Debtor or to Secured Party shall be deemed to be given if and when either personally delivered or mailed, with postage prepaid, to the respective address of Debtor or Secured Party as set forth above.

9. Assignment.

9.1 Binds Assignees. This Agreement shall bind and shall inure to the benefit of the successors and assigns of Secured Party and shall bind all persons who become bound as a debtor to this Agreement.

9.2 No Assignments by Debtor. Secured Party does not consent to any assignment by Debtor except as expressly provided in this Agreement.

9.3 Secured Party Assignments. Secured Party may assign its rights and interests under this Agreement. If an assignment is made, Debtor shall render performance under this Agreement to the assignee. Debtor waives and will not assert against any assignee any claims, defenses or set-offs which Debtor could assert against Secured Party except defenses which cannot be waived.

10. Severability. Should any provision of this Agreement be found to be void, invalid or unenforceable by a court or panel of arbitrators of competent jurisdiction, that finding shall only affect the provisions found to be void, invalid or unenforceable and shall not affect the remaining provisions of this Agreement.

Security Agreement
Page 3 of 4

11. No Marshalling. Secured Party has no obligation to marshal any assets in favor of Debtor, or against or in payment of: the Note; any of the Indebtedness, or any other obligations owed to Secured Party by Debtor or any other person.

12. General Construction. This Agreement shall be governed by and construed under the laws (statue and common) of the State of Michigan. Headings are for convenience only; in no event shall any such title or caption be deemed to be part of this Agreement or interpretive of any of its language or intent. Reference to the singular shall include the plural, and vice versa, when the context so suggests. No provision of this Agreement is to be interpreted for or against any party because that party or that party's legal representative drafted the Agreement or any of its provisions. Time shall be of the essence.

13. Authorization to File Financing Statements. Debtor hereby irrevocably authorizes Secured Party at any time and from time to time to file in any Uniform Commercial Code jurisdiction any initial financing statements and amendments for secured Party to perfect its security interest in the Collateral. Debtor agrees to furnish any such information to Secured Party promptly upon request.

IN WITNESS WHEREOF, the parties have executed this Agreement as of date first set forth above.

DEBTOR:

JAIDAN, INC., an Illinois corporation

/s/ Shaun Passley               

By: Shaun Passley

Its: President

DEBTOR:

JAIDAN ENTERPRISES, INC., a Michigan corporation

/s/ Karen Griggs               

By: Karen Griggs

Its: Director

Security Agreement
Page 4 of 4

EX-10.43

Exhibit 10.43

CONSULTING SERVICES AGREEMENT

This Consulting Services Agreement is made as of May 9, 2014, by and between Epazz, Inc., an Illinois corporation (the "Company"), and Kim Griggs (the "Consultant").

WHEREAS, the Company is in need of certain services in order to be successful in the management of the business being transferred pursuant to the Asset Purchase Agreement dated May 9, 2014;

NOW, THEREFORE, in consideration of the premises, and of the covenants, agreements, representations, and warranties made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.             SERVICES PROVIDED/DUTIES

The Consultant shall be available by phone between the hours of 9 AM and 5 PM EDT, Monday through Friday to provide the following services between May 12, 2014 and May 30, 2014. Consultant will thereafter supply services on mutually agreeable projects on an as-needed basis taking into consideration Consultant's other employment responsibilities and availability:

A.             Consulting services, including, but not limited to:

i. Active participation in , conferences with Company officers and others as designated by Company officers.

ii. Provide non-legal, experience-based professional advice on client relationships, including, but not limited to, advice regarding:

a.Insights on the client contract terms

b.Methods of resolving contractual terms, such as insurance requirements.

c.Techniques used to maximize the duration of the contractual relationship.

iv.Provide insights on methods of collecting outstanding revenue.

v.Such other reasonable services as requested by Officers of the Company and agreed to by Consultant.

B. The Consultant shall maintain an accurate and complete record of the time expended; and to report such information to the Company on a weekly basis (or such other basis as the Company may from time to time direct), in such manner and on such form as the Company may from time to time require. Time is charged for work performed whether it takes the form of in person meetings, telephone consultations, research, drafting, negotiations, discussions with third parties, or travel on your behalf and is charged in 6 minute increments.

C. The Consultant shall at all times use commercially reasonable efforts to perform all duties referenced herein.

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2.             COMPENSATION AND PAYMENT

The Consultant and Karen Griggs shall collectively provide the Company with eighty (80) hours of consulting services free of charge between the date of this Agreement and June 9, 2014. If Consultant and Karen Griggs collectively provide Buyer with more than eighty (80) hours of consulting services prior to June 9, 2014, Consultant shall be compensated for any such additional consulting services at the rate of $75/hour through June 9, 2014, and at the rate of $150/hour after June 9, 2014.

Consultant shall bill Epazz semi-monthly to provide an opportunity to monitor costs and fees involved. Payment for the fees and costs identified in the monthly invoice is due within 5 days of receipt.

3.             TERM

This Agreement shall commence as of the date hereof, and shall continue through June 9,

2014.

4.             RELATIONSHIP

It is understood by and between the parties hereto that:

a. The relationship between Company and the Consultant is that of an Independent Consultant, and accordingly, the Company will not deduct any sums from the compensation paid the Consultant for Federal, State and/or local taxes;

b. The Consultant shall have no authority to bind Company, without the prior written consent of Company;

c. Company shall fully reimburse Consultant for all fees and expenses directly related to conduct of business and includes such things as travel, photocopying, supplies, courier or delivery services, long distance telephone charges; and

d. Company, on behalf of itself and its clients, reserves the right from time to time to establish reasonable rules and regulations governing the provision of services by the Consultant. The Consultant agrees to fully comply with such rules and regulations as Company may prescribe from time to time taking into consideration Consultant's other employment obligations

5.             ASSIGNMENT

This Agreement may not be assigned by either party without the prior written consent of the other. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

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6.LAW GOVERNING

This Agreement shall be governed by and construed in accordance with the internal laws of the State of Michigan, without regard to the choice of law principles of the State of Michigan.

7.             NONDISCLOSURE OF PROPRIETARY PROPERTY

a. The Consultant acknowledges and agrees that in the course of providing services for the Company that the Consultant may acquire and/or the Company may provide the Consultant with, or access to information regarding the business, procedures, activities and services of the Company, including but not limited to, memoranda; files; forms, techniques, methods and procedures; programs; client accounts and customer lists; costs and prices of the Company; client needs, requirements and business affairs; records; manuals; computer data, software, and databases, and other trade secrets and confidential information which gives or could give the Company a competitive advantage in the marketplace (hereinafter referred to collectively as the "Proprietary Property") as is necessary or desirable to assist him in his activities on behalf of the Company. The Consultant hereby acknowledges that the Proprietary Property is the sole and exclusive property of the Company, that the Proprietary Property is a valuable, special and unique asset of the business of the Company, developed at considerable expense to the Company, and is not available to the public at large or other persons engaging in businesses which are the same as or similar to the business of the Company.

b. The Consultant covenants and agrees that the Consultant shall not, while in the service of the Company, or thereafter, communicate or divulge to, or use for the benefit of himself or any other person, firm, association or corporation, without the prior written consent of the Company, any information in any way relating to the Proprietary Property. The Proprietary Property shall remain the sole property of the Company and upon termination of this Consulting Services Agreement with the Company, for any reason the Consultant shall thereupon return all Proprietary Property (including, without limitation, all lists, documents or other types of records and any written, typed, printed or computer stored materials identifying the clients of the Company or the personnel of clients, together with any and all data involving advertising techniques, processing techniques, manuals, materials, programs, methods or contracts) in his possession or control to the Company. The Consultant shall have no right to retain copies of such Proprietary Property after the termination of this Consulting Services Agreement with the Company, without the express written consent of the Company.

c. The covenants on the part of the Consultant contained in this Section 7 shall be construed as an agreement independent of any other provision in this Agreement. Should a claim or cause of actionarise between the Company and the Consultant, the content of Section 7 shall not apply to disclosure, etc to Consultant's legal counsel and evidence in any legal proceeding.

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8.             COVENANT NOT TO COMPETE

a. The Consultant expressly covenants and agrees that for a period of two (2) years after the termination of this Consulting Services Agreement with the Company, within the United States, the Consultant will not engage in any business or perform any service, directly or indirectly, in competition with the business of the Company, or have any interest, whether as proprietor, partner, member, manager, employee, stockholder, principal, agent, consultant, director, officer, or in any other capacity or manner whatsoever, in any enterprise that is, directly or indirectly, in competition with the business of the Company.

b. In the furtherance of the foregoing and not in limitation thereof, the Consultant agrees that during the term hereof and for a period of two (2) years after the termination of this Consulting Services Agreement with the Company, the Consultant shall not, directly or indirectly, solicit or service in any way, on behalf of himself or on behalf of or in conjunction with others, any client or customer, or prospective client or customer who has been solicited or serviced by the Company within one (1) year prior to the termination of this Consulting Services Agreement.

c. In furtherance of the foregoing and not in limitation thereof, the Consultant agrees that for a period of two (2) years after the termination of this Consulting Services Agreement with the Company, the Consultant shall not, directly or indirectly, for himself or any enterprise engaged in competition with the Company, solicit for employment or employ any employee or independent contractor who is then employed or retained by the Company or who has been employed or retained by the Company within one (1) year prior to the termination of this Consulting Services Agreement.

d. The covenants on the part of the Consultant contained in this Section 8 shall be construed as an agreement independent of any other provision in this Agreement. Notwithstanding anything to the contrary contained herein, however, if Company defaults on its obligations under that Promissory Note from Company to Jadian Enterprises, Inc., or Security Agreement between Company and Jadian Enterprises, Inc., both of even date herewith, and such default remains for a period of thirty (30) days following the date on which Company receives written notice of such default from Jadian Enterprises, Inc., the restrictions contained in this Section 8 shall automatically terminate.

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9.             REMEDIES

a. Except as specified in Paragraph 7c, the Consultant understands that this Agreement contains a restrictive covenant and prohibits the disclosure of the Proprietary Property of the Company and acknowledges the reasonability of said provisions, and does herewith expressly acknowledge that his breach of this Agreement will not be adequately compensated by money damages. The Consultant acknowledges that the restrictions contained in this Agreement are a reasonable and necessary protection of the legitimate interests of the Company and that any violation of these restrictions would cause substantial irreparable injury to the Company. The Consultant further acknowledges that the Company would not have entered into this Agreement with the Consultant without receiving the consideration offered by the Consultant in binding himself to these restrictions.   

b. The Consultant acknowledges that in the event of any suit which may be brought by the Company for any violation or threatened violation of this Agreement, including but not limited to a violation of the restrictive covenant and nondisclosure provisions hereof, any such breach or threatened breach may entitle the Company to any and all of the following:   

(i) an order in any such suit enjoining him from violating said provisions, upon a court order to that effect, which may be entered at any stage of such litigation without the requirement to post bond, and any application for such injunction shall be without prejudice to any other right of action which may accrue to the Company by reason of the breach or threatened breach of this Agreement;

(ii) an order in any such suit providing for the forfeiture of any and all of the compensation that may be due the Consultant under this Agreement in the future; and

(iii) an order in any such suit providing for such other damages as may be determined by an accounting for lost profits or diverted business.

c.	in the event it becomes necessary for the Company to enforce the covenant not to compete or any other provision of this Agreement, the Consultant shall be liable for the payment of reasonable attorneys' fees, court costs and all ancillary expenses incurred by the Company should the Company prevail in their enforcement action.
d.	The remedies contained in this Agreement are cumulative and not exclusive.
e.	If any portion or portions of the covenant not to compete or the nondisclosure of Proprietary Property provisions contained herein shall be, for any reason, held invalid or unenforceable or deemed to be too excessive and, therefore, unenforceable, such portion or portions of the covenant(s) shall be reinterpreted by the court who shall have made such determination to requalify the limitations provided therein so as to make the covenant(s) enforceable, and the parties agree to be bound by such reinterpretations.

Sections 7, 8 and 9 of this Agreement shall survive any termination of this Agreement as long as such termination is not the fault of the Company.

10.             PRONOUNS

All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or entity may require.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written below.

EPAZZ, INC.
By:	/s/
Its:	President
Date”	5/9/2014
	/s/ Kim Griggs
Kim Griggs
Date:	5/9/2014

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EX-10.44

Exhibit 10.44

EMPLOYMENT AGREEMENT

THIS AGREEMENT made and entered into this 9th day of May, 2014 at Chicago, Illinois, by and between EPAZZ, INC. (hereinafter referred to as the "Company") and GUY METZ, an individual, residing at 2929 Marfitt Road, East Lansing, MI 48823 (hereinafter referred to as the "Employee").

WHEREAS, the Company is engaged in the business of an enterprise-wide software company specializing in providing customized web applications and related services on behalf of its various clients;

WHEREAS, the Company desires to employ the Employee and the Employee desires employment with the Company on the terms and conditions set forth herein; and

WHEREAS, the parties hereto desire to set forth their mutual understandings with respect to the Employee's employment in writing.

NOW THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. RECITALS. The foregoing recitals are hereby incorporated herein.

2. EMPLOYMENT. The Company hereby employs the Employee and the Employee hereby accepts employment by the Company on the terms and conditions set forth herein. The parties hereto expressly revoke any and all prior employment agreements between them.

3. TERM. The term of this Agreement shall be for a period of six (6) months and will commence on May 10, 2014 and will continue until November 10, 2014, unless sooner terminated as provided herein.

4. DUTIES. The Employee shall report directly to the President of the Company and render such full time services and duties to the Company as may be assigned to the Employee from time to time by the Company's officers. The Employee shall at all times faithfully, industriously, and to the best of his ability, experience, and talent, perform all duties that may be required of and from the Employee, pursuant to the orders, advise and direction of the officers of the Company, and the express and explicit terms hereof; all to the reasonable satisfaction of the Company. In connection herewith, the Employee shall at all times conduct himself in a manner that upholds the high ethical, moral and professional standards of the Company. The Company has advised the Employee and the Employee hereby acknowledges the Company's policy that its business affairs (including, without limitation, its internal hiring practices) shall be conducted without regard to race, color, religion, sex, age, natural origin or marital status.

In furtherance of the foregoing and not in limitation thereof, the Employee shall also be responsible for the specific duties set forth on Schedule A, attached hereto and incorporated herein. The Company may prospectively change the duties set forth in Schedule A, as the Company in its sole discretion determines from time to time.

5. COMPENSATION.

a. As compensation for services, the Company shall pay the Employee and the Employee agrees to accept in full payment for services, compensation in accordance with the terms of Schedule B, which is attached hereto and hereby incorporated herein.

b. The parties may prospectively change the compensation set forth in Schedule B, at any time, from time to time, upon the mutual written agreement of the parties. Such change(s) shall not terminate or otherwise affect the obligations contained in this Agreement.

c. The Company, in its discretion, may deduct from the compensation paid the Employee all applicable federal, state and local taxes, as required by law, prior to payment to the Employee. In the event any taxing agencies, whether Federal, State and/or local, impose any tax(es) upon the Company based on the gross volume of business, number of employees or payroll of the Company (or any similar measure), then the Company reserves the right to deduct such amounts as may be required to pay said tax(es) from the compensation of the Employee to the extent such tax(es) are directly attributable to the employment of the Employee.

d. If the Company terminates the Employee without Cause prior to the expiration of the Term, the Company shall continue to pay Employee all compensation and benefits to which Employee is entitled hereunder for the remainder of the Term. For purposes of this Agreement, the term "Cause" shall mean material misconduct; violation of the Company's rules, regulations, and employment policies; or Employee's material failure to render and perform services to the Company according to his obligations under this Agreement.

6. RELATIONSHIP. Subject to Section 5(d) above, the Company and the Employee shall maintain the relationship of employer and employee at will, notwithstanding any provision other than Section 5(d) herein to the contrary, including without limitation, the term hereof. The parties agree that in the course of performing services for the clients of the Company, that the Employee will exercise his professional judgment regarding the performance of the Employee's duties. The foregoing notwithstanding, the Company reserves the right from time to time to establish rules and regulations governing the Employee, the Employee's duties and activities, and the provision of services by the Employee. The Employee agrees to fully comply with such rules and regulations as the Company may prescribe from time to time. In connection with employment, the Employee agrees that the position with the Company is a full time position. Accordingly, the Employee shall not be employed, whether as an employee, client, agent or otherwise, by any other party, without the prior written consent of the Company. The Employee shall not have authority to enter into any contract without the written consent of the Company, in accordance with the rules and regulations of the Company.

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7. NONDISCLOSURE OF PROPRIETARY PROPERTY.

a. The Employee acknowledges and agrees that in the course of employment with the Company that the Employee may acquire and/or the Company may provide the Employee with, or access to information regarding the business, procedures, activities and services of the Company, including but not limited to, memoranda; files; forms, techniques, methods and procedures; programs; client accounts and customer lists; costs and prices of the Company; client needs, requirements and business affairs; records; manuals; computer data, software, and databases, and other trade secrets and confidential information which gives or could give the Company a competitive advantage in the marketplace (hereinafter referred to collectively as the "Proprietary Property") as is necessary or desirable to assist him in his activities on behalf of the Company. The Employee hereby acknowledges that the Proprietary Property is the sole and exclusive property of the Company, that the Proprietary Property is a valuable, special and unique asset of the business of the Company, developed at considerable expense to the Company, and is not available to the public at large or other persons engaging in businesses which are the same as or similar to the business of the Company.

b. The Employee covenants and agrees that the Employee shall not, while in the employ of the Company, or thereafter, communicate or divulge to, or use for the benefit of himself or any other person, firm, association or corporation, without the prior written consent of the Company, any information in any way relating to the Proprietary Property. The Proprietary Property shall remain the sole property of the Company and upon termination of employment with the Company, for any reason the Employee shall thereupon return all Proprietary Property (including, without limitation, all lists, documents or other types of records and any written, typed, printed or computer stored materials identifying the clients of the Company or the personnel of clients, together with any and all data involving advertising techniques, processing techniques, manuals, materials, programs, methods or contracts) in his possession or control to the Company. The Employee shall have no right to retain copies of such Proprietary Property after the termination of employment with the Company, without the express written consent of the Company.

c. The covenants on the part of the Employee contained in this Section 7 shall be construed as an agreement independent of any other provision in this Agreement. The existence of any claim or cause of action of the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of this Section 7 by the Company.

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8. COVENANT NOT TO COMPETE.

a. The Employee expressly covenants and agrees that for a period of two (2) years after the termination of employment with the Company, within a the United States, the Employee will not engage in any business or perform any service, directly or indirectly, in competition with the Current Business of the Company, or have any interest, whether as proprietor, partner, member, manager, employee, stockholder, principal, agent, consultant, director, officer, or in any other capacity or manner whatsoever, in any enterprise that shall engage, directly or indirectly, in competition with the Current Business of the Company. For purposes of this Agreement, the term "Current Business" shall mean the principal business in which the Company is engaged as of the date hereof.

b. In the furtherance of the foregoing and not in limitation thereof, the Employee agrees that for a period of two (2) years after the termination of employment with the Company, the Employee shall not, directly or indirectly, solicit or service in any way, on behalf of himself or on behalf of or in conjunction with others, any client or customer, or prospective client or customer who has been solicited or serviced by the Company within one (1) year prior to the termination of employment.

c. In furtherance of the foregoing and not in limitation thereof, the Employee agrees that for a period of two (2) years after the termination of employment with the Company, the Employee shall not, directly or indirectly, for himself or any enterprise engaged in competition with the Company, solicit for employment or employ any employee or independent contractor who is then employed or retained by the Company or who has been employed or retained by the Company within one (I) year prior to the termination of the employment of the Employee hereunder.

d. The covenants on the part of the Employee contained in this Section 8 shall be construed as an agreement independent of any other provision in this Agreement. The existence of any claim or cause of action of the Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of this Section 8 by the Company. Notwithstanding anything to the contrary contained herein, however, if Company defaults on its obligations under that Promissory Note from Company to Jadian Enterprises, Inc., or the Security Agreement between Company and Jadian Enterprises, Inc., both of even date herewith, and such default remains for a period of thirty (30) days following the date on which Company receives written notice of such default from Jadian Enterprises, Inc., the restrictions contained in this Section 8 shall automatically terminate.

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9. REMEDIES.

a. The Employee understands that this Agreement contains a restrictive covenant and prohibits the disclosure of the Proprietary Property of the Company, agrees to the reasonability of said provisions, and does herewith expressly agree and acknowledge that his breach of this Agreement will not be adequately compensated by money damages. The Employee acknowledges that the restrictions contained in this Agreement are a reasonable and necessary protection of the legitimate interests of the Company and that any violation of these restrictions would cause substantial irreparable injury to the Company. The Employee further acknowledges that the Company would not have entered into this Agreement with the Employee without receiving the consideration offered by the Employee in binding himself to these restrictions.

b. The Employee expressly agrees that in the event of any suit which may be brought by the Company for any violation or threatened violation of this Agreement, including but not limited to a violation of the restrictive covenant and nondisclosure provisions hereof, any such breach or threatened breach shall entitle the Company to any and all of the following:

(i) an order in any such suit enjoining him from violating said provisions, upon a court order to that effect, which may be entered at any stage of such litigation without the requirement to post bond, and any application for such injunction shall be without prejudice to any other right of action which may accrue to the Company by reason of the breach or threatened breach of this Agreement;

(ii) an order in any such suit providing for the forfeiture of any and all of the compensation that may be due the Employee in the future; and

(iii) an order in any such suit providing for such other damages as may be determined by an accounting for lost profits or diverted business.

c. In the event it becomes necessary for the Company to enforce the covenant not to compete or any other provision of this Agreement, the Employee shall be liable for the payment of reasonable attorneys' fees, court costs and all ancillary expenses incurred by the Company.

d. The remedies contained in this Agreement are cumulative and not exclusive.

e. If any portion or portions of the covenant not to compete or the nondisclosure of Proprietary Property provisions contained herein shall be, for any reason, held invalid or unenforceable or deemed to be too excessive and, therefore, unenforceable, such portion or portions of the covenant(s) shall be reinterpreted by the court who shall have made such determination to requalify the limitations provided therein so as to make the covenant(s) enforceable, and the parties agree to be bound by such reinterpretations.

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Sections 7, 8 and 9 of this Agreement shall survive any termination of this Agreement.

10. TERMINATION. This Agreement may be terminated at any time by either party without prior notice. The Employee recognizes and agrees that employment is strictly at the will of the Company.

Termination hereunder shall terminate any further obligations of the Company except as specifically set forth in this Agreement. However, in no event shall the Employee's obligations under Sections 7, 8 and 9 of this Agreement terminate.

11. NOTICES. All notices required to be given by this Agreement shall be made in writing either:

a. by personal delivery to the party requiring notice; or

b. by mailing notice to the party requiring notice, by certified mail, return receipt requested.

If to the Company:	Epazz, Inc.
	309 West Washington Street, Suite 1225
	Chicago, Illinois 60606
	Attn: Shaun Passley
With a copy to:	Daniel M. Loewenstein
	Evans, Loewenstein, Shimanovsky & Moscardini, Ltd.
	130 S. Jefferson Street, Suite 350
	Chicago, Illinois 60661
If to the Employee:	Guy Metz
	2929 Marfitt Road
	East Lansing, MI 48823

The effective date of the notice shall be the date of delivery in (a) above or the date of mailing in (b) above.

12. REPRESENTATION. The Employee represents that he does not have any employment obligations which would conflict with his performance for the Company. The Employee further represents that he is not bound by any prior agreement which would prohibit him from entering into this Agreement with the Company, or fully performing his duties for the Company, and he agrees to hold the Company harmless from any litigation or claims arising from the breach of this representation.

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13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all previous communications, negotiations, representations or agreements, either verbal or written, between the parties. No modification or waiver of this Agreement, or any part hereof, shall be effective unless in writing signed by the parties hereto.

14. ASSIGNABILITY. The Employee acknowledges that the services to be rendered by him are unique and personal. Accordingly, he may not assign this Agreement or any of his rights, duties or obligations hereunder. This Agreement shall be binding upon and inure to the benefit of the Company, its successor and assigns.

15. WAIVER. No waiver by either party of any failure to perform any requirement or provision of this Agreement shall be deemed a waiver of any preceding or succeeding breach of the same or any other requirement or provision.

16. SEVERABILITY. If any provision of this Agreement shall be adjudged by a court of competent jurisdiction to be void or unenforceable, the same shall not affect any other provision thereof or the validity or enforceability of this Agreement.

17. CAPTIONS. The headings and titles used in this Agreement have been inserted for convenience of reference only and are to be ignored in any construction or interpretation of the provisions hereof.

18. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original.

19. CONSTRUCTION. Gender references used herein shall be modified as required to meet the circumstances. Whenever the context so requires, the plural shall include the singular and vice versa.

20. APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Illinois.

21. FORUM. The parties agree that any litigation between the parties shall be conducted before the Courts of the State of Illinois and do hereby consent to jurisdiction and venue in Cook County, Illinois.

[Signature Page to follow on next page.]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written.

ATTEST:	EPAZZ, INC.
/s/ signature illegible	By:	/s/ Shaun Passley
Secretary		President

The Employee, by his signature hereto, acknowledges that he has had an adequate opportunity to review the foregoing Agreement with a lawyer or other business advisor of his choice, that he understands the content. of this Agreement and he is signing this Agreement of his own free will without any duress or coercion.

EMPLOYEE:

/s/ Guy Metz                

GUY METZ

[number illegible]             

SOCIAL SECURITY NUMBER

8

EXHIBIT A

DUTIES

9

EXHIBIT B

COMPENSATION

1. Annual Gross Salary of Seventy-Five Thousand and no/100 Dollars ($75,000.00), payable biweekly, prorated for the Term.

2. Employee shall have the right to select health insurance a list of healthcare plans in which the Company, Epazz, Inc., or any affiliates or subsidiaries of either, participates.

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EX-10.45

Exhibit 10.45

GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT (the "Guaranty") made this 9th day of May, 2014, by and between Epazz, Inc., an Illinois corporation (the "Guarantor") and Jadian Enterprises, Inc., a Michigan corporation ("Seller").

WITNESSETH:

WHEREAS, Seller is selling certain assets to Jadian, Inc., an Illinois corporation, ("Buyer") pursuant to that Asset Purchase Agreement dated May 9, 2014 ("Purchase Agreement");

WHEREAS, Buyer is paying a portion of the purchase price for such assets pursuant to a Promissory Note of even date herewith ("Note") (the Note and the Purchase Agreement are, collectively, the "Transaction Documents");

WHEREAS, Buyer has potential additional obligations under the Purchase Agreement, including without limitation potential future earn-out payments and potential indemnification payments; and

WHEREAS, Guarantor shall be benefited directly by the transaction contemplated by the Transaction Documents, and shall execute this Guaranty in order to induce Seller to enter into such transaction.

NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby guarantees, promises and undertakes as follows:

1. GUARANTY.

(a) Guarantor hereby unconditionally, absolutely and irrevocably guarantees to Seller, the full and prompt payment and performance when due (whether at maturity by acceleration or otherwise) of each and every obligation or liability of Buyer owed to Seller under the Transaction Documents, and all agreements, instruments and documents evidencing, guarantying, securing or otherwise executed in connection with any of the foregoing, together with any amendments, modifications, and restatements thereof, and all expenses and attorneys' fees incurred by Seller under this Guaranty or any other document, instrument or agreement related to any of the foregoing (collectively, the "Obligations").

(b) This Guaranty is an absolute, present and continuing guaranty of payment, and not merely of collection, that shall remain in full force and effect until the Obligations are fully paid and performed, and no such payments or performance with regard to the Obligations is subject to any right on the part of any person whomsoever, including but not limited to any trustee in bankruptcy, to recover any of such payments. If any such payments are so set aside or settled without litigation, all of which is within Seller's discretion, Guarantor shall be liable for the full amount Seller is required to repay, plus costs, interest, reasonable attorneys' fees and any and all expenses that Seller paid or incurred in connection therewith. A successor of Buyer, including Buyer in its capacity as debtor in a bankruptcy reorganization case, shall not be considered to be a different person than Buyer; and this Guaranty shall apply to all Obligations incurred by such successor.

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(c) Guarantor agrees that Guarantor is directly and primarily liable to Seller and that the Obligations hereunder are independent of the Obligations of Buyer, or of any other guarantor. The liability of Guarantor hereunder shall survive discharge or compromise of any Obligation of Buyer in bankruptcy or otherwise. Seller shall not be required to prosecute or seek to enforce any remedies against Buyer or any other party liable to Seller on account of the Obligations, or to seek to enforce or resort to any remedies with respect to any collateral granted to Seller by Buyer or any other party on account of the Obligations, as a condition to payment or performance by Guarantor under this Guaranty.

(d) Seller may, without notice or demand and without affecting its rights hereunder, from time to time: (i) renew, extend, accelerate or otherwise change the amount of, the time for payment of, or other terms relating to, any or all of the Obligations, or otherwise modify, amend or change the terms of the Transaction Documents or any other document or instrument evidencing, securing or otherwise relating to the Obligations, (ii) take and hold collateral for the payment of the Obligations guaranteed hereby, and exchange, enforce, waive, and release any such collateral, and apply such collateral and direct the order or manner of sale thereof as Seller in its discretion may determine. Accordingly, Guarantor hereby waives notice of any and all of the foregoing.

(e) Guarantor hereby waives all defenses, counterclaims and off-sets of any kind or nature, whether legal or equitable, that may arise: (i) directly or indirectly from the present or future lack of validity, binding effect or enforceability of the Transaction Documents or any other document or instrument evidencing, securing or otherwise relating to the Obligations, (ii) from Seller's impairment of any collateral, including the failure to record or perfect the Seller's interest in the collateral, or (iii) by reason of any claim or defense based upon an election of remedies by Seller in the event such election may, in any manner, impair, affect, reduce, release, destroy or extinguish any right of contribution or reimbursement of Guarantor, or any other rights of the Guarantor to proceed against any other guarantor, or against any other person or any collateral.

(f) Guarantor hereby waives all presentments, demands for performance or payment, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of default or nonpayment, notice of acceptance of this Guaranty, and notices of the existence, creation, or incurring of new or additional Obligations, and all other notices or formalities to which Guarantor may be entitled, and Guarantor hereby waives all suretyship defenses, including but not limited to all defenses set forth in the Uniform Commercial Code, as revised from time to time (the "UCC") to the full extent such a waiver is permitted thereby.

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(g) Guarantor hereby irrevocably waives all legal and equitable rights to recover from Buyer any sums paid by the Guarantor under the terms of this Guaranty, including without limitation all rights of subrogation and all other rights that would result in Guarantor being deemed a creditor of Buyer under the federal Bankruptcy Code or any other law, and Guarantor hereby waives any right to assert in any manner against Seller any claim, defense, counterclaim and offset of any kind or nature, whether legal or equitable, that Guarantor may now or at any time hereafter have against Buyer or any other party liable to Seller.

2. EVENTS OF DEFAULT. Any of the following occurrences shall constitute an "Event of Default" under this Guaranty:

(a) An Event of Default occurs under the terms of the Transaction Documents or any other document or instrument evidencing, securing or otherwise relating to the Obligations, as "Event of Default" shall be defined therein.

(b) Guarantor shall fail to observe or perform any covenant, condition, or agreement under this Guaranty for a period of thirty (30) days from the date of such breach, or any representation or warranty of Guarantor set forth in this Guaranty shall be materially inaccurate or misleading when made or delivered.

(c) The bankruptcy or dissolution of Guarantor, or of any endorser or other guarantor of the Obligations, or the merger or consolidation of any of the foregoing with a third party, or the lease, sale or other conveyance of a material part of the assets or business of any of the foregoing to a third party outside the ordinary course of its business, or the lease, purchase or other acquisition of a material part of the assets or business of a third party by any of the foregoing.

(d) The default by Guarantor under the terms of any indebtedness of Guarantor now or hereafter existing, which default has not been cured within any time period permitted pursuant to the terms and conditions of such indebtedness or the occurrence of an event which gives any creditor the right to accelerate the maturity of any such indebtedness.

(e) The commencement by Guarantor of a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or the entry of a decree or order for relief in respect of Guarantor in a case under any such law or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of Guarantor or for any substantial part of Guarantor's property; or the filing and pendency for 30 days without dismissal of a petition initiating an involuntary case under any such bankruptcy, insolvency or similar law; or the making by Guarantor of any general assignment for the benefit of creditors; or the failure of Guarantor generally to pay Guarantor's debts as such debts become due; or the taking of action by Guarantor in furtherance of any of the foregoing.

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(f) The revocation or attempted revocation of this Guaranty by Guarantor before the termination of this Guaranty in accordance with its terms, or the assignment or attempted assignment of this Guaranty by Guarantor.

3. REMEDIES.

(a) Whenever any Event of Default as defined herein shall have happened, Seller, in its sole discretion, may take any remedial action permitted by law or in equity or by the Transaction Documents or any other document or instrument evidencing, securing or otherwise relating to the Obligations, including demanding payment in full of all sums guaranteed hereby, plus any accrued interest or other expenses.

(b) If Seller should employ attorneys or incur other expenses for the enforcement of this Guaranty, Guarantor, on demand therefor, shall reimburse the reasonable fees of such attorneys and such other expenses to the extent permitted by law.

(c) No remedy set forth herein is exclusive of any other available remedy or remedies, but each is cumulative and in addition to every other remedy given under this Guaranty or now or hereafter existing at law or in equity or by statute. No delay or omission on the part of Seller to exercise any right or remedy shall be construed to be a waiver thereof, but any such right or remedy may be exercised from time to time and as often as may be deemed expedient thereby, and a waiver on any one occasion shall be limited to that particular occasion.

4. SUBORDINATION. All indebtedness and liability now or hereafter owing by Buyer to Guarantor is hereby postponed and subordinated to the Obligations owing to Seller; and such indebtedness and liability to Guarantor, if Seller so requests, shall be collected, enforced and received by Guarantor as trustee for Seller and be paid over to Seller on account of the Obligations.

5. MISCELLANEOUS.

(a) This Guaranty may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.

(b) This Guaranty is the complete agreement of the parties hereto and supersedes all previous understandings and agreements relating to the subject matter hereof. Neither this Guaranty nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally, but only by an instrument in writing signed by the party against whom enforcement of the termination, amendment, supplement, waiver or modification is sought.

(c) As the context herein requires, the singular shall include the plural and one gender shall include one or both other genders. The undersigned are jointly and severally liable pursuant to this Guaranty, and "Guarantor" refers to each of them and both of them.

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(d) This Guaranty shall inure to the benefit of Seller's successors and assigns and shall be binding upon the heirs, executors, administrators and successors of Guarantor. This Guaranty is not assignable by Guarantor.

(e) If any provision of this Guaranty or the application thereof to any person or circumstance is held invalid, the remainder of this Guaranty and the application thereof to other persons or circumstances shall not be affected thereby.

(f) If from any cause or circumstances whatsoever, fulfillment of any provisions of this Guaranty at the time performance of such provision shall be due involves transcending the limit of validity presently prescribed by any applicable usury statute or any other applicable law, with regard to obligations of like character and amount, then ipso facto the obligation to be fulfilled shall be reduced to the limit of such validity. The provisions of this paragraph shall control every other provision of this Guaranty.

(g) This Guaranty is assignable by Seller, and any assignment hereof or any transfer or assignment of the Transaction Documents or portions thereof by Seller shall operate to vest in any such assignee all rights and powers herein conferred upon and granted to Seller.

(h) This Guaranty shall be governed by and construed in accordance with the law of the State of Michigan. Guarantor agrees that the state and federal courts for the County in which the Seller is located or any other court in which Seller initiates proceedings have exclusive jurisdiction over all matters arising out of this Guaranty.

(i) GUARANTOR AND SELLER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING IN CONNECTION WITH THIS GUARANTY OR THE TRANSACTIONS RELATED THERETO.

(j) TO THE GREATEST EXTENT PERMITTED BY LAW, GUARANTOR HEREBY WAIVES ANY AND ALL RIGHTS TO REQUIRE MARSHALLING OF ASSETS BY SELLER.

[Signatures contained on the following page]

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IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed as of the date first above written.

GUARANTOR:

Epazz, Inc., an Illinois corporation

By: /s/ Shaun Passley               

Its: President                            

Dated: May 9, 2014

SELLER:

Jadian Enterprises, Inc., a Michigan corporation

By: /s/ Karen Griggs                 

Its: Director                               

Dated: May 9, 2014

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EX-10.46

Exhibit 10.46

PROMISSORY NOTE

Note Amount	$210,000.00
Date of Note	May 9, 2014
Maturity Date	May 9, 2017
Place of Execution:	Grand Rapids, Michigan

FOR VALUE RECEIVED, the undersigned, Jadian, Inc., an Illinois corporation, whose address is 205 W. Wacker Drive, Suite 1320, Chicago, Illinois 60606 (BORROWER) promises to pay to the order of Jadian Enterprises, Inc., a Michigan corporation, whose address is 320 W. Ottawa Street, Lansing, Michigan 48933 (LENDER) the principal sum of Two Hundred Ten Thousand and 00/100 Dollars ($210,000.00), plus interest and costs. BORROWER shall pay this obligation (Note) to LENDER as follows:

1. Terms.

1.1 Interest Rate. Beginning on May 9, 2014, the principal sum outstanding shall bear interest at the rate of six percent (6%) per annum (Interest Rate). Interest shall be calculated based on a 360-day year and charged for the actual number of days elapsed.

1.2 Principal and Interest Payments. Beginning on June 1, 2014, and continuing on the first day of each month thereafter until May 9, 2017, BORROWER shall make equal principal and interest payments to LENDER in the amount of $6,388.61.

1.3 Maturity. On May 9, 2017, the entire outstanding balance owed under this Note shall become immediately due and payable, without demand, unless otherwise becoming immediately due and payable prior to such time by reason of the occurrence of an Event of Default (as defined below) and BORROWER shall pay LENDER an amount equal to the remaining principal balance owed under this Note and any other sums otherwise due and owing.

2. Additional Principal Payments.

2.1 Prepayment. Borrower may prepay any portion of the principal of this Note without premium or penalty. However, all prepayments will be applied first to any accrued interest and then to principal.

2.2 Obligations. BORROWER's pre-payments (if any) shall not relieve BORROWER from the obligation to timely make any installment payments as described in Section 1 of this Note. To the extent BORROWER is delinquent in making any payments required hereunder, additional principal payments shall first be applied toward payment of accrued but unpaid interest, late charges, and any costs before being applied toward reduction of the principal amount owing under this Note. To the extent BORROWER is current in making all payments required hereunder, all additional principal payments shall be applied toward reduction of principal owing under this Note.

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3. Waiver. Presentment for payment, protest, and notice of protest are each waived by BORROWER.

4. Notices. All notices, payments or statements required under this Note shall be deemed to have been given if either delivered personally or mailed by certified or registered mail at the respective addresses first set forth above. Either party may change the address for notices, payments or statements by giving written notice of such address change in the manner described above.

5. Non-Waiver. No waiver of any provision of this Note shall be valid unless in writing and signed by the persons or parties against whom charged. No delay on the part of the holder in the exercise of any right or remedy under this Note shall operate as a waiver. No single or partial exercise by the holder of any right or remedy under the Note shall preclude any other or future exercises or the exercise of any other right or remedy. No waiver or indulgence by the holder of any default shall be effective unless it is in writing and signed by the holder. No waiver of any right or remedy on one (1) occasion shall be construed as a bar to, or waiver of any such right or remedy on any future occasion. No waiver by LENDER of any breach or default by BORROWER, or any extension of the due date of any payment under this Note, or the acceptance by LENDER of a payment after its due date, shall in any manner operate as a waiver of any breach, default, or failure of BORROWER thereafter occurring; and the same shall not affect the right of LENDER to accelerate the balance owed under this Note or declare a default under this Note, or pursue any other remedy afforded to LENDER by the terms of this Note, or at law, by reason of any subsequent act, omission, breach, or default of BORROWER.

6. Michigan Law. This Note shall be governed by and construed under the laws (statute and common) of the State of Michigan. No provision of this Note is to be interpreted for or against either party because that party's legal representative drafted the Note, or any of the terms or conditions of any instrument.

7. Expenses. BORROWER agrees to pay any and all expenses, including reasonable attorneys' fees and court costs, paid or incurred by the holder of this Note in enforcing the rights of and obligations to the holder under any provisions of this Note.

8. Venue. BORROWER agrees and consents that any action against it for collection or enforcement of this Note may be brought in the state court in Ingham County, Michigan, having jurisdiction over the subject matter and that such court shall have personal jurisdiction over it for purposes of such legal action.

9. Events of Default. Each of the following events shall constitute an Event of Default:

(a) Any failure to make any payment when due of principal or accrued interest on this Note.

(b) BORROWER fails to observe or perform any other term or condition of this Note and such failure continues for a period of thirty (30) days following BORROWER'S receipt of written notice of such failure.

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(c) A commencement by BORROWER of a voluntary case under any applicable bankruptcy, insolvency or other similar law now or in effect in the future; or the entry of a decree or order for relief with regard to BORROWER in a case under any such law or appointing a receiver, liquidator, assignee, trustee (or other similar official) of BORROWER; or the filing and pendency for thirty (30) days without dismissal of a petition initiating an involuntary case under any such bankruptcy, insolvency or similar law; or the making by BORROWER of any general assignment for the benefit of creditors; or the taking of action by BORROWER in furtherance of any of the foregoing.

10. Consequences of an Event of Default. Upon the occurrence of any Event of Default, LENDER may, at its option, without any demand or notice whatsoever, accelerate the entire unpaid principal balance, and declare this Note to be immediately due and payable, together with accrued interest and all fees and costs applicable thereto, and LENDER shall have access to any and all remedies then available to enforce payment of this Note.

11. Late Payments; Default Rate; Fees. If any payment is not paid when due (whether by acceleration or otherwise) or within 10 days thereafter, BORROWER agrees to pay to LENDER a late payment fee of 5% of the delinquent payment amount. After an Event of Default, BORROWER agrees that LENDER may, without notice, increase the Interest Rate by two percentage points (2%) (the "Default Rate").

12. Amendment. This Note may be amended only by a written document signed by BORROWER and LENDER.

13. Usury. This Note is subject to the express condition that at no time shall BORROWER be obligated to pay interest on the principal balance of this Note at a rate which could subject LENDER to either civil or criminal liability as a result of the rate being in excess of the maximum rate which borrowers are permitted by law to contract or agree to pay in commercial transactions. If, by the terms of this Note, BORROWER is at any time required or obligated to pay interest on the Note's principal balance at a rate in excess of such maximum legal rate of interest, then the rate of interest under the Note shall be deemed immediately reduced to such maximum legal rate.

14. Security. BORROWER'S obligations herein are secured by a lien in favor of LENDER on all assets of BORROWER as set forth in that Security Agreement of even date herewith.

15. Set-Off. This Note is given in connection with that Asset Purchase Agreement dated May 9, 2014, between BORROWER and LENDER ("APA"). Pursuant to the terms of the APA, BORROWER shall have the right to credit the following against BORROWER'S obligations hereunder:

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(a) An amount equal to the Closing Date A/R purchased by BORROWER under the APA which remain uncollected after 90 days from Closing despite BORROWER' S best efforts to collect same;

(b) Any amounts for which LENDER is obligated to indemnify the BORROWER for under the terms of the APA; and

(c) Any Post-Closing Credit to which BORROWER is entitled under Section 2.6 of the APA.

16. Assignment. BORROWER may not assign this Note or its obligations hereunder without the prior written consent of LENDER.

BORROWER

JADIAN, INC.

/s/ Shaun Passley               

By: Shaun Passley

Its: President

Date: May 9, 2014

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EX-10.48

Exhibit 10.48

BILL OF SALE

Seller, Strand, Inc., an Illinois corporation, of 2101 West Broadway, Suite 168, Columbia, Missouri 65203, in consideration of One Hundred Eighty-Five Thousand & 00/100 DOLLARS, and other good and valuable consideration, receipt whereof is hereby acknowledged, does hereby sell, assign, transfer and set over to the Buyer, Telecorp Products, Inc., of 205 West Wacker Drive, Suite 1320, Chicago, Illinois 60606, all property and other assets of Strand, Inc. pursuant to that certain Asset Purchase Agreement dated July 11, 2014 between Buyer and Seller.

Seller hereby represents and warrants to Buyer that Seller is the absolute owner of said property, that said property is free and clear of all liens, charges and encumbrances, and that Seller has full right, power and authority to sell said property and to make this Bill of Sale.

If this Bill of Sale is signed by more than one person, all persons so signing shall be jointly and severally bound hereby.

This Bill of Sale is effective end of business, 5:00 PM, CST, July 31, 2014.

IN WITNESS WHEREOF, Seller has signed and sealed this Bill of Sale this 31^th day of July, 2014.

Strand, Inc.

By:  /s/ Timothy Beerup                 

Its:  President                                 

I, the undersigned, a Notary Public in and for said County, in the State aforesaid, CERTIFY THAT Timothy Beerup             , personally known to me to be the same person(s) whose name(s) are subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that they signed, sealed and delivered the instrument as their free and voluntary act, for the uses and purposes therein set forth.

Given under my hand and notarial seal this   31  ^st day of July          ,2014.

/s/ KRISTEN NICOLE CZERWONKA

Notary Public

KRISTEN NICOLE CZERWONKA

Notary Public - Notary Seal

State of Missouri

County of Boone

My Commission Expires June 3,2017

Commission# 13489693

EX-10.49

Exhibit 10.49

GUARANTY

Principal Amount: $85,000.00
Date: July 31,2014

WHEREAS, Epazz, Inc., by Shaun Passley, President, executed for the benefit of Epazz, Inc. (hereinafter called "Guarantor"), is now indebted to Timothy Beerup (hereinafter called "Lender"), as evidenced by that certain promissory note dated the 31^th of July, 2014, executed by Telecorp Products, Inc., by Shaun Passley, President ("Borrower"), payable to the order of Timothy Beerup, Inc. in the principal amount of Eighty Five Thousand and no 00/100 Dollars ($85,000.00) (hereinafter, the "Guaranteed Indebtedness").

NOW, THEREFORE, for a valuable consideration, receipt and sufficiency of which is hereby acknowledged and confessed, the undersigned (hereinafter, called "Guarantor"), unconditionally guarantees to Lender the prompt payment of monthly installment payments to Lender and at maturity of the note by July 31, 2015, by acceleration or otherwise, of any and all of the Guaranteed Indebtedness, together with interest as provided in the Promissory Note, which monthly payment shall be made to Lender's address of 2101 West Broadway, Suite 168, Columbia, Missouri 65203, or at such other place as the Lender may designate in writing with notice of such designation to Guarantor.

Guarantor hereby agrees that this Guaranty is given solely in consideration of the value received by the Borrower from the Lender. Guarantor hereby agrees that this Guaranty is a guarantee of payment and performance.

Should the status of the Borrower change, this Guaranty shall continue and also cover the Guaranteed Indebtedness of the Borrower under the status of Guarantor, according to the terms hereof guaranteeing the Guaranteed Indebtedness of the original Borrower.

This is a continuing Guaranty, and shall apply to and cover Guaranteed Indebtedness and renewals, extensions and modifications thereof without regard to form or amount which Borrower may incur, create, renew, extend or alter, in whole or in part.

In the event of the dissolution of the Borrower, the obligation of the Guarantor shall continue in full force and effect against Guarantor as to all indebtedness, which shall have been created or incurred by the Borrower.

Guarantor agrees that this Guaranty shall be binding upon Guarantor, Guarantors' heirs, devisees, executors, administrators, personal representatives, successors and assigns, and shall inure to the benefit of, and be enforceable by Lender and Lender's successors and assigns. Guarantor shall not assign Guarantor's obligations hereunder without the prior written consent of Lender.

GUARANTOR:

/s/ Shaun Passley                                     

Epazz, Inc., an Illinois Corporation

Shaun Passley, President of Epazz, Inc.

EX-10.50

Exhibit 10.50

PROMISSORY NOTE

Principal Amount: $85,000.00

Date: July 31, 2014

FOR VALUE RECEIVED, the undersigned, Telecorp Products, Inc. by Shaun Passley, President ("Borrower"), promises to pay to Timothy Beerup and Timothy Beerup, Inc. ("Beerup"), the Legal Holder of this Note, the principal sum EIGHTY FIVE THOUSAND AND NO/100 DOLLARS ($85,000.00), with interest on the unpaid balance from July 31, 2014 until paid, at the rate of six percent (6%) per annum. The principal and interest shall be payable in consecutive monthly installments of $2,585.86, with each payment made applied to the interest then due and the balance applied to principal. Payments are due on the 30th day of each month, beginning August 31, 2014, and continuing until the entire indebtedness evidenced hereby is fully paid, except that any remaining indebtedness, if not sooner paid, shall be due and payable on the 31th day of July, 2015. On July 31, 2015, the entire remaining unpaid principal balance together with interest due thereon shall become immediately due and payable. THIS IS A BALLOON NOTE. Monthly payments are due on the 30^th day of each month beginning August 31, 2014 payable to Timothy Beerup, Inc. and mailed to Timothy Beerup at 2101 West Broadway, Suite 168, Columbia, Missouri 65203 or as designed by the Legal Holder of this Note to Borrower in writing.

The undersigned has a right to prepay this Note in whole or in part, without any penalties. Any partial prepayment shall not extend or postpone the due date of any subsequent monthly installment or change the amount of such installments.

In case of the failure of the undersigned to pay any installment due under this Note specified above, principal and interest shall be demanded in writing by the legal holder hereof with notice to the undersigned. If the undersigned fails to pay pursuant to this Note, the legal holder has the option to file suit in Boone County, Missouri against the undersigned requesting reasonable attorney fees and reasonable costs or the option, to continue to collect interest at six percent (6%) per annum on the Note until paid in full and the undersigned continue with monthly installments as stated above. If the undersigned fails to perform any of the terms, covenants, or conditions of this Note, or in the event of insolvency, bankruptcy, or receivership of the undersigned, then, or at any time thereafter, at the discretion of Timothy Beerup, the entire unpaid principal balance of this Note, with all interest thereon, together with all other indebtedness owing from the undersigned to Timothy Beerup shall become due and payable and shall thereafter bear interest at the rate of six (6%) percent per annum. If it becomes necessary in the opinion of Timothy Beerup to employ counsel to enforce or collect this Note, the undersigned agrees to pay all costs, service fees, charges, disbursements, and reasonable attorney's fees incurred by Timothy Beerup in collecting and enforcing payment of this Note.

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In the case of failure of the undersigned to pay the balloon payment on July 31, 2015 (date of default) to Timothy Beerup, Timothy Beerup may at his option obtain Epazz, Inc. Claim A common stock on the total amount due and owing, based on a twenty-five percent (25%) discount based on the closing average bid on the last five (5) trading days prior to the date of default with a floor price of $0.00075 per share.

Timothy Beerup may assign this Note at his sole discretion. The undersigned shall not assign this Note without the prior written consent of Timothy Beerup. Any such attempted assignment without such written consent shall be null and void. In the event that Timothy Beerup approves any such assignment, then the undersigned shall not be relieved of any of its obligations hereunder and shall remain fully liable for the balance of the Note.

This Note shall be construed and enforced according to and be governed by the laws of the State of Missouri. In any action to enforce the terms of this Note, the undersigned and Timothy Beerup agree to submit to the jurisdiction of the Courts of the State of Missouri, and that venue for any action arising out of this Note or the parties' performance hereunder shall be laid in Boone County, Missouri. The failure of Timothy Beerup to exercise any option or any right to which he may be entitled shall not constitute a waiver of the right to exercise the option or any right in the event of any subsequent default.

The terms of this Note shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors, and permitted assigns.

If any provision of this Note or application hereof to any person or circumstance which, for any reason, and to any extent, is determined to be invalid or unenforceable, neither the remainder of this Note nor the application of such provision to any other person or circumstance shall be affected by it, rather the same shall be enforced to the fullest extent permitted by law.

This Note shall be guaranteed by Epazz, Inc., an Illinois corporation by President Shaun Passley, which is attached hereto and incorporated herein.

TELECORP PRODUCTS, INC.,

a Michigan corporation

/s/ Shaun Passley

By:    Shaun Passley, Presidnet

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EX-10.51

Exhibit 10.51

205 W. Wacker Dr. Suite 1320, Chicago, IL 60606

Dear Island Stock Transfer,

Shareholder, Shaun Passley, has elected to exchange 600,000,000 shares of Common A for 600,000,000 of shares Preferred C. This is an one for one exchange based on the Stock Exchange agreement dated January 17, 2014 between Shaun Passley and Epazz, Inc.

Sincerely,

/s/ Shaun Passley              

Shaun Passley

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STOCK EXCHANGE AGREEMENT

This Stock Exchange Agreement (this “Agreement”) dated as of and effective as of January 17, 2014, is by and between, Epazz, Inc., an Illinois corporation (the “Company”), and the Class A Common Stock shareholder of the Company whose name is set forth on the signature page hereof under the heading “Exchanging Party” (the “Exchanging Party”), each sometimes referred to herein as a “Party” and collectively the “Parties.”

W I T N E S S E T H:

WHEREAS, the Exchanging Party desires to exchange the shares of Class A Common Stock of the Company set forth below the Exchanging Party’s on the signature page hereof for shares of the Company’s newly designated Series C Convertible Preferred Stock with such terms and conditions as are set forth on Exhibit A attached hereto (the “Exchange”); and

WHEREAS, the Company desires for the Exchanging Party to affect the Exchange.

NOW, THEREFORE, in consideration of the premises and the mutual covenants, agreements, and considerations herein contained, which the Parties acknowledge the receipt and sufficiency of, the Parties hereto agree as follows:

1. Exchange of Common Shares.

(a)In full consideration for the Exchange of each share of Class A Common Stock set forth below the Exchanging Party’s name on the signature page hereof (the “Common Shares”), the Company agrees to issue the Exchanging Party one (1) share of Series C Convertible Preferred Stock of the Company (the “Preferred Shares”). I.e., each one (1) Common Share shall be Exchanged for one (1) Preferred Share.

(b)Within five (5) days of the Parties entry into this Agreement, the Exchanging Party shall deliver to the Company the certificate(s) representing the Common Shares, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, with medallion signature guaranty (such date received by the Company, the “Delivery Date”).

(c)Within five (5) days of the Delivery Date, the Company shall issue a certificate to the Exchanging Party evidencing the Preferred Shares due as a result of the Exchange.

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2. Full Satisfaction.

The Exchanging Party agrees that it is accepting the Preferred Shares in exchange for and in full satisfaction of the Common Shares Exchanged and that each such Exchanging Party will no longer have any rights to Common Shares, which will be cancelled by the Company subsequent to the Exchange.

3. Representations of Exchanging Party.

The Exchanging Party represents that:

(a)It is the sole record and beneficial owner of the Common Shares owned by such Exchanging Party (defined herein as the “Exchanging Party’s Shares”) and has good and marketable title to all of the Exchanging Party’s Shares, free and clear of any liens, claims, charges, options, rights of tenants or other encumbrances. Such Exchanging Party has sole managerial and dispositive authority with respect to the Exchanging Party’s Shares and has not granted any person a proxy or option to buy the Exchanging Party’s Shares that has not expired or been validly withdrawn. The Exchange of the Exchanging Party’s Shares pursuant to this Agreement will vest in the Company the legal and valid title to the Exchanging Party’s Shares, free and clear of all liens, security interests, adverse claims or other encumbrances of any character whatsoever.

(b)Exchanging Party has such knowledge and experience in financial and business matters such that Exchanging Party is capable of evaluating the merits and risks of the Exchange and making an informed investment decision in connection therewith.

(c)Exchanging Party confirms and represents that it is able (i) to bear the economic risk of the Preferred Shares, (ii) to hold the Preferred Shares for an indefinite period of time, and (iii) to afford a complete loss of the Preferred Shares.

(d)Exchanging Party recognizes that the Preferred Shares and the shares of common stock issuable upon conversion thereof (collectively the “Securities”) have not been registered under the Securities Act of 1933, as amended (the “1933 Act,” or the “Act”), nor under the securities laws of any state and, therefore, cannot be resold unless the resale of the Securities is registered under the 1933 Act or unless an exemption from registration is available. Exchanging Party may not sell the Securities without registering them under the 1933 Act and any applicable state securities laws unless exemptions from such registration requirements are available with respect to any such sale. The Company is under no obligation to register such Securities under the 1933 Act or under any state “Blue Sky” laws prior to or subsequent to their issuance.

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(e)Exchanging Party has carefully considered and has, to the extent it believes such discussion necessary, discussed with its professional, legal, tax and financial advisors, the suitability of an investment in the Preferred Shares for its particular tax and financial situation and its advisers, if such advisors were deemed necessary, have determined that the Preferred Shares are a suitable investment for it.

(f)Exchanging Party understands and agrees that a legend has been or will be placed on any certificate(s) or other document(s) evidencing the Securities in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (I) THEY SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND ANY APPLICABLE STATE SECURITIES ACT, OR (II) THE CORPORATION SHALL HAVE BEEN FURNISHED WITH AN OPINION OF COUNSEL, SATISFACTORY TO COUNSEL FOR THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED UNDER ANY SUCH ACTS."

4.Exempt Transaction.

The Parties intend for the transactions contemplated herein, including, but not limited to the Exchange, to be exempt from registration under the Securities Act of 1933, as amended (the “Act”) pursuant to Section 3(9) of the Act and exempt from registration or qualification under any state law.

5.Mutual Representations, Covenants and Warranties.

(a)The Parties have all requisite power and authority, corporate or otherwise, to execute and deliver this Agreement and to consummate the transactions contemplated hereby and thereby. The Parties have duly and validly executed and delivered this Agreement and will, on or prior to the consummation of the transactions contemplated herein, execute, such other documents as may be required hereunder and, assuming the due authorization, execution and delivery of this Agreement by the Parties hereto and thereto, this Agreement constitutes, the legal, valid and binding obligation of the Parties enforceable against each Party in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting Exchanging Party’s rights generally and general equitable principles.

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(b)The execution and delivery by the Parties of this Agreement and the consummation of the transactions contemplated hereby and thereby do not and shall not, by the lapse of time, the giving of notice or otherwise: (a) constitute a violation of any law; or (b) constitute a breach or violation of any provision contained in the Articles of Incorporation or Bylaws, or such other document(s) regarding organization and/or management of the Parties, if applicable; or (c) constitute a breach of any provision contained in, or a default under, any governmental approval, any writ, injunction, order, judgment or decree of any governmental authority or any contract to which either the Company or the Exchanging Party are a party or by which either the Company or the Exchanging Party are bound or affected.

(c)The Exchanging Party hereby covenants that they will, whenever and as reasonably requested by the Company, do, execute, acknowledge and deliver any and all such other and further acts, deeds, assignments, transfers, conveyances, confirmations, powers of attorney and any instruments of further assurance, approvals and consents as the Company may reasonably require in order to complete, insure and perfect the transactions contemplated herein, including, but not limited to the Exchange.

(d)Any individual executing this Agreement on behalf of an entity has authority to act on behalf of such entity and has been duly and properly authorized to sign this Agreement on behalf of such entity.

6.          Miscellaneous.

(a)Assignment. All of the terms, provisions and conditions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the Parties hereto and their respective successors and permitted assigns.

(b)Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Illinois, excluding any provision which would require the use of the laws of any other jurisdiction.

(c)Entire Agreement, Amendments and Waivers. This Agreement constitutes the entire agreement of the Parties regarding the subject matter of the Agreement and expressly supersedes all prior and contemporaneous understandings and commitments, whether written or oral, with respect to the subject matter hereof. No variations, modifications, changes or extensions of this Agreement or any other terms hereof shall be binding upon any Party hereto unless set forth in a document duly executed by such Party or an authorized agent of such Party.

(d)Headings; Gender. The paragraph headings contained in this Agreement are for convenience only, and shall in no manner be construed as part of this Agreement. All references in this Agreement as to gender shall be interpreted in the applicable gender of the Parties.

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(e)Severability. Should any clause, sentence, paragraph, subsection, Section or Article of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the Parties agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom by the Parties, and the remainder will have the same force and effectiveness as if such stricken part or parts had never been included herein.

(f)Interpretation. When used in this Agreement, unless a contrary intention appears: (i) a term has the meaning assigned to it; (ii) ”or” is not exclusive; (iii) ”including” means including without limitation; (iv) the singular shall include the plural, the masculine gender shall include the feminine gender and the neuter and vice versa; (v) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; (vi) the words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision hereof; and (vii) references contained herein to Article, Section, Schedule and Exhibit, as applicable, are references to Articles, Sections, Schedules and Exhibits in this Agreement unless otherwise specified.

(g)Effect of Facsimile and Photocopied Signatures. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. A copy of this Agreement signed by one Party and faxed to another Party shall be deemed to have been executed and delivered by the signing Party as though an original. A photocopy of this Agreement shall be effective as an original for all purposes.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first written above.

“COMPANY”

Epazz, Inc.

/s/ Shaun Passley                        

Shaun Passley

Chief Executive Officer

[Remainder of page left intentionally blank.

Signature page of Exchanging Party follows.]

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“EXCHANGING PARTY”

Please sign exactly as your name or names appear in the Company’s records. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. In the event any person signs the below on behalf of an entity and fails to provide their authorized position with such entity, the Company shall be able to assume for all purposes that such person is regardless an authorized signatory of the entity and has full authority and capacity to act on its behalf.

Signature	Second Signature (if held jointly)
Shaun Passley
Printed Name
Title (if applicable)
Entity Name (if applicable)

Shares of Class A Common Stock Exchanged:600,000,000

Represented by Certificate(s): book entry

   September 11, 2012   

Date

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EX-10.52

Exhibit 10.52

205 W. Wacker Dr. Suite 1320, Chicago, IL 60606

Dear Island Stock Transfer,

Shareholder, Shaun Passley, has elected to exchange 1,821,052,632 shares of Common A (Book Entry September 11, 2012, May 16, 2013 and July 8, 2013) for 1,821,052,632 of shares Preferred C. This is an one for one exchange based on the Stock Exchange agreement dated March 22, 2014 between Shaun Passley and Epazz, Inc.

Sincerely,

/s/ Shaun Passley              

Shaun Passley 

Sole Director and CEO

Epazz, Inc.

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STOCK EXCHANGE AGREEMENT

This Stock Exchange Agreement (this “Agreement”) dated as of and effective as of March 22, 2014, is by and between, Epazz, Inc., an Illinois corporation (the “Company”), and the Class A Common Stock shareholder of the Company whose name is set forth on the signature page hereof under the heading “Exchanging Party” (the “Exchanging Party”), each sometimes referred to herein as a “Party” and collectively the “Parties.”

W I T N E S S E T H:

WHEREAS, the Exchanging Party desires to exchange the shares of Class A Common Stock of the Company set forth below the Exchanging Party’s on the signature page hereof for shares of the Company’s newly designated Series C Convertible Preferred Stock with such terms and conditions as are set forth on Exhibit A attached hereto (the “Exchange”); and

WHEREAS, the Company desires for the Exchanging Party to affect the Exchange.

NOW, THEREFORE, in consideration of the premises and the mutual covenants, agreements, and considerations herein contained, which the Parties acknowledge the receipt and sufficiency of, the Parties hereto agree as follows:

1.            Exchange of Common Shares.

(a)In full consideration for the Exchange of each share of Class A Common Stock set forth below the Exchanging Party’s name on the signature page hereof (the “Common Shares”), the Company agrees to issue the Exchanging Party one (1) share of Series C Convertible Preferred Stock of the Company (the “Preferred Shares”). I.e., each one (1) Common Share shall be Exchanged for one (1) Preferred Share.

(b)Within five (5) days of the Parties entry into this Agreement, the Exchanging Party shall deliver to the Company the certificate(s) representing the Common Shares, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, with medallion signature guaranty (such date received by the Company, the “Delivery Date”).

(c)Within five (5) days of the Delivery Date, the Company shall issue a certificate to the Exchanging Party evidencing the Preferred Shares due as a result of the Exchange.

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2. Full Satisfaction.

The Exchanging Party agrees that it is accepting the Preferred Shares in exchange for and in full satisfaction of the Common Shares Exchanged and that each such Exchanging Party will no longer have any rights to Common Shares, which will be cancelled by the Company subsequent to the Exchange.

3. Representations of Exchanging Party.

The Exchanging Party represents that:

(a)It is the sole record and beneficial owner of the Common Shares owned by such Exchanging Party (defined herein as the “Exchanging Party’s Shares”) and has good and marketable title to all of the Exchanging Party’s Shares, free and clear of any liens, claims, charges, options, rights of tenants or other encumbrances. Such Exchanging Party has sole managerial and dispositive authority with respect to the Exchanging Party’s Shares and has not granted any person a proxy or option to buy the Exchanging Party’s Shares that has not expired or been validly withdrawn. The Exchange of the Exchanging Party’s Shares pursuant to this Agreement will vest in the Company the legal and valid title to the Exchanging Party’s Shares, free and clear of all liens, security interests, adverse claims or other encumbrances of any character whatsoever.

(b)Exchanging Party has such knowledge and experience in financial and business matters such that Exchanging Party is capable of evaluating the merits and risks of the Exchange and making an informed investment decision in connection therewith.

(c)Exchanging Party confirms and represents that it is able (i) to bear the economic risk of the Preferred Shares, (ii) to hold the Preferred Shares for an indefinite period of time, and (iii) to afford a complete loss of the Preferred Shares.

(d)Exchanging Party recognizes that the Preferred Shares and the shares of common stock issuable upon conversion thereof (collectively the “Securities”) have not been registered under the Securities Act of 1933, as amended (the “1933 Act,” or the “Act”), nor under the securities laws of any state and, therefore, cannot be resold unless the resale of the Securities is registered under the 1933 Act or unless an exemption from registration is available. Exchanging Party may not sell the Securities without registering them under the 1933 Act and any applicable state securities laws unless exemptions from such registration requirements are available with respect to any such sale. The Company is under no obligation to register such Securities under the 1933 Act or under any state “Blue Sky” laws prior to or subsequent to their issuance.

3

(e)Exchanging Party has carefully considered and has, to the extent it believes such discussion necessary, discussed with its professional, legal, tax and financial advisors, the suitability of an investment in the Preferred Shares for its particular tax and financial situation and its advisers, if such advisors were deemed necessary, have determined that the Preferred Shares are a suitable investment for it.

(f)               Exchanging Party understands and agrees that a legend has been or will be placed on any certificate(s) or other document(s) evidencing the Securities in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (I) THEY SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND ANY APPLICABLE STATE SECURITIES ACT, OR (II) THE CORPORATION SHALL HAVE BEEN FURNISHED WITH AN OPINION OF COUNSEL, SATISFACTORY TO COUNSEL FOR THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED UNDER ANY SUCH ACTS."

4.Exempt Transaction.

The Parties intend for the transactions contemplated herein, including, but not limited to the Exchange, to be exempt from registration under the Securities Act of 1933, as amended (the “Act”) pursuant to Section 3(9) of the Act and exempt from registration or qualification under any state law.

5.Mutual Representations, Covenants and Warranties.

(a)The Parties have all requisite power and authority, corporate or otherwise, to execute and deliver this Agreement and to consummate the transactions contemplated hereby and thereby. The Parties have duly and validly executed and delivered this Agreement and will, on or prior to the consummation of the transactions contemplated herein, execute, such other documents as may be required hereunder and, assuming the due authorization, execution and delivery of this Agreement by the Parties hereto and thereto, this Agreement constitutes, the legal, valid and binding obligation of the Parties enforceable against each Party in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting Exchanging Party’s rights generally and general equitable principles.

4

(b)The execution and delivery by the Parties of this Agreement and the consummation of the transactions contemplated hereby and thereby do not and shall not, by the lapse of time, the giving of notice or otherwise: (a) constitute a violation of any law; or (b) constitute a breach or violation of any provision contained in the Articles of Incorporation or Bylaws, or such other document(s) regarding organization and/or management of the Parties, if applicable; or (c) constitute a breach of any provision contained in, or a default under, any governmental approval, any writ, injunction, order, judgment or decree of any governmental authority or any contract to which either the Company or the Exchanging Party are a party or by which either the Company or the Exchanging Party are bound or affected.

(c)The Exchanging Party hereby covenants that they will, whenever and as reasonably requested by the Company, do, execute, acknowledge and deliver any and all such other and further acts, deeds, assignments, transfers, conveyances, confirmations, powers of attorney and any instruments of further assurance, approvals and consents as the Company may reasonably require in order to complete, insure and perfect the transactions contemplated herein, including, but not limited to the Exchange.

(d)Any individual executing this Agreement on behalf of an entity has authority to act on behalf of such entity and has been duly and properly authorized to sign this Agreement on behalf of such entity.

6.            Miscellaneous.

(a)Assignment. All of the terms, provisions and conditions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the Parties hereto and their respective successors and permitted assigns.

(b)Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Illinois, excluding any provision which would require the use of the laws of any other jurisdiction.

(c)Entire Agreement, Amendments and Waivers. This Agreement constitutes the entire agreement of the Parties regarding the subject matter of the Agreement and expressly supersedes all prior and contemporaneous understandings and commitments, whether written or oral, with respect to the subject matter hereof. No variations, modifications, changes or extensions of this Agreement or any other terms hereof shall be binding upon any Party hereto unless set forth in a document duly executed by such Party or an authorized agent of such Party.

(d)Headings; Gender. The paragraph headings contained in this Agreement are for convenience only, and shall in no manner be construed as part of this Agreement. All references in this Agreement as to gender shall be interpreted in the applicable gender of the Parties.

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(e)Severability. Should any clause, sentence, paragraph, subsection, Section or Article of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the Parties agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom by the Parties, and the remainder will have the same force and effectiveness as if such stricken part or parts had never been included herein.

(f)Interpretation. When used in this Agreement, unless a contrary intention appears: (i) a term has the meaning assigned to it; (ii) ”or” is not exclusive; (iii) ”including” means including without limitation; (iv) the singular shall include the plural, the masculine gender shall include the feminine gender and the neuter and vice versa; (v) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; (vi) the words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision hereof; and (vii) references contained herein to Article, Section, Schedule and Exhibit, as applicable, are references to Articles, Sections, Schedules and Exhibits in this Agreement unless otherwise specified.

(g)Effect of Facsimile and Photocopied Signatures. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. A copy of this Agreement signed by one Party and faxed to another Party shall be deemed to have been executed and delivered by the signing Party as though an original. A photocopy of this Agreement shall be effective as an original for all purposes.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first written above.

“COMPANY”

Epazz, Inc.

/s/ Shaun Passley                        

Shaun Passley

Chief Executive Officer

[Remainder of page left intentionally blank.
Signature page of Exchanging Party follows.]

6

“EXCHANGING PARTY”

Please sign exactly as your name or names appear in the Company’s records. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. In the event any person signs the below on behalf of an entity and fails to provide their authorized position with such entity, the Company shall be able to assume for all purposes that such person is regardless an authorized signatory of the entity and has full authority and capacity to act on its behalf.

/s/ Shaun Passley
Signature	Second Signature (if held jointly)
Shaun Passley
Printed Name
Title (if applicable)
Entity Name (if applicable)

Shares of Class A Common Stock Exchanged: 1,821,052,632

Represented by Certificate(s): book entry

September 11, 2012 and May 16, 2013 and July 8, 2013

Date

7

EX-10.53

Exhibit 10.53

205 W. Wacker Dr. Suite 1320, Chicago, IL 60606

Dear Island Stock Transfer,

Shareholder, Craig Passley, has elected to exchange 60,000,000 shares of Common A (Book Entry March 20, 2013) for 60,000,000 of shares Preferred C. This is an one for one exchange based on the Stock Exchange agreement dated March 22, 2014 between Shaun Passley and Epazz, Inc.

Sincerely,

/s/ Shaun Passley              

Shaun Passley 

Sole Director and CEO

Epazz, Inc.

1

STOCK EXCHANGE AGREEMENT

This Stock Exchange Agreement (this "Agreement") dated as of and effective as of March 22, 2014, is by and between, Epazz, Inc., an Illinois corporation (the "Company"), and the Class A Common Stock shareholder of the Company whose name is set forth on the signature page hereof under the heading "Exchanging Party" (the "Exchanging Party"), each sometimes referred to herein as a "Party" and collectively the "Parties."

WITNESSETH:

WHEREAS, the Exchanging Party desires to exchange the shares of Class A Common Stock of the Company set forth below the Exchanging Party's on the signature page hereof for shares of the Company's newly designated Series C Convertible Preferred Stock with such terms and conditions as are set forth on Exhibit A attached hereto (the "Exchange"); and

WHEREAS, the Company desires for the Exchanging Party to affect the Exchange.

NOW, THEREFORE, in consideration of the premises and the mutual covenants, agreements, and considerations herein contained, which the Parties acknowledge the receipt and sufficiency of, the Parties hereto agree as follows:

1.           Exchange of Common Shares.

(a)In full consideration for the Exchange of each share of Class A Common Stock set forth below the Exchanging Party's name on the signature page hereof (the "Common Shares"), the Company agrees to issue the Exchanging Party one (1) share of Series C Convertible Preferred Stock of the Company (the "Preferred Shares"). I.e., each one (1) Common Share shall be Exchanged for one (1) Preferred Share.

(b)Within five (5) days of the Parties entry into this Agreement, the Exchanging Party shall deliver to the Company the certificate(s) representing the Common Shares, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, with medallion signature guaranty (such date received by the Company, the "Delivery Date").

(c)Within five (5) days of the Delivery Date, the Company shall issue a certificate to the Exchanging Party evidencing the Preferred Shares due as a result of the Exchange.

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2. Full Satisfaction.

The Exchanging Party agrees that it is accepting the Preferred Shares in exchange for and in full satisfaction of the Common Shares Exchanged and that each such Exchanging Party will no longer have any rights to Common Shares, which will be cancelled by the Company subsequent to the Exchange.

3. Representations of Exchanging Party.

The Exchanging Party represents that:

(a)It is the sole record and beneficial owner of the Common Shares owned by such Exchanging Party (defined herein as the "Exchanging Party's Shares") and has good and marketable title to all of the Exchanging Party's Shares, free and clear of any liens, claims, charges, options, rights of tenants or other encumbrances. Such Exchanging Party has sole managerial and dispositive authority with respect to the Exchanging Party's Shares and has not granted any person a proxy or option to buy the Exchanging Party's Shares that has not expired or been validly withdrawn. The Exchange of the Exchanging Party's Shares pursuant to this Agreement will vest in the Company the legal and valid title to the Exchanging Party's Shares, free and clear of all liens, security interests, adverse claims or other encumbrances of any character whatsoever.

(b)Exchanging Party has such knowledge and experience in financial and business matters such that Exchanging Party is capable of evaluating the merits and risks of the Exchange and making an informed investment decision in connection therewith.

(c)Exchanging Party confirms and represents that it is able (i) to bear the economic risk of the Preferred Shares, (ii) to hold the Preferred Shares for an indefinite period of time, and (iii) to afford a complete loss of the Preferred Shares.

(d)Exchanging Party recognizes that the Preferred Shares and the shares of common stock issuable upon conversion thereof (collectively the "Securities") have not been registered under the Securities Act of 1933, as amended (the "1933 Act_s" or the "Act"), nor under the securities laws of any state and, therefore, cannot be resold unless the resale of the Securities is registered under the 1933 Act or unless an exemption from registration is available. Exchanging Party may not sell the Securities without registering them under the 1933 Act and any applicable state securities laws unless exemptions from such registration requirements are available with respect to any such sale. The Company is under no obligation to register such Securities under the 1933 Act or under any state "Blue Sky" laws prior to or subsequent to their issuance.

3

(e)Exchanging Party has carefully considered and has, to the extent it believes such discussion necessary, discussed with its professional, legal, tax and financial advisors, the suitability of an investment in the Preferred Shares for its particular tax and financial situation and its advisers, if such advisors were deemed necessary, have determined that the Preferred Shares are a suitable investment for it.

(f) Exchanging Party understands and agrees that a legend has been or will be placed on any certificate(s) or other document(s) evidencing the Securities in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (I) THEY SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND ANY APPLICABLE STATE SECURITIES ACT, OR (II) THE CORPORATION SHALL HAVE BEEN FURNISHED WITH AN OPINION OF COUNSEL, SATISFACTORY TO COUNSEL FOR THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED UNDER ANY SUCH ACTS."

4.Exempt Transaction.

The Parties intend for the transactions contemplated herein, including, but not limited to the Exchange, to be exempt from registration under the Securities Act of 1933, as amended (the "Act") pursuant to Section 3(9) of the Act and exempt from registration or qualification under any state law.

5.Mutual Representations, Covenants and Warranties.

(a)The Parties have all requisite power and authority, corporate or otherwise, to execute and deliver this Agreement and to consummate the transactions contemplated hereby and thereby. The Parties have duly and validly executed and delivered this Agreement and will, on or prior to the consummation of the transactions contemplated herein, execute, such other documents as may be required hereunder and, assuming the due authorization, execution and delivery of this Agreement by the Parties hereto and thereto, this Agreement constitutes, the legal, valid and binding obligation of the Parties enforceable against each Party in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting Exchanging Party's rights generally and general equitable principles.

4

(b)The execution and delivery by the Parties of this Agreement and the consummation of the transactions contemplated hereby and thereby do not and shall not, by the lapse of time, the giving of notice or otherwise: (a) constitute a violation of any law; or (b) constitute a breach or violation of any provision contained in the Articles of Incorporation or Bylaws, or such other document(s) regarding organization and/or management of the Parties, if applicable; or (c) constitute a breach of any provision contained in, or a default under, any governmental approval, any writ, injunction, order, judgment or decree of any governmental authority or any contract to which either the Company or the Exchanging Party are a party or by which either the Company or the Exchanging Party are bound or affected.

(c)The Exchanging Party hereby covenants that they will, whenever and as reasonably requested by the Company, do, execute, acknowledge and deliver any and all such other and further acts, deeds, assignments, transfers, conveyances, confirmations, powers of attorney and any instruments of further assurance, approvals and consents as the Company may reasonably require in order to complete, insure and perfect the transactions contemplated herein, including, but not limited to the Exchange.

(d)Any individual executing this Agreement on behalf of an entity has authority to act on behalf of such entity and has been duly and properly authorized to sign this Agreement on behalf of such entity.

6.            Miscellaneous.

(a)Assignment. All of the terms, provisions and conditions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the Parties hereto and their respective successors and permitted assigns.

(b)Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Illinois, excluding any provision which would require the use of the laws of any other jurisdiction.

(c)Entire Agreement, Amendments and Waivers. This Agreement constitutes the entire agreement of the Parties regarding the subject matter of the Agreement and expressly supersedes all prior and contemporaneous understandings and commitments, whether written or oral, with respect to the subject matter hereof. No variations, modifications, changes or extensions of this Agreement or any other terms hereof shall be binding upon any Party hereto unless set forth in a document duly executed by such Party or an authorized agent of such Party.

(d)Headings; Gender. The paragraph headings contained in this Agreement are for convenience only, and shall in no manner be construed as part of this Agreement. All references in this Agreement as to gender shall be interpreted in the applicable gender of the Parties.

5

(e)Severability. Should any clause, sentence, paragraph, subsection, Section or Article of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the Parties agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom by the Parties, and the remainder will have the same force and effectiveness as if such stricken part or parts had never been included herein.

(f)              Interpretation. When used in this Agreement, unless a contrary intention appears: (i) a term has the meaning assigned to it; (ii) "or" is not exclusive; (iii) "including" means including without limitation; (iv) the singular shall include the plural, the masculine gender shall include the feminine gender and the neuter and vice versa; (v) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; (vi) the words "hereof', "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision hereof; and (vii) references contained herein to Article, Section, Schedule and Exhibit, as applicable, are references to Articles, Sections, Schedules and Exhibits in this Agreement unless otherwise specified.

(g)             Effect of Facsimile and Photocopied Signatures. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. A copy of this Agreement signed by one Party and faxed to another Party shall be deemed to have been executed and delivered by the signing Party as though an original. A photocopy of this Agreement shall be effective as an original for all purposes.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first written above.

"COMPANY"

Epazz, Inc.

/s/ Shaun Passley                        

Shaun Passley

Chief Executive Officer

[Remainder of page left intentionally blank
Signature page of Exchanging Party follows]

6

"EXCHANGING PARTY"

Please sign exactly as your name or names appear in the Company's records. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. In the event any person signs the below on behalf of an entity and fails to provide their authorized position with such entity, the Company shall be able to assume for all purposes that such person is regardless an authorized signatory of the entity and

has full authori nd capacity to act on its behalf.

/s/ Craig Passley
Signature	Second Signature (if held jointly)
Craig Passley
Printed Name
Title (if applicable)
Entity Name (if applicable)

Shares of Class A Common Stock Exchanged: 60,000,000

Represented by Certificate(s): book entry

March 20, 2013

Date

7

EX-10.54

Exhibit 10.54 

205 W. Wacker Dr. Suite 1320, Chicago, IL 60606

Dear Island Stock Transfer,

Shareholder, L & F Lawn Service, Inc., has elected to exchange 13,669,568 shares of Common A (Book Entry October 9, 2012) for 13,669,568 of shares Preferred C. This is an one for one exchange based on the Stock Exchange agreement dated March 22, 2014 between Shaun Passley and Epazz, Inc.

Sincerely,

/s/ Shaun Passley              

Shaun Passley

Sole Director and CEO

Epazz, Inc.

1

STOCK EXCHANGE AGREEMENT

This Stock Exchange Agreement (this "Agreement") dated as of and effective as of March 22, 2014, is by and between, Epazz, Inc., an Illinois corporation (the "Company"), and the Class A Common Stock shareholder of the Company whose name is set forth on the signature page hereof under the heading "Exchanging Party" (the "Exchanging Party"), each sometimes referred to herein as a "Party" and collectively the "Parties."

WITNESSETH:

WHEREAS, the Exchanging Party desires to exchange the shares of Class A Common Stock of the Company set forth below the Exchanging Party's on the signature page hereof for shares of the Company's newly designated Series C Convertible Preferred Stock with such terms and conditions as are set forth on Exhibit A attached hereto (the "Exchange");_. and

WHEREAS, the Company desires for the Exchanging Party to affect the Exchange.

NOW, THEREFORE, in consideration of the premises and the mutual covenants, agreements, and considerations herein contained, which the Parties acknowledge the receipt and sufficiency of, the Parties hereto agree as follows:

1. Exchange of Common Shares.

(a)In full consideration for the Exchange of each share of Class A Common Stock set forth below the Exchanging Party's name on the signature page hereof (the "Common Shares"), the Company agrees to issue the Exchanging Party one (1) share of Series C Convertible Preferred Stock of the Company (the "Preferred Shares"). i.e., each one (1) Common Share shall be Exchanged for one (1) Preferred Share.

(b)Within five (5) days of the Parties entry into this Agreement, the Exchanging Party shall deliver to the Company the certificate(s) representing the Common Shares, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, with medallion signature guaranty (such date received by the Company, the "Delivery Date").

(c)Within five (5) days of the Delivery Date, the Company shall issue a certificate to the Exchanging Party evidencing the Preferred Shares due as a result of the Exchange.

2

2. Full Satisfaction.

The Exchanging Party agrees that it is accepting the Preferred Shares in exchange for and in full satisfaction of the Common Shares Exchanged and that each such Exchanging Party will no longer have any rights to Common Shares, which will be cancelled by the Company subsequent to the Exchange.

3. Representations of Exchanging Party.

The Exchanging Party represents that:

(a)It is the sole record and beneficial owner of the Common Shares owned by such Exchanging Party (defined herein as the "Exchanging Party's Shares") and has good and marketable title to all of the Exchanging Party's Shares, free and clear of any liens, claims, charges, options, rights of tenants or other encumbrances. Such Exchanging Party has sole managerial and dispositive authority with respect to the Exchanging Party's Shares and has not granted any person a proxy or option to buy the Exchanging Party's Shares that has not expired or been validly withdrawn. The Exchange of the Exchanging Party's Shares pursuant to this Agreement will vest in the Company the legal and valid title to the Exchanging Party's Shares, free and clear of all liens, security interests, adverse claims or other encumbrances of any character whatsoever.

(b)Exchanging Party has such knowledge and experience in financial and business matters such that Exchanging Party is capable of evaluating the merits and risks of the Exchange and making an informed investment decision in connection therewith.

(c)Exchanging Party confirms and represents that it is able (i) to bear the economic risk of the Preferred Shares, (ii) to hold the Preferred Shares for an indefinite period of time, and (iii) to afford a complete loss of the Preferred Shares.

(d)Exchanging Party recognizes that the Preferred Shares and the shares of common stock issuable upon conversion thereof (collectively the "Securities") have not been registered under the Securities Act of 1933, as amended (the "1933 Act," or the "Act"), nor under the securities laws of any state and, therefore, cannot be resold unless the resale of the Securities is registered under the 1933 Act or unless an exemption from registration is available. Exchanging Party may not sell the Securities without registering them under the 1933 Act and any applicable state securities laws unless exemptions from such registration requirements are available with respect to any such sale. The Company is under no obligation to register such Securities under the 1933 Act or under any state "Blue Sky" laws prior to or subsequent to their issuance.

3

(e)Exchanging Party has carefully considered and has, to the extent it believes such discussion necessary, discussed with its professional, legal, tax and financial advisors, the suitability of an investment in the Preferred Shares for its particular tax and financial situation and its advisers, if such advisors were deemed necessary, have determined that the Preferred Shares are a suitable investment for it.

(f) Exchanging Party understands and agrees that a legend has been or will be placed on any certificate(s) or other document(s) evidencing the Securities in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (I) THEY SHALL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND ANY APPLICABLE STATE SECURITIES ACT, OR (II) THE CORPORATION SHALL HAVE BEEN FURNISHED WITH AN OPINION OF COUNSEL, SATISFACTORY TO COUNSEL FOR THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED UNDER ANY SUCH ACTS."

4.Exempt Transaction.

The Parties intend for the transactions contemplated herein, including, but not limited to the Exchange, to be exempt from registration under the Securities Act of 1933, as amended (the "Act") pursuant to Section 3(9) of the Act and exempt from registration or qualification under any state law.

5.Mutual Representations, Covenants and Warranties.

(a)The Parties have all requisite power and authority, corporate or otherwise, to execute and deliver this Agreement and to consummate the transactions contemplated hereby and thereby. The Parties have duly and validly executed and delivered this Agreement and will, on or prior to the consummation of the transactions contemplated herein, execute, such other documents as may be required hereunder and, assuming the due authorization, execution and delivery of this Agreement by the Parties hereto and thereto, this Agreement constitutes, the legal, valid and binding obligation of the Parties enforceable against each Party in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting Exchanging Party's rights generally and general equitable principles.

4

(b)The execution and delivery by the Parties of this Agreement and the consummation of the transactions contemplated hereby and thereby do not and shall not, by the lapse of time, the giving of notice or otherwise: (a) constitute a violation of any law; or (b) constitute a breach or violation of any provision contained in the Articles of Incorporation or Bylaws, or such other document(s) regarding organization and/or management of the Parties, if applicable; or (c) constitute a breach of any provision contained in, or a default under, any governmental approval, any writ, injunction, order, judgment or decree of any governmental authority or any contract to which either the Company or the Exchanging Party are a party or by which either the Company or the Exchanging Party are bound or affected.

(c)The Exchanging Party hereby covenants that they will, whenever and as reasonably requested by the Company, do, execute, acknowledge and deliver any and all such other and further acts, deeds, assignments, transfers, conveyances, confirmations, powers of attorney and any instruments of further assurance, approvals and consents as the Company may reasonably require in order to complete, insure and perfect the transactions contemplated herein, including, but not limited to the Exchange.

(d)Any individual executing this Agreement on behalf of an entity has authority to act on behalf of such entity and has been duly and properly authorized to sign this Agreement on behalf of such entity.

6.             Miscellaneous.

(a)Assignment. All of the terms, provisions and conditions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the Parties hereto and their respective successors and permitted assigns.

(b)Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Illinois, excluding any provision which would require the use of the laws of any other jurisdiction.

(c)Entire Agreement, Amendments and Waivers. This Agreement constitutes the entire agreement of the Parties regarding the subject matter of the Agreement and expressly supersedes all prior and contemporaneous understandings and commitments, whether written or oral, with respect to the subject matter hereof. No variations, modifications, changes or extensions of this Agreement or any other terms hereof shall be binding upon any Party hereto unless set forth in a document duly executed by such Party or an authorized agent of such Party.

(d)Headings; Gender. The paragraph headings contained in this Agreement are for convenience only, and shall in no manner be construed as part of this Agreement. All references in this Agreement as to gender shall be interpreted in the applicable gender of the Parties.

5

(e)Severability. Should any clause, sentence, paragraph, subsection, Section or Article of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the Parties agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom by the Parties, and the remainder will have the same force and effectiveness as if such stricken part or parts had never been included herein.

(f) Interpretation. When used in this Agreement, unless a contrary intention appears: (i) a term has the meaning assigned to it; (ii) "or" is not exclusive; (iii) "including" means including without limitation; (iv) the singular shall include the plural, the masculine gender shall include the feminine gender and the neuter and vice versa; (v) any agreement, instrument or statute defined or referred to herein or in any instrument or certificate delivered in connection herewith means such agreement, instrument or statute as from time to time amended, modified or supplemented and includes (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein; (vi) the words "hereof', "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision hereof; and (vii) references contained herein to Article, Section, Schedule and Exhibit, as applicable, are references to Articles, Sections, Schedules and Exhibits in this Agreement unless otherwise specified.

(g) Effect of Facsimile and Photocopied Signatures. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. A copy of this Agreement signed by one Party and faxed to another Party shall be deemed to have been executed and delivered by the signing Party as though an original. A photocopy of this Agreement shall be effective as an original for all purposes.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first written above.

"COMPANY"

Epazz, Inc.

/s/ Shaun Passley                        

Shaun Passley

Chief Executive Officer

[Remainder of page left intentionally blank
Signature page of Exchanging Party follows]

6

"EXCHANGING PARTY"

Please sign exactly as your name or names appear in the Company's records. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. In the event any person signs the below on behalf of an entity and fails to provide their authorized position with such entity, the Company shall be able to assume for all purposes that such person is regardless an authorized signatory of the entity and has full authority and capacity to act on its behalf.

L & F Lawn Service, Inc.

/s/ Lloyd Passley
Signature	Second Signature (if held jointly)
Lloyd Passley, President
Entity Name (if applicable)

Shares of Class A Common Stock Exchanged: 13,669,568

Represented by Certificate(s): book entry

October 9, 2012

Date

7

EX-10.55

Exhibit 10.55

MEMORANDUM

TO:	Magna Group. I..LC
FROM:	Star Financial Corporation
DATE:	February 4.2014
RE:	Disbursement of Funds

Pursuant to that certain Assignment Agreement between the parties listed above dated February 4, 2014. a disbursement of funds will take place in the amount and manner described below:

Please disburse to:
Amount to disburse:	$10338.36
Form of distribution	Wire
Name	Star Financial Corporation
Address
Bank Name:	CitiBank
Bank Address	700 North Milwaukee Ave.
Bank Phone #	847-984-0120
ABA Routing #	271070801
Account #	080076600

$300 to be Withheld for Legal and Administrative Fees

TOTAL: $10,638.36

By: Fay Passley	Dated February 4, 2014
Star Financial Corporation
Name: Fay Passley
Title: President

1

ASSIGNMENT AGREEMENT

THIS ASSIGNMENT AGREEMENT (the “Agreement”) is made effective as of the 4th day of February, 2014, by and among Star Financial Corporation (the “Assignor”); Magna Group, LLC (the “Assignee”) and EPAZZ, Inc. (the “Company”).

WHEREAS, Assignee wish to assume, all of the Assignors’ right, title, and interest in and to that Promissory Note, dated as of June 12, 2013 made by the Company in the original principal amount of $10,000 in favor of Assignor (the “Note”) ; and

WHEREAS, the Assignor desires to assign to the Assignee all of the Assignors’ right, title, and interest in and to the Note, based on the terms and conditions set out herein.

WHEREAS, after the funding of this Agreement the Assignee and the Company will enter into a restated convertible promissory note attached as Exhibit A to this Agreement, which the Assignor will not be a party to and will have no involvement in.

NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereto agree as follows:

1. Assignment. Subject to and in accordance with the terms and conditions set forth in this Agreement, the Assignor hereby grants, sells, assigns, and conveys to the Assignee, without recourse, all of the Assignor’s right, title and interest in and to the Note. Within two (2) business days of receipt of the consideration (as set forth below), Assignor shall mail to the Company, at the address provided to it by the Company the original Note. Upon receipt of the original Note, the Company shall issue new notes to the Assignee

2. Consideration. In consideration for the assignment of the Note, Assignee shall pay to the Assignor within approximately 24 hours from receipt of the first certificate of the Company, from the first notice of conversion to the Company and as further defined in Sections 14 and 15 hereunder, in lawful money of the United States of America, to the account provided by the Assignor in a Memorandum to Magna Group, LLC. $500 will be withheld from the Assignor and will be designated for legal fees associated with this transaction.

3. Representations of Assignor. Assignor hereby represents and covenants to Assignee that:

a. Assignor has all requisite authority to execute and deliver this Agreement and any other document contemplated by this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby;

2

b. The outstanding principal amount of the Note, as of February 4, 2014 is $10,000 and the accrued and unpaid interest is $638.

c. Assignor’s interest in and to the Note are free and clear of all liens, encumbrances, obligations or defects which are of record prior to the date of this Agreement.

d. Assignor is an "accredited investor" within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission under the Securities Act.

e. Neither Assignor nor any of its officers and directors are now, or have been in the last 90-days, officers or directors of the Company, or beneficial holders of 10% or more of its stock

4. Representations of Assignee. The Assignee hereby represents and covenant, individually, to the Company that:

a. Assignee has all requisite power and authority to execute and deliver this Agreement and any other document contemplated by this Agreement to be signed by the Assignee and to perform its obligations hereunder and to consummate the transactions contemplated hereby;

b. Assignee understand that the shares to be issued upon conversion of the Note have not been, and may not be, registered under the Securities Act of 1933, as amended (the “Securities Act”) by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Assignee’s representations as expressed herein or otherwise made pursuant hereto;

c. Assignee has substantial experience in evaluating and investing in securities of companies similar to the Company and acknowledges that it can protect its own interests. Assignee has such knowledge and experience in financial and business matters so it is capable of evaluating the merits and risks of its investment in the Company. Assignee is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission under the Securities Act;

d. Assignee has had an opportunity to receive all information related to the Company requested by them and to ask questions of and receive answers from the Company regarding the Company, and its business. Assignee has reviewed the Company’s periodic reports on file with Securities and Exchange Act filings;

3

e. Assignee understands that there is a limited trading market for the shares issued upon conversion of the Note and that an active market may not develop for the shares.

f. Assignee represents and warrants that it has read the terms of the Note and agrees to such terms.

5. Entire Agreement. This Agreement constitutes the entire agreement between the parties in respect of the assignments contemplated hereby and there are no warranties, representations, terms, conditions, or collateral agreements expressed or implied, statutory or otherwise, other than expressly set forth in this Agreement. This Agreement expressly supersedes and replaces any and all prior understandings or agreements between the parties with respect to the subject matter of this Agreement.

6. All Further Acts. Each of the parties hereto will do any and all such acts and will execute any and all such documents as may reasonably be necessary from time to time to give full force and effect to the provisions and intent of this Agreement. The Assignor further agrees that it will, at any time and from time to time after the date hereof, upon the Assignee’s request, execute, acknowledge and deliver or cause to be executed and delivered, all further documents or instruments necessary to effect the transactions contemplated in this Agreement.

7. Choice of Law. This Agreement shall be governed by, and construed with, the laws of the State of New York, without giving effect to the conflict of law provisions thereof.

8. Notices. Notices to Assignee under the Note, shall be to the address set forth above.

9. Headings. The headings and captions contained in this Agreement are for convenience of reference only and will not in any way affect the meaning or interpretation of this Agreement.

10. Survival. Each party is entitled to rely on the representations and warranties of the other party and all such representations and warranties will be effective regardless of any investigation that the party has undertaken of failed to undertake. The representations and warranties will survive the effective date of this Agreement and continue in full force and effect until six (6) months after the effective date of this Agreement.

11. No Assignment. No Party may assign any right, benefit or interest in this Agreement without the written consent of the other party, which consent may not be unreasonably withheld. This Agreement will inure to the benefit of, and be binding upon, the Assignors and the Assignee and their respective successors and assigns.

12. Amendment. This Agreement may not be amended except by an instrument in writing signed by each of the parties.

4

13. Counterparts and Electronic Means. This Agreement may be executed in several counterparts, each of which will be deemed to be an original and all of which will together constitute one and the same instrument. Delivery of an executed copy of this Agreement by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy wit' be deemed to be execution and delivery of this Agreement as of the day and year first written above.

14. Conditions_ The Assignor acknowledges the Assignee's participation, in respect to this Agreement, is on a conditions permitting basis. In the evert that the transaction's risk profile., market pricing or implied volatility substantially changes, due diligence concerns, or any other conditions material to the successful closing of the transaction change., the Assignee reserves the right to terminate the Agreement at any lime before delivering the cash consideration. as described hereof, to the Assignor.

15. Deposit and Clearance. If the Assignee is unable to deposit and clear the shares of the Company for any reason. the Assignee may return any shares for cancellation to the transfer agent and (a) cancel the transaction and not make payrnents to the Assignor or (b) demand the return of any payments advanced by the Assignee to the Assignor.

WITNESS THEREOF the parties hereto have executed this Agreement as of the day and year first above written.

Assignor:

Star Financial Corporation

/s/ Fay Passley                                         

Name: Fay Passley

Title: President

Assignee:

Magna Group LLC

/s/ Joshua Sason                                     

Joshua Sason, CEO

Company:

EPAZZ, Inc.

/s/ Shaun Passley                                    

Shaun Passley, CEO, CFO, President

5

STATEMENT OF NON-AFFILIATION

I, Star Financial Corporation, am not an officer, director, control person, or beneficial owner of more than 9.9% of any class of security of the Issuer and I am not and have not been during the preceding three months an affiliate of the Company as that term is defined by Rule 144 of the Securities Act of 1933.

All information furnished herein is true, accurate and complete. In the event of a change of any information contained herein, or in the event any information shall come into my possession which would indicate that the information contained herein is not accurate or complete, I shall immediately inform you of such change or information in writing.

Signed: /s/ Fay Passley                        

Star Financial Corporation

Date: February 4, 2014

6

MEMORANDUM

TO:	Magna Group. I..LC
FROM:	Vivienne Passley
DATE:	February 4.2014
RE:	Disbursement of Funds

Pursuant to that certain Assignment Agreement between the parties listed above dated February 4, 2014. a disbursement of funds will take place in the amount and manner described below:

Please disburse to:
Amount to disburse:	$24,152.00
Form of distribution	Wire
Name	Vivienne Passley
Address	2629 N. Wilshire Lane Arlington Heights, IL 60004
Bank Name:	CitiBank
Bank Address	333 E. Northwest Hwy, Palatine, IL 60067
Bank Phone #	847-202-2110
ABA Routing #	271070801
Account #	0928572355

$700 to be Withheld for Legal and Administrative Fees

TOTAL: $24,852.60

By: /s/ Vivien Passley	Dated February 4, 2014
Name: Vivien Passley
Title:

7

STATEMENT OF NON-AFFILIATION

I, Vivienne Passley, am not an officer, director, control person, or beneficial owner of more than 9.9% of any class of security of the Issuer and I am not and have not been during the preceding three months an affiliate of the Company as that term is defined by Rule 144 of the Securities Act of 1933.

All information furnished herein is true, accurate and complete. In the event of a change of any information contained herein, or in the event any information shall come into my possession which would indicate that the information contained herein is not accurate or complete, I shall immediately inform you of such change or information in writing.

Signed: /s/ Vivien Passley                                   

Vivien Passley

Date: February 4, 2014

8

ASSIGNMENT AGREEMENT

THIS ASSIGNMENT AGREEMENT (the "Agreement") is made effective as of the 4th day of February, 2014, by and among Vivienne Passley (the "Assignor"); Magna Group, LLC (the "Assignee") and EPAZZ, Inc. (the "Company").

WHEREAS, Assignee wish to assume, all of the Assignors' right, title, and interest in and to that Promissory Note, dated as of July 19, 2013 made by the Company in the original principal amount of $23,000 in favor of Assignor (the "Note") ; and

WHEREAS, the Assignor desires to assign to the Assignee all of the Assignors' right, title, and interest in and to the Note, based on the terms and conditions set out herein.

WHEREAS, after the funding of this Agreement the Assignee and the Company will enter into a restated convertible promissory note attached as Exhibit A to this Agreement, which the Assignor will not be a party to and will have no involvement in.

NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereto agree as follows:

1. Assignment. Subject to and in accordance with the terms and conditions set forth in this Agreement, the Assignor hereby grants, sells, assigns, and conveys to the Assignee, without recourse, all of the Assignor's right, title and interest in and to the Note. Within two (2) business days of receipt of the consideration (as set forth below), Assignor shall mail to the Company, at the address provided to it by the Company the original Note. Upon receipt of the original Note, the Company shall issue new notes to the Assignee

2. Consideration. In consideration for the assignment of the Note, Assignee shall pay to the Assignor within approximately 24 hours from receipt of the first certificate of the Company, from the first notice of conversion to the Company and as further defined in Sections 14 and 15 hereunder, in lawful money of the United States of America, to the account provided by the Assignor in a Memorandum to Magna Group, LLC. $1,000 will be withheld from the Assignor and will be designated for legal fees associated with this transaction.

3. Representations of Assignor. Assignor hereby represents and covenants to Assignee that:

a. Assignor has all requisite authority to execute and deliver this Agreement and any other document contemplated by this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby;

9

b. The outstanding principal amount of the Note, as of February 4, 2014 is $23,000 and the accrued and unpaid interest is $1,852.60.

c. Assignor's interest in and to the Note are free and clear of all liens, encumbrances, obligations or defects which are of record prior to the date of this Agreement.

d. Assignor is an "accredited investor" within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission under the Securities Act.

e. Neither Assignor nor any of its officers and directors are now, or have been in the last 90-days, officers or directors of the Company, or beneficial holders of 10% or more of its stock

4. Representations of Assignee. The Assignee hereby represents and covenant, individually, to the Company that:

a. Assignee has all requisite power and authority to execute and deliver this Agreement and any other document contemplated by this Agreement to be signed by the Assignee and to perform its obligations hereunder and to consummate the transactions contemplated hereby;

b. Assignee understand that the shares to be issued upon conversion of the Note have not been, and may not be, registered under the Securities Act of 1933, as amended (the "Securities Act") by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Assignee's representations as expressed herein or otherwise made pursuant hereto;

c. Assignee has substantial experience in evaluating and investing in securities of companies similar to the Company and acknowledges that it can protect its own interests. Assignee has such knowledge and experience in financial and business matters so it is capable of evaluating the merits and risks of its investment in the Company. Assignee is an "accredited investor" within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission under the Securities Act;

d. Assignee has had an opportunity to receive all information related to the Company requested by them and to ask questions of and receive answers from the Company regarding the Company, and its business. Assignee has reviewed the Company's periodic reports on file with Securities and Exchange Act filings;

10

e. Assignee understands that there is a limited trading market for the shares issued upon conversion of the Note and that an active market may not develop for the shares.

f. Assignee represents and warrants that it has read the terms of the Note and agrees to such terms.

5. Entire Agreement. This Agreement constitutes the entire agreement between the parties in respect of the assignments contemplated hereby and there are no warranties, representations, terms, conditions, or collateral agreements expressed or implied, statutory or otherwise, other than expressly set forth in this Agreement. This Agreement expressly supersedes and replaces any and all prior understandings or agreements between the parties with respect to the subject matter of this Agreement.

6. All Further Acts. Each of the parties hereto will do any and all such acts and will execute any and all such documents as may reasonably be necessary from time to time to give full force and effect to the provisions and intent of this Agreement. The Assignor further agrees that it will, at any time and from time to time after the date hereof, upon the Assignee's request, execute, acknowledge and deliver or cause to be executed and delivered, all further documents or instruments necessary to effect the transactions contemplated in this Agreement.

7. Choice of Law. This Agreement shall be governed by, and construed with, the laws of the State of New York, without giving effect to the conflict of law provisions thereof.

8. Notices. Notices to Assignee under the Note, shall be to the address set forth above.

9. Headings. The headings and captions contained in this Agreement are for convenience of reference only and will not in any way affect the meaning or interpretation of this Agreement.

10. Survival. Each party is entitled to rely on the representations and warranties of the other party and all such representations and warranties will be effective regardless of any investigation that the party has undertaken of failed to undertake. The representations and warranties will survive the effective date of this Agreement and continue in full force and effect until six (6) months after the effective date of this Agreement.

11. No Assignment. No Party may assign any right, benefit or interest in this Agreement without the written consent of the other party, which consent may not be unreasonably withheld. This Agreement will inure to the benefit of, and be binding upon, the Assignors and the Assignee and their respective successors and assigns.

12. Amendment. This Agreement may not be amended except by an instrument in writing signed by each of the parties.

11

13. Counterparts and Electronic Means. This Agreement may be executed in several counterparts, each of which will be deemed to be an original and all of which will together constitute one and the same instrument. Delivery of an executed copy of this Agreement by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy will be deemed to be execution and delivery of this Agreement as of the day and year first written above.

14. Conditions. The Assignor acknowledges the Assignee's participation, in respect to this Agreement, is on a conditions permitting basis. In the event that the transaction's risk profile, market pricing or implied volatility substantially changes, due diligence concerns, or any other conditions material to the successful closing of the transaction change, the Assignee reserves the right to terminate the Agreement at any time before delivering the cash consideration, as described hereof, to the Assignor.

15. Deposit and Clearance. If the Assignee is unable to deposit and clear the shares of the Company for any reason, the Assignee may return any shares for cancellation to the transfer agent and (a) cancel the transaction and not make payments to the Assignor or (b) demand the return of any payments advanced by the Assignee to the Assignor.

IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written.

Assignor:

Vivienne Passley

/s/ Vivienne Passley                                 

Name: Vivienne Passley

Title:

Assignee:

Magna Group LLC

/s/ Joshua Sason                                     

Joshua Sason, CEO

Company:

EPAZZ, Inc.

/s/ Shaun Passley                                    

Shaun Passley, CEO, CFO, President

12

Rule 144 Representation

EPAZZ, Inc. (the “Company”) hereby represents that (a) the Company is not, and has never been, a “shell company” as described in Rule 144(i)(1)(i) of the Securities Act of 1933, as amended (the “Securities Act”), or, alternatively, (b) the Company is a former shell company as described in Rule 144(i)(1)(i), (ii) and (i) ceased to be a shell company as described in Rule 144(i)(1)(i); (ii) is subject to the reporting requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (iii) has filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and (iv) one year has elapsed from the date that the Company filed current “Form 10 information” with the Commission reflecting its status as an entity that is no longer an “shell company” as defined in Rule 144(i)(1)(i).

All information furnished herein is true, accurate and complete. In the event of a change of any information contained herein, or in the event any information shall come into my possession which would indicate that the information contained herein is not accurate or complete, I shall immediately inform you of such change or information in writing.

/s/ Shaun Passley                          

EPAZZ, Inc.

By: Shaun Passley

Title:

February 4, 2014

13

CORPORATE RESOLUTION OF THE BOARD OF DIRECTORS OF

EPAZZ, Inc.

We, the undersigned, do hereby certify that at a meeting of the Board of Directors of EPAZZ, Inc., a IL corporation organized under the laws of the State of IL (the “Corporation”), duly held on February 4, 2014 at 205 W. Wacker Dr. Suite 1320, Chicago, IL 60606 which said meeting no less than two directors were present and voting throughout, the following resolution, upon motions made, seconded and carried, was duly adopted and is now in full force and effect:

WHEREAS, the Board of Directors of the Corporation deem it in the best interests of the Corporation to enter into the Assignment and Modification Agreement dated February 4, 2014 (the “Agreement”), in connection with the issuance of an 12% convertible note of the Corporation, in the aggregate principal amount of $35,490.96 (the “Note”), convertible into shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note, along with an irrevocable letter agreement with Island Stock Transfer, the Corporation’s transfer agent, with respect to the reserve of shares of common stock of the Corporation to be issued upon any conversion of the Note; the issuance of such shares of common stock in connection with a conversion of the Note; and the indemnification of Island Stock Transfer for all loss, liability, or expense in carrying out the authority and direction contained in the irrevocable letter agreement (the “Letter Agreement”);

NOW, THEREFORE, BE IT:

RESOLVED, that the Corporation is hereby authorized to enter into the Agreement, the Note and the Letter Agreement which provides in pertinent part: (i) reserve shares of common stock of the Corporation to be issued upon any conversion of the Note; (ii) issue such shares of common stock in connection with a conversion of the Note (issuance upon receipt of a notice of conversion of the holder of the Note) without any further action or confirmation by the Corporation; and the Corporation indemnifies Island Stock Transfer for all loss, liability, or expense in carrying out the authority and direction contained in the Letter Agreement:

RESOLVED, that any executive officer of the Corporation be, and hereby is, authorized, empowered and directed, from time to time, to take such additional action and to execute, certify and deliver to the transfer agent of the Corporation, as any appropriate or proper to implement the provisions of the foregoing resolutions:

The undersigned, do hereby certify that we are members of the Board of Directors of the Corporation; that the attached is a true and correct copy of resolutions duly adopted and ratified at a meeting of the Board of Directors of the Corporation duly convened and held in accordance with its by-laws and the laws of the State of IL, as transcribed by us from the minutes; and that the same have not in any way been modified, repealed or rescinded and are in full force and effect.

IN WITNESS WHEREOF, We have hereunto set our hands as President/CEO and Members of the Board of Directors of the Corporation.

Dated: February 4, 2014

/s/ Shaun Passley                                                 

Shaun Passley,

CEO, CFO, President/Member of the Board

Signature: /s/ Shaun Passley                              

Member of the Board

Print Name: Shaun Passley                                 

14

EPAZZ, Inc.

$35,490.96

TWELVE PERCENT (12%) CONVERTIBLE NOTE
DATED FEBRUARY 4, 2014

THIS NOTE (the “Note”) is a duly authorized Convertible Note of EPAZZ, Inc., a(n) IL corporation (the “Company”).

FOR VALUE RECEIVED, the Company promises to pay Magna Group, LLC (the “Holder”), the principal sum of $35,490.96 (the “Principal Amount”) or such lesser principal amount following the conversion or conversions of this Note in accordance with Paragraph 2 (the “Outstanding Principal Amount”) on February 4, 2015 (the “Maturity Date”), and to pay interest on the Outstanding Principal Amount (“Interest”) in a lump sum on the Maturity Date, at the rate of twelve percent (12%) per Annum (the “Rate”) from the date of issuance.

Accrual of Interest shall commence on the date of this Note and continue until the Company repays or provides for repayment in full the Outstanding Principal Amount and all accrued but unpaid Interest. Accrued and unpaid Interest shall bear Interest at the Rate until paid, compounded monthly. The Outstanding Principal Amount of this Note is payable on the Maturity Date in such coin or currency of the United States as at the time of payment is legal tender for payment of public and private debts, at the address last appearing on the Note Register of the Company as designated in writing by the Holder from time to time. The Company may prepay principal and interest on this Note at any time before the Maturity Date.

The Company will pay the Outstanding Principal Amount of this Note on the Maturity Date, free of any withholding or deduction of any kind (subject to the provision of paragraph 2 below), to the Holder as of the Maturity Date and addressed to the Holder at the address appearing on the Note Register.

This Note is subject to the following additional provisions:

1.All payments on account of the Outstanding Principal Amount of this Note and all other amounts payable under this Note (whether made by the Company or any other person) to or for the account of the Holder hereunder shall be made free and clear of and without reduction by reason of any present and future income, stamp, registration and other taxes, levies, duties, cost, and charges whatsoever imposed, assessed, levied or collected by the United States or any political subdivision or taxing authority thereof or therein, together with interest thereon and penalties with respect thereto, if any, on or in respect of this Note (such taxes, levies, duties, costs and charges being herein collectively called “Taxes”).

2.The Holder of this Note is entitled, at its option, at any time after the issuance of this Note, to convert all or any lesser portion of the Outstanding Principal Amount and accrued but unpaid Interest into Common Stock at a conversion price (the “Conversion Price”) for each share of Common Stock equal to a price which is a 50% discount from the lowest trading price in the 5 days prior to the day that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties (the “Conversion Price”) (The Common stock into which the Note is converted shall be referred to in this agreement as “Conversion Shares”). If the Issuer’s Common stock is chilled for deposit at DTC and/or becomes chilled at any point while this Agreement remains outstanding, an additional 8% discount will be attributed to the Conversion Price defined hereof. The Issuer will not be obligated to issue fractional Conversion Shares. The Holder may convert this Note into Common Stock by surrendering the Note to the Company, with the form of conversion notice attached to the Note as Exhibit B, executed by the Holder of the Note evidencing such Holder’s intention to convert the Note. Additionally, in no event shall the Conversion Price be less than $0.00004. If the Borrower is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors, where applicable to raise the number of authorized shares to satisfy the Notice of Conversion.

The Company will not issue fractional shares or scrip representing fractions of shares of Common Stock on conversion, but the Company will round the number of shares of Common Stock issuable up to the nearest whole share. The date on which a Notice of Conversion is given shall be deemed to be the date on which the Holder notifies the Company of its intention to so convert by delivery, by facsimile transmission or otherwise, of a copy of the Notice of Conversion. Notice of Conversion may be sent by email to the Company, attn: Mr. Shaun Passley, CEO, CFO, President. The Holder will deliver this Note, together with original executed copy of the Notice of Conversion, to the Company within three (3) business days following the Conversion Date. At the Maturity Date, the Company will pay any unconverted Outstanding Principal Amount and accrued Interest thereon, at the option of the Company, in either (a) cash or (b) Common Stock valued at a price equal to the Conversion Price determined as if the Note was converted in accordance with its terms into Common Stock on the Maturity Date.

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3.No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to the payment of the Outstanding Principal Amount of this Note at the Maturity Date, and in the coin or currency herein prescribed. This Note and all other Notes now or hereafter issued on similar terms are direct obligations of the Company. In the event of any liquidation, reorganization, winding up or dissolution, repayment of this Note shall not be subordinate in any respect to any other indebtedness of the Company outstanding as of the date of this Note or hereafter incurred by the Company.

Such non-subordination shall extend without limiting the generality of the foregoing, to all indebtedness of the Company to banks, financial institutions, other secured lenders, equipment lessors and equipment finance companies, but shall exclude trade debts. Any warrants, options or other securities convertible into stock of the Company issued before the date hereof shall rank pari passu with the Note in all respects

4.If at any time or from time to time after the date of this Note, the Common Stock issuable upon the conversion of the Note is changed into the same or different numbers of shares of any class or classes of stock, whether by recapitalization or otherwise, then in each such event the Holder shall have the right thereafter to convert the Note into the kind of security receivable in such recapitalization, reclassification or other change by holders of Common Stock, all subject to further adjustment as provided herein. In such event, the formulae set forth herein for conversion and redemption shall be equitably adjusted to reflect such change in number of shares or, if shares of a new class of stock are issued, to reflect the market price of the class or classes of stock issued in connection with the above described transaction.

5.Events of Default.

5.1. A default shall be deemed to have occurred upon any one of the following events:

5.1.1. Withdrawal from registration of the Issuer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), either voluntary or involuntary.

5.1.2. Issuer filing for bankruptcy protection under the federal bankruptcy laws, the calling of a meeting of creditors, or any act of insolvency under any state law regarding insolvency, without written notification to the Investor within five business days of such filing, meeting or action.

5.1.3. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring or issuing (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion.

5.1.4. Failure to pay the principal and unpaid but accrued interest on the Note when due.

5.1.5. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

5.1.6. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

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5.1.7. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).

5.1.8. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

5.1.9 In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocable reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Holder and the Borrower.

5.1.10 The failure by Borrower to pay any and all Post-Closing Expenses as defined in section 15.

5.1.11 From and after the initial trading, listing or quotation of the Common Stock on a Principal Market, an event resulting in the Common Stock no longer being traded, listed or quoted on a Principal Market; failure to comply with the requirements for continued quotation on a Principal Market; or notification from a Principal Market that the Borrower is not in compliance with the conditions for such continued quotation and such non-compliance continues for seven (7) trading days following such notification.

5.1.12 If the Company does not submit their quarterly or annual report (10-Q or 10-K or the equivalent), and therefore, the Company files a late notification (NT 10-Q or NT 10-K or the equivalent), and then the Company does not file the appropriate quarterly or annual report within fifteen (15) business days from the specific late notification.

5.1.13 Omitted Intentionally.

5.2. Default remedies. Upon the occurrence and during the continuation of any Event of Default specified in Section 5.1. (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 5.1., THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGTAIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 5.1. (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note, 5.1.1, 5.1.2, 5.1.5, 5.1.6, 5.1.7, 5.1.8, 5.1.9, 5.1.10, 5.1.11, 5.1.12, 5.1.13 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified in the remaining sections of Section 5.1. (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 5.1. hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x) and (y) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of such breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date, multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at low or in equity.

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If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

6.Prepayment. At any time that the Note remains outstanding, upon three business days’ written notice (the “Prepayment Notice”) to the Holder, the Company may pay 150% of the entire Outstanding Principal Amount of the Note plus any accrued but unpaid Interest. If the Company gives written notice of prepayment, the Holder continues to have the right to convert principal and interest on the Note into Conversion Shares until three business days elapses from the Prepayment Notice.

7.Anti-Dilution. If, at any time the Note is outstanding, the Issuer issues Common Stock, or grants options or warrants, at a price per share that is less than the Conversion Price on the date of such issuance or grant, the Conversion Price will be adjusted to such lower price for the remainder of the term of the Note.

8.The Company covenants that until all amounts due under this Note are paid in full, by conversion or otherwise, unless waived by the Holder or subsequent Holder in writing, the Company shall:

give prompt written notice to the Holder of any Event of Default or of any other matter which has resulted in, or could reasonably be expected to result in a materially adverse change in its financial condition or operations;

give prompt notice to the Holder of any claim, action or proceeding which, in the event of any unfavorable outcome, would or could reasonably be expected to have a Material Adverse Effect (as defined below) on the financial condition of the Company;

at all times reserve and keep available out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of this Note into Common Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of the Outstanding Principal Amount of this Note into Common Stock.

“Material Adverse Effect” means (i) any condition, occurrence, state of facts or event having, or insofar as reasonably can be foreseen would likely have, any material adverse effect on the legality, validity or enforceability of the Transaction Documents or the transactions contemplated thereby, (ii) any condition, occurrence, state of facts or event having, or insofar as reasonably can be foreseen would likely have, any effect on the business, operations, properties or financial condition of the Company that is material and adverse to the Company and its Subsidiaries, taken as a whole, and/or (iii) any condition, occurrence, state of facts or event that would, or insofar as reasonably can be foreseen would likely, prohibit or otherwise materially interfere with or delay the ability of the Company to perform any of its obligations under any of the Transaction Documents to which it is a party.

9.Upon receipt by the Company of evidence from the Holder reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note,

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(i)in the case of loss, theft or destruction, upon provision of indemnity reasonably satisfactory to it and/or its transfer agent, or

(ii)in the case of mutilation, upon surrender and cancellation of this Note, then the Company at its expense will execute and deliver to the Holder a new Note, dated the date of the lost, stolen, destroyed or mutilated Note, and evidencing the outstanding and unpaid principal amount of the lost, stolen, destroyed or mutilated Note.

10.If any term in this Note is found by a court of competent jurisdiction to be unenforceable, then the entire Note shall be rescinded, the consideration proffered by the Holder for the remaining Debt acquired by the Holder not converted by the Holder in accordance with this Note shall be returned in its entirety and any Conversion Shares in the possession or control of the Investor shall be returned to the Issuer.

11.The Note and the Agreement between the Company and the Holder (including all Exhibits thereto) constitute the full and entire understanding and agreement between the Company and the Holder with respect to the subject hereof. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.

12.This Note shall be governed by and construed in accordance with the internal laws of the State of New York.

13.Legal Opinion. The Issuer’s counsel has provided an opinion regarding the applicable exemption from registration under the Securities Act for the issuance of the Conversion Shares pursuant to the terms and conditions of this Agreement and the Note, which provides that upon conversion at any time following the date hereof, the shares received as a result of the conversion shall be issued unrestricted in accordance with the appropriate exemption. If the Issuer declines to provide, or requests that Investor counsel prepare an opinion, the Issuer agrees to bear the cost of the letter.

14.Conditions. The Issuer acknowledges the Investor’s participation in respect to this Agreement is on a conditions permitting basis. In the event that the transaction risk profile substantially changes, market pricing or implied volatility substantially change, due diligence raises concerns or any other conditions material to the successful closing of the transaction change, the Investor reserves the right to terminate the Agreement at any time before delivering to the Non Affiliate Debtholder the cash consideration as described hereof.

15.Post-Closing Expenses. The Issuer will bear any and all miscellaneous expenses that may arise as a result of this Agreement post-closing. These expenses include, but are not limited to, the cost of legal opinion production, transfer agent fees, equity issuance fees, etc. The failure to pay any and all Post-Closing Expenses will be deemed a default as described in Section 5.1.10 herein.

16.Miscellaneous

16.1. Counterparts. This Agreement may be executed in any number of counterparts by original, facsimile or email signature. All executed counterparts shall constitute one Agreement not withstanding that all signatories are not signatories to the original or the same counterpart. Facsimile and scanned signatures are considered original signatures.

16.2. Severability. This Agreement is not severable. If any term in this Agreement is found by a court of competent urisdiction to be unenforceable, then the entire Agreement shall be rescinded, the consideration proffered by the Investor for the remaining Debt acquired by Investor not converted by the Investor in accordance with this Agreement shall be returned in its entirety and any Conversion Shares in the possession or control of the Investor shall be returned to the Issuer.

16.3. Legal Fees. Except as provided in Section 15 of this agreement, each Party will bear its own legal expenses in the execution of this Agreement. If the Issuer defaults and the Investor is required to expend funds for legal fees and expenses, such costs will be reimbursed to the Investor, solely by the Issuer.

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16.4 Trading Activities. Neither the Holder nor their affiliates has an open short position in the common stock of the Company and the Holder agree that they shall not, and that they will cause their affiliates not to, engage in any short sales of or hedging transactions with respect to the common stock of the Company.

16.5. Modification. This Agreement and the Note may only be modified in a writing signed by all Parties.

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized, as of the date first written above.

EPAZZ, Inc.

By: /s/ Shaun Passley                            

Shaun Passley, CEO, CFO, President

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Exhibit B

NOTICE OF CONVERSION

The undersigned hereby elects to convert $                           of the principal amount of the Note (defined below) into Shares of Common Stock of EPAZZ, Inc., a(n) IL Corporation (the “Borrower”) according to the conditions of the Convertible Note of the Borrower dated as of February 4, 2014 (the “Note”). No fee will be charged to the Holder or Holder’s Custodian for any conversion, except for transfer taxes, if any.

Box Checked as to applicable instructions:

o The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

Name of DTC Prime Broker:
Account Number:

o The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below:

Magna Group, LLC
EIN #: 27-2162659

Date of Conversion:
Conversion Price:
Shares to Be Delivered:
Remaining Principal Balance Due
After This Conversion:
Signature
Print Name:	Joshua Sason

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EX-10.56

Exhibit 10.56

MEMORANDUM

TO:	Magna Group, LLC
FROM:	Star Financial Corporation
DATE:	February 4, 2014
RE:	Disbursement of Funds

Pursuant to that certain Assignment Agreement between the parties listed above dated February 4. 2014, a disbursement of funds will take place in the amount and manner described below:

Please disburse to:
Amount to disburse:	$37,000
Form of distribution	Wire
Name	Star Financial Corporation
Address
Bank Name:	CITIBANK
Bank Address	700 N. Milwaukee Ave Vernon Hills IL 60061
Bank Phone #	[***]
ABA Routing #	[***]
Account #	[***]

$700 to be Withheld for Legal and Administrative Fees

		TOTAL: $37,700
By:	/s/ Fay Passley	Dated: February 4, 2014

Star Financial Corporation  

Name:   Fay Passley

Title:    President

STATEMENT OF NON-AFFILIATION

1, Star Financial Corporation, am not an officer, director, control person, or beneficial owner of more than 9.9% of any class of security of the Issuer and I am not and have not been during the preceding three months an affiliate of the Company as that term is defined by Rule 144 of the Securities Act of 1933.

All information furnished herein is true, accurate and complete. In the event of a change of any information contained herein, or in the event any information shall come into my possession which would indicate that the information contained herein is not accurate or complete, I shall immediately inform you of such change or information in writing.

Signed:	/s/ Fay Passley
	Star Financial Corporation
Date:	2-18-2014

ASSIGNMENT AGREEMENT

THIS ASSIGNMENT AGREEMENT (the “Agreement”) is made effective as of the 4th day of February, 2014, by and among Star Financial Corporation (the “Assignor”); Magna Group, LLC (the “Assignee”) and EPAZZ, Inc. (the “Company”).

WHEREAS, Assignee wish to assume, all of the Assignors’ right, title, and interest in and to that Promissory Note, dated as of July 31, 2013 made by the Company in the original principal amount of $32,000 in favor of Assignor (the “Note”) ; and

WHEREAS, the Assignor desires to assign to the Assignee all of the Assignors’ right, title, and interest in and to the Note, based on the terms and conditions set out herein.

WHEREAS, after the funding of this Agreement the Assignee and the Company will enter into a restated convertible promissory note attached as Exhibit A to this Agreement, which the Assignor will not be a party to and will have no involvement in.

NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereto agree as follows:

1. Assignment. Subject to and in accordance with the terms and conditions set forth in this Agreement, the Assignor hereby grants, sells, assigns, and conveys to the Assignee, without recourse, all of the Assignor’s right, title and interest in and to the Note. Within two (2) business days of receipt of the consideration (as set forth below), Assignor shall mail to the Company, at the address provided to it by the Company the original Note. Upon receipt of the original Note, the Company shall issue new notes to the Assignee

2. Consideration. In consideration for the assignment of the Note, Assignee shall pay to the Assignor within approximately 24 hours from receipt of the first certificate of the Company, from the first notice of conversion to the Company and as further defined in Sections 14 and 15 hereunder, in lawful money of the United States of America, to the account provided by the Assignor in a Memorandum to Magna Group, LLC. $500 will be withheld from the Assignor and will be designated for legal fees associated with this transaction.

3. Representations of Assignor. Assignor hereby represents and covenants to Assignee that:

a. Assignor has all requisite authority to execute and deliver this Agreement and any other document contemplated by this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby;

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b. The outstanding principal amount of the Note, as of February 18, 2014 is $32,000 and the accrued and unpaid interest is $5,700.

c. Assignor’s interest in and to the Note are free and clear of all liens, encumbrances, obligations or defects which are of record prior to the date of this Agreement.

d. Assignor is an "accredited investor" within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission under the Securities Act.

e. Neither Assignor nor any of its officers and directors are now, or have been in the last 90-days, officers or directors of the Company, or beneficial holders of 10% or more of its stock

4. Representations of Assignee. The Assignee hereby represents and covenant, individually, to the Company that:

a. Assignee has all requisite power and authority to execute and deliver this Agreement and any other document contemplated by this Agreement to be signed by the Assignee and to perform its obligations hereunder and to consummate the transactions contemplated hereby;

b. Assignee understand that the shares to be issued upon conversion of the Note have not been, and may not be, registered under the Securities Act of 1933, as amended (the “Securities Act”) by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Assignee’s representations as expressed herein or otherwise made pursuant hereto;

c. Assignee has substantial experience in evaluating and investing in securities of companies similar to the Company and acknowledges that it can protect its own interests. Assignee has such knowledge and experience in financial and business matters so it is capable of evaluating the merits and risks of its investment in the Company. Assignee is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission under the Securities Act;

d. Assignee has had an opportunity to receive all information related to the Company requested by them and to ask questions of and receive answers from the Company regarding the Company, and its business. Assignee has reviewed the Company’s periodic reports on file with Securities and Exchange Act filings;

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e. Assignee understands that there is a limited trading market for the shares issued upon conversion of the Note and that an active market may not develop for the shares.

f. Assignee represents and warrants that it has read the terms of the Note and agrees to such terms.

5. Entire Agreement. This Agreement constitutes the entire agreement between the parties in respect of the assignments contemplated hereby and there are no warranties, representations, terms, conditions, or collateral agreements expressed or implied, statutory or otherwise, other than expressly set forth in this Agreement. This Agreement expressly supersedes and replaces any and all prior understandings or agreements between the parties with respect to the subject matter of this Agreement.

6. All Further Acts. Each of the parties hereto will do any and all such acts and will execute any and all such documents as may reasonably be necessary from time to time to give full force and effect to the provisions and intent of this Agreement. The Assignor further agrees that it will, at any time and from time to time after the date hereof, upon the Assignee’s request, execute, acknowledge and deliver or cause to be executed and delivered, all further documents or instruments necessary to effect the transactions contemplated in this Agreement.

7. Choice of Law. This Agreement shall be governed by, and construed with, the laws of the State of New York, without giving effect to the conflict of law provisions thereof.

8. Notices. Notices to Assignee under the Note, shall be to the address set forth above.

9. Headings. The headings and captions contained in this Agreement are for convenience of reference only and will not in any way affect the meaning or interpretation of this Agreement.

10. Survival. Each party is entitled to rely on the representations and warranties of the other party and all such representations and warranties will be effective regardless of any investigation that the party has undertaken of failed to undertake. The representations and warranties will survive the effective date of this Agreement and continue in full force and effect until six (6) months after the effective date of this Agreement.

11. No Assignment. No Party may assign any right, benefit or interest in this Agreement without the written consent of the other party, which consent may not be unreasonably withheld. This Agreement will inure to the benefit of, and be binding upon, the Assignors and the Assignee and their respective successors and assigns.

12. Amendment. This Agreement may not be amended except by an instrument in writing signed by each of the parties.

13. Counterparts and Electronic Means. This Agreement may be executed in several counterparts, each of which will be deemed to be an original and all of which will together constitute one and the same instrument. Delivery of an executed copy of this Agreement by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy will be deemed to be execution and delivery of this Agreement as of the day and year first written above.

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14. Conditions. The Assignor acknowledges the Assignee's participation, in respect to this Agreement, is on a conditions permitting basis. In the event that the transaction's risk profile, market pricing or implied volatility substantially changes, due diligence concerns, or any other conditions material to the successful closing of the transaction change, the Assignee reserves the right to terminate the Agreement at any time before delivering the cash consideration, as described hereof, to the Assignor.

15. Deposit and Clearance. If the Assignee is unable to deposit and clear the shares of the Company for any reason, the Assignee may return any shares for cancellation to the transfer agent and (a) cancel the transaction and not make payments to the Assignor or (b) demand the return of any payments advanced by the Assignee to the Assignor.

IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written.

Assignor:

Star Financial Corporation

/s/ Fay Passley              

Name: Fay Passley

Title: President

Assignee:

Magna Group LLC

/s/ Joshua Sason             

Joshua Sason, CEO

Company:

EPAZZ, Inc.

/s/ Shaun Passley             

Shaun Passley, CEO, CFO, President 

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ISLAND STOCK TRANSFER

February 19, 2014

VIA ELECTRONIC MAIL

Magna Group, LLC

5 Hanover Square

New York, NY 10004

Re:            Share Structure of EPAZZ, Inc.

To Whom It May Concern:

The purpose of this letter is to confirm the share structure of EPAZZ, Inc. (the “Company”). By execution below, I hereby verify that the information provided is current and accurate as of the date of this document and that at any time while the Note entered into as of the date hereof remains outstanding, I will provide the Company’s current share structure to Magna Group, LLC upon request.

Shares of EPAZZ, Inc. authorized:                                                                         

Shares of EPAZZ, Inc. issued and outstanding:                                               

Furthermore, prior to finalizing this issuance, upon being provided a conversion notice and opinion letter, I agree to provide Magna Group, LLC (via email) with:

i) A copy of the certificate(s) to be issued pursuant to the Agreement(s) as of the date hereof (if physical shares are to be issued in lieu of DWAC);

ii) The FedEx Priority Overnight tracking number (or a copy of the packing slip if available) for any physical certificate(s) to be issued

Very truly yours,

Island Stock Transfer

Name:
Title:

Acknowledged and Agreed

EPAZZ, Inc.

/s/ Shaun Passley             

Shaun Passley

CEO, CFO, President 

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ISLAND STOCK TRANSFER

February 19, 2014

VIA ELECTRONIC MAIL

Magna Group, LLC

5 Hanover Square

New York, NY 10004

Re:                 Share Structure of EPAZZ, Inc.

To Whom It May Concern:

The purpose of this letter is to confirm the share structure of EPAZZ, Inc. (the “Company”). By execution below, I hereby verify that the information provided is current and accurate as of the date of this document and that at any time while the Note entered into as of the date hereof remains outstanding, I will provide the Company’s current share structure to Magna Group, LLC upon request.

Shares of EPAZZ, Inc. authorized:                                                                         

Shares of EPAZZ, Inc. issued and outstanding:                                               

Furthermore, prior to finalizing this issuance, upon being provided a conversion notice and opinion letter, I agree to provide Magna Group, LLC (via email) with:

i) A copy of the certificate(s) to be issued pursuant to the Agreement(s) as of the date hereof (if physical shares are to be issued in lieu of DWAC);

ii) The FedEx Priority Overnight tracking number (or a copy of the packing slip if available) for any physical certificate(s) to be issued

Very truly yours,

Island Stock Transfer

Name:
Title:

Acknowledged and Agreed

EPAZZ, Inc.

Shaun Passley

CEO, CFO, President 

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EPAZZ, INC.

February 19, 2014

Island Stock Transfer

15500 Roosevelt Boulevard Suite 301

Clearwater, FL 33760

Ladies and Gentlemen:

EPAZZ, Inc., a IL corporation (the "Company") and Magna Group, LLC (the "Investor") have entered into a Securities Purchase Agreement dated as of February 19, 2014 (the "Agreement") providing for the issuance of the 12% Convertible Promissory Note in the principal amount of $37,700 (the "Note").

A copy of the Note is attached hereto. You should familiarize yourself with your issuance and delivery obligations, as Transfer Agent, contained therein. The shares to be issued are to be registered in the names of the registered holder of the securities submitted for conversion or exercise or its designee.

You are hereby irrevocably authorized and instructed to reserve a sufficient number of shares of common stock (“Common Stock”) of the Company (initially, 377,000,000 shares) for issuance upon full conversion of the Note in accordance with the terms thereof. The amount of Common Stock so reserved may be increased, from time to time, by written instructions of the Company and the Investor.

The ability to convert the Note in a timely manner is a material obligation of the Company pursuant to the Note. Your firm is hereby irrevocably authorized and instructed to issue shares of Common Stock of the Company (without any restrictive legend) to the Investor without any further action or confirmation by the Company: (A) upon your receipt from the Investor of: (i) a notice of conversion ("Conversion Notice") executed by the Investor; and (ii) an opinion of counsel of the Investor, in form, substance and scope customary for opinions of counsel in comparable transactions (and satisfactory to the transfer agent), to the effect that the shares of Common Stock of the Company issued to the Investor pursuant to the Conversion Notice are not "restricted securities" as defined in Rule 144 and should be issued to the Investor without any restrictive legend; and (B) the number of shares to be issued is less than 9.99% of the total issued common stock of the Company. If the number of shares issued to the Investor is greater than 4.99% of the total issued common stock of the company, the transfer agent must notify the Investor immediately.

The Company hereby requests that your firm act immediately, without delay and without the need for any action or confirmation by the Company with respect to the issuance of Common Stock pursuant to any Conversion Notices received from the Investor. The Company also requires that as long as this convertible note is still outstanding to the Investor, that the transfer agent must disclose the shares authorized and outstanding to the Investor as requested.

The Company shall indemnify you and your officers, directors, principals, partners, agents and representatives, and hold each of them harmless from and against any and all loss, liability, damage, claim or expense (including the reasonable fees and disbursements of its attorneys) incurred by or asserted against you or any of them arising out of or in connection with the instructions set forth herein, the performance of your duties hereunder and otherwise in respect hereof, including the costs and expenses of defending yourself or themselves against any claim or liability hereunder, except that the Company shall not be liable hereunder as to matters in respect of which it is determined that you have acted with gross negligence or in bad faith. You shall have no liability to the Company in respect to any action taken or any failure to act in respect of this if such action was taken or omitted to be taken in good faith, and you shall be entitled to rely in this regard on the advice of counsel.

The Board of Directors of the Company has approved the foregoing (irrevocable instructions) and does hereby extend the Company’s irrevocable agreement to indemnify your firm for all loss, liability or expense in carrying out the authority and direction herein contained on the terms herein set forth.

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The Company agrees that in the event that the Transfer Agent resigns as the Company’s transfer agent, the Company shall engage a suitable replacement transfer agent that will agree to serve as transfer agent for the Company and be bound by the terms and conditions of these Irrevocable Instructions within five (5) business days. The Company also agrees that in the event that the Transfer Agent resigns from their position and the there is a new designated Transfer Agent for the Company, Magna Group, LLC will be informed of such changes within five (5) days of the designation.

The Investor is intended to be and are third party beneficiaries hereof, and no amendment or modification to the instructions set forth herein may be made without the consent of the Investor.

Very truly yours,

EPAZZ, Inc.

Shaun Passley
CEO, CFO, President 

Acknowledged and Agreed

Island Stock Transfer

By:                                                     

Name:

Title:

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Rule 144 Representation

EPAZZ, Inc. (the “Company”) hereby represents that (a) the Company is not, and has never been, a “shell company” as described in Rule 144(i)(1)(i) of the Securities Act of 1933, as amended (the “Securities Act”), or, alternatively, (b) the Company is a former shell company as described in Rule 144(i)(1)(i), (ii) and (i) ceased to be a shell company as described in Rule 144(i)(1)(i); (ii) is subject to the reporting requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (iii) has filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and (iv) one year has elapsed from the date that the Company filed current “Form 10 information” with the Commission reflecting its status as an entity that is no longer an “shell company” as defined in Rule 144(i)(1)(i).

All information furnished herein is true, accurate and complete. In the event of a change of any information contained herein, or in the event any information shall come into my possession which would indicate that the information contained herein is not accurate or complete, I shall immediately inform you of such change or information in writing.

/s/ Shaun Passley                 

EPAZZ, Inc.

By: Shaun Passley

Title: CEO

February 19, 2014:

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CORPORATE RESOLUTION OF THE BOARD OF DIRECTORS OF

EPAZZ, Inc.

We, the undersigned, do hereby certify that at a meeting of the Board of Directors of EPAZZ, Inc., a IL corporation organized under the laws of the State of IL (the “Corporation”), duly held on February 19, 2014 at        205 W. Wacker 1320        which said meeting no less than two directors were present and voting throughout, the following resolution, upon motions made, seconded and carried, was duly adopted and is now in full force and effect:

WHEREAS, the Board of Directors of the Corporation deem it in the best interests of the Corporation to enter into the Assignment and Modification Agreement dated February 19, 2014 (the “Agreement”), in connection with the issuance of an 12% convertible note of the Corporation, in the aggregate principal amount of $37,700 (the “Note”), convertible into shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note, along with an irrevocable letter agreement with Island Stock Transfer, the Corporation’s transfer agent, with respect to the reserve of shares of common stock of the Corporation to be issued upon any conversion of the Note; the issuance of such shares of common stock in connection with a conversion of the Note; and the indemnification of Island Stock Transfer for all loss, liability, or expense in carrying out the authority and direction contained in the irrevocable letter agreement (the “Letter Agreement”);

NOW, THEREFORE, BE IT:

RESOLVED, that the Corporation is hereby authorized to enter into the Agreement, the Note and the Letter Agreement which provides in pertinent part: (i) reserve shares of common stock of the Corporation to be issued upon any conversion of the Note; (ii) issue such shares of common stock in connection with a conversion of the Note (issuance upon receipt of a notice of conversion of the holder of the Note) without any further action or confirmation by the Corporation; and the Corporation indemnifies Island Stock Transfer for all loss, liability, or expense in carrying out the authority and direction contained in the Letter Agreement:

RESOLVED, that any executive officer of the Corporation be, and hereby is, authorized, empowered and directed, from time to time, to take such additional action and to execute, certify and deliver to the transfer agent of the Corporation, as any appropriate or proper to implement the provisions of the foregoing resolutions:

The undersigned, do hereby certify that we are members of the Board of Directors of the Corporation; that the attached is a true and correct copy of resolutions duly adopted and ratified at a meeting of the Board of Directors of the Corporation duly convened and held in accordance with its by-laws and the laws of the State of IL, as transcribed by us from the minutes; and that the same have not in any way been modified, repealed or rescinded and are in full force and effect.

IN WITNESS WHEREOF, We have hereunto set our hands as President/CEO and Members of the Board of Directors of the Corporation.

Dated: February 19, 2014

/s/ Shaun Passley,                                            

Shaun Passley,

CEO, CFO, President/Member of the Board

Signature: /s/ Shaun Passley,                      

Member of the Board

Print Name: Shaun Passley                           

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EPAZZ, Inc.

$37,700

TWELVE PERCENT (12%) CONVERTIBLE NOTE
DATED FEBRUARY 19, 2014

THIS NOTE (the “Note”) is a duly authorized Convertible Note of EPAZZ, Inc., a(n) IL corporation (the “Company”).

FOR VALUE RECEIVED, the Company promises to pay Magna Group, LLC (the “Holder”), the principal sum of $37,700 (the “Principal Amount”) or such lesser principal amount following the conversion or conversions of this Note in accordance with Paragraph 2 (the “Outstanding Principal Amount”) on February 17, 2015 (the “Maturity Date”), and to pay interest on the Outstanding Principal Amount (“Interest”) in a lump sum on the Maturity Date, at the rate of twelve percent (12%) per Annum (the “Rate”) from the date of issuance.

Accrual of Interest shall commence on the date of this Note and continue until the Company repays or provides for repayment in full the Outstanding Principal Amount and all accrued but unpaid Interest. Accrued and unpaid Interest shall bear Interest at the Rate until paid, compounded monthly. The Outstanding Principal Amount of this Note is payable on the Maturity Date in such coin or currency of the United States as at the time of payment is legal tender for payment of public and private debts, at the address last appearing on the Note Register of the Company as designated in writing by the Holder from time to time. The Company may prepay principal and interest on this Note at any time before the Maturity Date.

The Company will pay the Outstanding Principal Amount of this Note on the Maturity Date, free of any withholding or deduction of any kind (subject to the provision of paragraph 2 below), to the Holder as of the Maturity Date and addressed to the Holder at the address appearing on the Note Register.

This Note is subject to the following additional provisions:

1. All payments on account of the Outstanding Principal Amount of this Note and all other amounts payable under this Note (whether made by the Company or any other person) to or for the account of the Holder hereunder shall be made free and clear of and without reduction by reason of any present and future income, stamp, registration and other taxes, levies, duties, cost, and charges whatsoever imposed, assessed, levied or collected by the United States or any political subdivision or taxing authority thereof or therein, together with interest thereon and penalties with respect thereto, if any, on or in respect of this Note (such taxes, levies, duties, costs and charges being herein collectively called “Taxes”).

2. The Holder of this Note is entitled, at its option, at any time after the issuance of this Note, to convert all or any lesser portion of the Outstanding Principal Amount and accrued but unpaid Interest into Common Stock at a conversion price (the “Conversion Price”) for each share of Common Stock equal to a price which is a 50% discount from the lowest trading price in the 5 days prior to the day that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties (the “Conversion Price”) (The Common stock into which the Note is converted shall be referred to in this agreement as “Conversion Shares”). If the Issuer’s Common stock is chilled for deposit at DTC and/or becomes chilled at any point while this Agreement remains outstanding, an additional 8% discount will be attributed to the Conversion Price defined hereof. The Issuer will not be obligated to issue fractional Conversion Shares. The Holder may convert this Note into Common Stock by surrendering the Note to the Company, with the form of conversion notice attached to the Note as Exhibit B, executed by the Holder of the Note evidencing such Holder’s intention to convert the Note. Additionally, in no event shall the Conversion Price be less than $0.00004. If the Borrower is unable to issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued shares available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided that Borrower takes immediate steps required to get the appropriate level of approval from shareholders or the board of directors, where applicable to raise the number of authorized shares to satisfy the Notice of Conversion.

The Company will not issue fractional shares or scrip representing fractions of shares of Common Stock on conversion, but the Company will round the number of shares of Common Stock issuable up to the nearest whole share. The date on which a Notice of Conversion is given shall be deemed to be the date on which the Holder notifies the Company of its intention to so convert by delivery, by facsimile transmission or otherwise, of a copy of the Notice of Conversion. Notice of Conversion may be sent by email to the Company, attn: Mr. Shaun Passley, CEO, CFO, President. The Holder will deliver this Note, together with original executed copy of the Notice of Conversion, to the Company within three (3) business days following the Conversion Date. At the Maturity Date, the Company will pay any unconverted Outstanding Principal Amount and accrued Interest thereon, at the option of the Company, in either (a) cash or (b) Common Stock valued at a price equal to the Conversion Price determined as if the Note was converted in accordance with its terms into Common Stock on the Maturity Date.

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3. No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to the payment of the Outstanding Principal Amount of this Note at the Maturity Date, and in the coin or currency herein prescribed. This Note and all other Notes now or hereafter issued on similar terms are direct obligations of the Company. In the event of any liquidation, reorganization, winding up or dissolution, repayment of this Note shall not be subordinate in any respect to any other indebtedness of the Company outstanding as of the date of this Note or hereafter incurred by the Company.

Such non-subordination shall extend without limiting the generality of the foregoing, to all indebtedness of the Company to banks, financial institutions, other secured lenders, equipment lessors and equipment finance companies, but shall exclude trade debts. Any warrants, options or other securities convertible into stock of the Company issued before the date hereof shall rank pari passu with the Note in all respects

4. If at any time or from time to time after the date of this Note, the Common Stock issuable upon the conversion of the Note is changed into the same or different numbers of shares of any class or classes of stock, whether by recapitalization or otherwise, then in each such event the Holder shall have the right thereafter to convert the Note into the kind of security receivable in such recapitalization, reclassification or other change by holders of Common Stock, all subject to further adjustment as provided herein. In such event, the formulae set forth herein for conversion and redemption shall be equitably adjusted to reflect such change in number of shares or, if shares of a new class of stock are issued, to reflect the market price of the class or classes of stock issued in connection with the above described transaction.

5. Events of Default.

5.1. A default shall be deemed to have occurred upon any one of the following events:

5.1.1.	Withdrawal from registration of the Issuer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), either voluntary or involuntary.
5.1.2.	Issuer filing for bankruptcy protection under the federal bankruptcy laws, the calling of a meeting of creditors, or any act of insolvency under any state law regarding insolvency, without written notification to the Investor within five business days of such filing, meeting or action.
5.1.3.	The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring or issuing (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion.

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5.1.4.	Failure to pay the principal and unpaid but accrued interest on the Note when due.
5.1.5.	Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
5.1.6.	Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
5.1.7.	The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
5.1.8.	The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.
5.1.9	In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocable reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Holder and the Borrower.
5.1.10	The failure by Borrower to pay any and all Post-Closing Expenses as defined in section 15.
5.1.11	From and after the initial trading, listing or quotation of the Common Stock on a Principal Market, an event resulting in the Common Stock no longer being traded, listed or quoted on a Principal Market; failure to comply with the requirements for continued quotation on a Principal Market; or notification from a Principal Market that the Borrower is not in compliance with the conditions for such continued quotation and such non-compliance continues for seven (7) trading days following such notification.
5.1.12	If the Company does not submit their quarterly or annual report (10-Q or 10-K or the equivalent), and therefore, the Company files a late notification (NT 10-Q or NT 10-K or the equivalent), and then the Company does not file the appropriate quarterly or annual report within fifteen (15) business days from the specific late notification.
5.1.13	Omitted Intentionally.

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5.2.

Default remedies. Upon the occurrence and during the continuation of any Event of Default specified in Section 5.1. (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 5.1., THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGTAIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 5.1. (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note, 5.1.1, 5.1.2, 5.1.5, 5.1.6, 5.1.7, 5.1.8, 5.1.9, 5.1.10, 5.1.11, 5.1.12, 5.1.13 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified in the remaining sections of Section 5.1. (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 5.1. hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x) and (y) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of such breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date, multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at low or in equity.

If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

6. Prepayment. At any time that the Note remains outstanding, upon three business days’ written notice (the
“Prepayment Notice”) to the Holder, the Company may pay 150% of the entire Outstanding Principal Amount of the Note plus any accrued but unpaid Interest. If the Company gives written notice of prepayment, the Holder continues to have the right to convert principal and interest on the Note into Conversion Shares until three business days elapses from the Prepayment Notice.

7. Anti-Dilution. If, at any time the Note is outstanding, the Issuer issues Common Stock, or grants options or warrants, at a price per share that is less than the Conversion Price on the date of such issuance or grant, the Conversion Price will be adjusted to such lower price for the remainder of the term of the Note.

8. The Company covenants that until all amounts due under this Note are paid in full, by conversion or otherwise, unless waived by the Holder or subsequent Holder in writing, the Company shall:

give prompt written notice to the Holder of any Event of Default or of any other matter which has resulted in, or could reasonably be expected to result in a materially adverse change in its financial condition or operations;

give prompt notice to the Holder of any claim, action or proceeding which, in the event of any unfavorable outcome, would or could reasonably be expected to have a Material Adverse Effect (as defined below) on the financial condition of the Company;

at all times reserve and keep available out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of this Note into Common Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of the Outstanding Principal Amount of this Note into Common Stock.

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“Material Adverse Effect” means (i) any condition, occurrence, state of facts or event having, or insofar as reasonably can be foreseen would likely have, any material adverse effect on the legality, validity or enforceability of the Transaction Documents or the transactions contemplated thereby, (ii) any condition, occurrence, state of facts or event having, or insofar as reasonably can be foreseen would likely have, any effect on the business, operations, properties or financial condition of the Company that is material and adverse to the Company and its Subsidiaries, taken as a whole, and/or (iii) any condition, occurrence, state of facts or event that would, or insofar as reasonably can be foreseen would likely, prohibit or otherwise materially interfere with or delay the ability of the Company to perform any of its obligations under any of the Transaction Documents to which it is a party.

9. Upon receipt by the Company of evidence from the Holder reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note,

(i) in the case of loss, theft or destruction, upon provision of indemnity reasonably satisfactory to it and/or its transfer agent, or

(ii) in the case of mutilation, upon surrender and cancellation of this Note, then the Company at its expense will execute and deliver to the Holder a new Note, dated the date of the lost, stolen, destroyed or mutilated Note, and evidencing the outstanding and unpaid principal amount of the lost, stolen, destroyed or mutilated Note.

10. If any term in this Note is found by a court of competent jurisdiction to be unenforceable, then the entire Note shall be rescinded, the consideration proffered by the Holder for the remaining Debt acquired by the Holder not converted by the Holder in accordance with this Note shall be returned in its entirety and any Conversion Shares in the possession or control of the Investor shall be returned to the Issuer.

11. The Note and the Agreement between the Company and the Holder (including all Exhibits thereto) constitute the full and entire understanding and agreement between the Company and the Holder with respect to the subject hereof. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.

12. This Note shall be governed by and construed in accordance with the internal laws of the State of New York.

13. Legal Opinion. The Issuer’s counsel has provided an opinion regarding the applicable exemption from registration under the Securities Act for the issuance of the Conversion Shares pursuant to the terms and conditions of this Agreement and the Note, which provides that upon conversion at any time following the date hereof, the shares received as a result of the conversion shall be issued unrestricted in accordance with the appropriate exemption. If the Issuer declines to provide, or requests that Investor counsel prepare an opinion, the Issuer agrees to bear the cost of the letter.

14. Conditions. The Issuer acknowledges the Investor’s participation in respect to this Agreement is on a conditions permitting basis. In the event that the transaction risk profile substantially changes, market pricing or implied volatility substantially change, due diligence raises concerns or any other conditions material to the successful closing of the transaction change, the Investor reserves the right to terminate the Agreement at any time before delivering to the Non Affiliate Debtholder the cash consideration as described hereof.

15. Post-Closing Expenses. The Issuer will bear any and all miscellaneous expenses that may arise as a result of this Agreement post-closing. These expenses include, but are not limited to, the cost of legal opinion production, transfer agent fees, equity issuance fees, etc. The failure to pay any and all Post-Closing Expenses will be deemed a default as described in Section 5.1.10 herein.

16. Miscellaneous

16.1.

Counterparts. This Agreement may be executed in any number of counterparts by original, facsimile or email signature. All executed counterparts shall constitute one Agreement not withstanding that all signatories are not signatories to the original or the same counterpart. Facsimile and scanned signatures are considered original signatures.

16.2.

Severability. This Agreement is not severable. If any term in this Agreement is found by a court of competent jurisdiction to be unenforceable, then the entire Agreement shall be rescinded, the consideration proffered by the Investor for the remaining Debt acquired by Investor not converted by the Investor in accordance with this Agreement shall be returned in its entirety and any Conversion Shares in the possession or control of the Investor shall be returned to the Issuer.

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16.3.	Legal Fees. Except as provided in Section 15 of this agreement, each Party will bear its own legal expenses in the execution of this Agreement. If the Issuer defaults and the Investor is required to expend funds for legal fees and expenses, such costs will be reimbursed to the Investor, solely by the Issuer.
16.4	Trading Activities. Neither the Holder nor their affiliates has an open short position in the common stock of the Company and the Holder agree that they shall not, and that they will cause their affiliates not to, engage in any short sales of or hedging transactions with respect to the common stock of the Company.
16.5.	Modification. This Agreement and the Note may only be modified in a writing signed by all Parties.

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by an officer thereunto duly authorized, as of the date first written above.

EPAZZ, Inc.

By: /s/ Shaun Passley                                 

Shaun Passley, CEO, CFO, President

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Exhibit B.

NOTICE OF CONVERSION

The undersigned hereby elects to convert $_______________ of the principal amount of the Note (defined below) into Shares of Common Stock of EPAZZ, Inc., a(n) IL Corporation (the “Borrower”) according to the conditions of the Convertible Note of the Borrower dated as of February 19, 2014 (the “Note”). No fee will be charged to the Holder or Holder’s Custodian for any conversion, except for transfer taxes, if any.

Box Checked as to applicable instructions:

[ ]	The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).
	Name of DTC Prime Broker:
	Account Number:
[ ]	The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below:
	Magna Group, LLC
	EIN #: 27-2162659

Date of Conversion:
Conversion Price:
Shares to Be Delivered:
Remaining Principal Balance Due After This Conversion:
Signature
Print Name:	Joshua Sason

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PROMISSORY NOTE

US $32,000 July 31, 2013

FOR VALUE RECEIVED, the undersigned, Epazz, Inc.., an Illinois corporation, ("Maker") hereby promises to pay to the order of Star Financial Corporation ("Payee"), the principal sum of thirty-two thousand dollars ($32,000), in lawful money in United States of America, which shall be legal tender, bearing interest and payable as provided herein. This Promissory Note (this “Note” or “Promissory Note”) has an effective date of July 31, 2013. This Note is to reflect a loan being made to the Maker. Payee will forever forgive and discharge any difference between the outstanding balance of the fees owed to Payee by Maker as of the effective date of this Note and the principal amount of this Note upon repayment of this Note in its entirety.

1. Interest on the unpaid balance of this Note shall bear interest at the rate of fifteen percent (15%) per
annum, which interest shall accrue from the effective date until the Maturity Date (as defined below), unless prepaid prior to such Maturity Date. All past-due principal and interest (which failure to pay such amounts after a fifteen (15) day cure period, shall be defined herein as an “Event of Default”) shall bear interest at the rate of twenty percent (20%) per annum until paid in full (the “Default Interest Rate”), with it being understood that Maker shall have an additional fifteen day cure periods during the term of the Note before an Event of Default occurs. Upon an Event of Default, Payee may declare the entire amount of this Note due and payable and shall be able to take whatever action available to it in law or equity to enforce its rights to collect an additional $2,500 as liquidated damages in addition to the amounts owed pursuant to this Note. Interest will be computed on the basis of a 360-day year.

2. The principal amount of this Note shall be due and payable on January 15, 2014 (the “Maturity Date”).

3. Loan Origination fee shall be $5,000 and 3,000,000 shares of Epazz Common A, as deducted from principal proceeds of this note (Net proceeds of $27,000).

4. This Note may be prepaid in whole or in part, at any time and from time to time, without premium or penalty.

5. If any payment of principal or interest on this Note shall become due on a Saturday, Sunday or any other day on which national banks are not open for business, such payment shall be made on the next succeeding business day.

6. This Note shall be binding upon and inure to the benefit of the Payee named herein and Payee’s respective successors and assigns. Each holder of this Note, by accepting the same, agrees to and shall be bound by all of the provisions of this Note. Payee may assign this Note or any of its rights, interests or obligations to this Note without the prior written approval of Maker.

7. No provision of this Note shall alter or impair the obligation of Maker to pay the principal of and interest on this Note at the times, places and rates, and in the coin or currency, herein prescribed.

8. The Maker will do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Maker, except where the failure to comply could not reasonably be expected to have a material adverse effect on the Maker. Failure to comply with this provision shall constitute an Event of Default.

9. Notwithstanding anything to the contrary in this Note or any other agreement entered into in connection herewith, whether now existing or hereafter arising and whether written or oral, it is agreed that the aggregate of all interest and any other charges constituting interest, or adjudicated as constituting interest, and contracted for, chargeable or receivable under this Note or otherwise in connection with this loan transaction, shall under no circumstances exceed the Maximum Rate.

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10. In the event the maturity of this Note is accelerated by reason of an Event of Default under this Note, any other agreement entered into in connection herewith or therewith, or by voluntary prepayment by Maker or otherwise, then earned interest may never include more than the Maximum Rate allowable by law, computed from the dates of each advance of the loan proceeds outstanding until payment. If from any circumstance any holder of this Note shall ever receive interest or any other charges constituting interest, or adjudicated as constituting interest, the amount, if any, which would exceed the Maximum Rate shall be applied to the reduction of the principal amount owing on this Note, and not to the payment of interest; or if such excessive interest exceeds the unpaid balance of principal hereof, the amount of such excessive interest that exceeds the unpaid balance of principal hereof shall be refunded to Maker. In determining whether or not the interest paid or payable exceeds the Maximum Rate, to the extent permitted by applicable law (i) any nonprincipal payment shall be characterized as an expense, fee or premium rather than as interest; and (ii) all interest at any time contracted for, charged, received or preserved in connection herewith shall be amortized, prorated, allocated and spread in equal parts during the period of the full stated term of this Note. The term "Maximum Rate" shall mean the maximum rate of interest allowed by applicable federal or state law.

11. Except as provided herein, Maker and any sureties, guarantors and endorsers of this Note jointly and severally waive demand, presentment, notice of nonpayment or dishonor, notice of intent to accelerate, notice of acceleration, diligence in collecting, grace, notice and protest, and consent to all extensions without notice for any period or periods of time and partial payments, before or after maturity, without prejudice to the holder. The holder shall similarly have the right to deal in any way, at any time, with one or more of the foregoing parties without notice to any other party, and to grant any such party any extensions of time for payment of any of said indebtedness, or to grant any other indulgences or forbearance whatsoever, without notice to any other party and without in any way affecting the personal liability of any party hereunder. If any efforts are made to collect or enforce this Note or any installment due hereunder, the undersigned agrees to pay all collection costs and fees, including reasonable attorney's fees.

12. A copy of this Promissory Note signed by one party and faxed to another party shall be deemed to have been executed and delivered by the signing party as though an original. A photocopy of this Promissory Note shall be effective as an original for all purposes.

13. This Note shall be construed and enforced under and in accordance with the laws of the State of Illinois, without regard to choice-of-law rules of any jurisdiction.

IN WITNESS WHEREOF, Maker has duly executed this Note as of the day and year first written above.

Epazz, INC.

/s/ Shaun Passley                                           

Shaun Passley

Chief Executive Officer

Portions of this exhibit, indicated by the mark “[***],” have been redacted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Securities and Exchange Commission.

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EX-10.57

Exhibit 10.57

Exhibit A.

THIS FIFITEEN PERCENT (15%) CONVERTIBLE PROMISSORY NOTE IS ISSUED IN EXCHANGE FOR THAT CERTAIN PROMISSORY NOTE ISSUED TO VIVIENNE PASSLEY ON August 12, 2013. FOR PURPOSES OF RULE 144, THIS NOTE SHALL BE DEEMED TO HAVE BEEN ISSUED ON August 12, 2013.

THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A PARTIAL REDEMPTION OR CONVERSION.

EPAZZ, INC.

$51,000

FIFITEEN PERCENT (15%) CONVERTIBLE PROMISSORY NOTE

DATED APRIL 2, 2014

FOR VALUE RECEIVED of $51,000, EPAZZ, INC., an Illinois corporation (hereinafter called “Borrower” or the “Company”), hereby promises to pay to VIVIENNE PASSLEY or its assigns or successors-in-interest (the “Holder”) or order, without demand, the aggregate principal amount of FIFTY-ONE THOUSAND DOLLARS ($51,000.00) (the “Principal Amount”), together with interest thereon from the Issue Date, payable on August 1, 2014 (the “Maturity Date”). Interest shall accrue at a rate of fifteen percent (15%) per annum. All Interest calculations hereunder shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months, shall compound daily and shall be payable in accordance with the terms of this Note. “Outstanding Balance” means the Principal Amount, as reduced or increased, as the case may be, pursuant to the terms hereof for conversion, breach hereof or otherwise, plus any accrued but unpaid interest (including with limitation Default Interest), collection and enforcements costs, and any other fees or charges incurred under this Note.

Article I
CONVERSION PRIVILEGES

The conversion privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until Note is paid in full regardless of the occurrence of an Event of Default but subject to Article II. The Holder shall be able to convert this Note starting from today’s date and ending until the full amount of the Note has been converted. The Principal Amount of Note together with all unpaid interest accrued thereon and any other amounts payable hereunder, or such portion thereof, that has not previously been converted into common stock, of the Company (the “Common Stock”) in accordance with Article II hereof, if any, shall be payable in full on the Maturity Date.

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Article II
CONVERSION RIGHTS

The Holder shall have the right to convert the Principal Amount together with all unpaid interest accrued thereon of this Note into shares of the Borrower’s Common Stock as set forth below.

2.1Conversion into the Borrower’s Common Stock

(a)Conversion Price. The conversion price (the “Conversion Price”) shall be .0001.

(b)Conversion. The Holder shall have the option, but shall not be required, to convert all or a portion of the Note into a number of fully paid and non-assessable shares of Common Stock (the “Conversion Shares”). The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding Principal Amount together with all unpaid interest accrued thereon of this Note to be converted by (y) the Conversion Price. The Company may deliver an objection to any Notice of Conversion within one Business Day (as described in Section 5.7 (“Business Day”) of delivery of such Notice of Conversion. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company.

(c)Mechanics of Conversion. As a condition to effecting the conversion set forth in Section 2.1(b) above, the Holder shall properly complete and deliver to the Company a Notice of Conversion, a form of which is annexed hereto as Exhibit B. The Notice of Conversion shall set forth the Principal Amount together with all unpaid interest accrued thereon of this Note to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. Upon timely delivery to the Borrower of the Notice of Conversion, certificates evidencing that number of shares of Common Stock for the portion of the Note converted in accordance herewith shall be transmitted by the Company’s transfer agent to the Holder by crediting the account of the Holder’s broker with The Depository Trust Company through its Deposit / Withdrawal at Custodian system if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Conversion Shares to, or resale of the Conversion Shares by, the Holder or (B) the shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Conversion by the date that is three (3) Trading Days after the Conversion Date (such third day being the “Share Delivery Date”). The Borrower will not issue fraction shares or scrip representing fractions of shares upon conversion, but the Borrower will round the number of the she shares up to the nearest whole share.

(d)Obligation to Deliver Conversion Shares Absolute; Certain Remedies.

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(i)Obligation Absolute. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares. The Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. All payments under this Note (whether made by the Borrower or any other person) to or for the account of the Holder hereunder shall be made free and clear of and without reduction by reason of any present and future income, stamp, registration and other taxes, levies, duties, costs and charges whatsoever imposed, assessed, levied or collected by the United States or any political subdivision or taxing authority thereof or therein, together with interest thereon and penalties with respect thereto, if any on or in respect of this Note (such taxes, levies, duties, costs and charges being herein collectively called “Taxes”).

Failure to Deliver Common Stock Prior to Delivery Date. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered as required by Section 2.1(c) by the Share Delivery Date (a “Conversion Default”), the Borrower shall pay in cash to the Holder for each calendar day beyond the Delivery Date that the Borrower fails to deliver such Common Stock an amount equal to 100% of the product of (1) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis and to which the Holder is entitled multiplied by (2) the Closing Trading Price of the Common Stock on the Trading Day immediately preceding the last possible date on which the Borrower could have issued such shares of Common Stock to the Holder without violating Section 2.1(c) (the “Conversion Default Payment”). Such cash amount shall be paid to the Holder by the fifth day of the month following the month in which it has accrued (the “Conversion Default Payment Due Date”). In the event such cash amount is not received by the Holder by the Conversion Default Payment Due Date, at the option of the Holder (without notice to the Borrower), the Conversion Default Payment shall be added to the Outstanding Balance of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note. If the Company does not request the issuance of the Conversion Shares underlying this Note from its transfer agent after receipt of a Notice of Conversion within TWO (2) Business days following the period allowed for any objection, the Company shall be responsible for any differential in the value of the converted shares underlying this Note between the value of the closing price on the date the shares should have been delivered and the date the shares are delivered. In addition, if the Company fails to timely (within 72 hours, 3 Business Days), issue a treasury order to its transfer agent or otherwise cause to be delivered, the Conversion Shares per the instructions of the Holder, free and clear of all legends in legal free trading form, subject to all applicable securities laws, the Company shall allow Holder to add two (2) days to the look-back (the mechanism used to obtain the conversion price along with discount) for each day the Company fails to timely (within 72 hours, 3 Business Days)) deliver shares, on the next conversion.

(ii)Rescission. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

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(e)Adjustment. The number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(b), shall be subject to adjustment, from time to time, upon the happening of certain events while this conversion right remains outstanding, as follows:

(f)Reservation of Shares. The Borrower represents at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of this Note (based on the Conversion Price in effect from time to time) (the “Reserved Amount”). The Reserved Amount shall be increased from time to time as required to insure compliance with this provision. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which this Note shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of this Note. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue shares of the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of issuing the necessary shares of Common Stock in accordance with the terms and conditions of this Note. If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default.

2.2           Effect of Certain Events.

(a)Fundamental Transaction Consent Right. The Borrower shall not enter into or be party to a Fundamental Transaction (as defined below), unless the Borrower obtains the prior written consent of the Holder to enter into such Fundamental Transaction. For purposes of this Note, “Fundamental Transaction” means that (i) (1) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consolidate or merge with or into (whether or not the Borrower or any of its subsidiaries is the surviving corporation) any other individual, corporation, limited liability company, partnership, association, trust or other entity or organization (collectively, “Person”), or (2) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of the Borrower (not including any shares of voting stock of the Borrower held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of voting stock of the Borrower (not including any shares of voting stock of the Borrower held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), or (5) the Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify the Common Stock, other than an increase in the number of authorized shares of the Borrower’s Common Stock, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of the Borrower. The provisions of this Section 2.2(a) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion of this Note. As a condition to pre-approving any Fundamental Transaction in writing, which approval may be withheld in the Holder’s sole discretion, Holder may require the resulting successor or acquiring entity (if not the Borrower) to assume by written instrument all of the obligations of the Borrower under this Note with the same effect as if such successor or acquirer had been named as the Borrower hereto and thereto.

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(b)             Adjustment Due to Fundamental Transactions. If, at any time when this Note is issued and outstanding and prior to conversion of all of this Note, there shall be any Fundamental Transaction that is pre-approved in writing by the Holder pursuant to Section 2.2(a) above, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of this Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The above provisions shall similarly apply to successive Fundamental Transactions.

(c)              Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s stockholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining stockholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of stockholders entitled to such Distribution.

(d)              Adjustment Due to Dilutive Issuance. If, at any time when this Note is issued and outstanding, the Borrower issues or sells, or in accordance with this section hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

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The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible, and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (1) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (2) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

(e) Purchase Rights. If, at any time when this Note is issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

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(f) Adjustment Due to Non-DWAC Eligibility. If, at any time when this Note is issued and outstanding thereafter, the Holder delivers a Notice of Conversion and at such time the Company’s Common Stock is not DWAC eligible the Borrower shall deliver certificated Conversion Shares to the Holder pursuant to Section 2.1(c) and the Non-DWAC Eligible Adjustment Amount shall be added to the Outstanding Balance of this Note, without limiting any other rights of the Holder under this Note. The “Non-DWAC Eligible Adjustment Amount” is the amount equal to the number of applicable Conversion Shares multiplied by the excess, if any, of (i) the Trading Price of the Common Stock on the Conversion Date, over (ii) the Trading Price of the Common Stock on the date the certificated Conversion Shares are freely tradable, clear of any restrictive legend and deposited in the Holder’s brokerage account. In any such case, Holder will use reasonable efforts to timely deposit such certificates in its brokerage account after it receives them and cause such restrictive legends to be removed, and, without limiting any other provision hereof, Borrower agrees to fully cooperate with Holder in accomplishing the same. Any fees charged to Holder for the stock being Non-DWAC Eligible shall be paid by the Borrower.

(g) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price or the addition of the Non-DWAC Eligible Adjustment Amount to the Outstanding Balance as a result of the events described in this Note, the Borrower, the Non-DWAC Eligible Adjustment Amount shall be added to the Outstanding Balance of this Note, without limiting any other rights of the Holder under this Note. The “Non-DWAC Eligible Adjustment Amount” is the amount equal to the number of applicable Conversion Shares multiplied by the excess, if any, of (i) the Trading Price of the Common Stock on the Conversion Date, over (ii) the Trading Price of the Common Stock on the date the certificated Conversion Shares are freely tradable, clear of any restrictive legend and deposited in the Holder’s brokerage account. at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of this Note.

2.3Method of Conversion. This Note may be converted by the Holder, in whole or in part, as described in Section 2.1(a) hereof. Upon partial conversion of Note, a new Note containing the same date and provisions of Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of Note and interest which shall not have been converted or paid.

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2.4Limitations on Conversion. Notwithstanding anything to the contrary contained in this Note, this Note shall not be convertible by the Holder hereof, and the Company shall not effect any conversion of this Note or otherwise issue any shares of Common Stock pursuant hereto, to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the Common Stock. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provision of this section, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provision of this section shall continue to apply. To the extent the above limitation applies, the determination of whether this Note shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to convert this Note, or to issue shares of Common Stock, pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. For purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the Securities Act of 1934, as amended, and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Note. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2) Trading Days confirm orally to the Holder and, if requested, in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Note.

Article III
EVENT OF DEFAULT

The occurrence of any of the following events of default (“Event of Default”) shall be an event of default hereunder (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

3.1Failure to Pay. The Borrower fails to pay the Principal Amount, interest, damages or other sum due under this Note or any other note when due;

3.2Breach of Covenant. The Borrower breaches any material covenant of the Note in any material respect and such breach, if subject to cure, continues for a period of FIFTEEN (15) Trading Days after written notice to the Borrower from the Holder;

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3.3Breach of Representations and Warranties. Any representation or warranty of the Borrower made, in this Note, said statement or certificate given in writing pursuant hereto or in connection therewith or any other report, financial statement or certificate shall be false or misleading in any material respect as of the date made;

3.4Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed;

3.5Judgments. Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than ONE MILLION DOLLARS ($1,000,000.00) and shall remain unvacated, unbonded or unstayed for a period of THIRTY (30) days;

3.6Bankruptcy. Bankruptcy, reorganization, insolvency proceeding, liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower and if instituted against them are not dismissed within THIRTY (30) days of initiation. The Borrower suffers any appointment of any custodian or the like for it or any substantial art of its property that is not discharged or stayed within 30 days; the Borrower makes a general assignment of the benefit of creditors; the Borrower fails to pay or states that it is unable to pay, or is unable to pay its debts generally as they become due;

3.7Non-Payment. A default by the Borrower under any one or more obligations in, unless the Borrower is contesting the validity of such obligation in good faith and has segregated cash funds equal to not less than one-half of the contested amount;

3.8Public Information Failure. A Public Information Failure occurs and continues for a period of FIFTEEN (15) Days;

3.9            Beginning 30 days after the Issue Date, the failure of the Company’s Common Stock to be DWAC eligible, which failure continues for a period of 30 days uncured, at any time during which the Borrower has obligations under this Note;

3.10          Reservation Default. Failure by the Borrower to have reserved for issuance upon conversion of this Note the amount of Common Stock as set forth in this Note;

3.11Withdrawal from registration of the Company under thelien Securities Exchange Act of 1934, as amended (the “Exchange Act” or “1934 Act”), either voluntary or involuntary;

3.12Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due;

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3.13The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future;

3.14The Borrower shall fail to maintain the listing and/or quotation, as applicable, of the Common Stock on the Principal Market;

3.15The Borrower shall fail to comply with the reporting requirements of the 1934 Act; and/or the Borrower shall cease to be subject to the reporting requirements of the 1934 Act;

3.16Any cessation of operations by the Borrower or the Borrower admits it is otherwise generally unable to pay its debts and such debts become due;

3.17The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note;

3.18The Borrower effectuates a reverse split of its Common Stock without twenty (20) calendar days prior written notice to the Holder;

3.19In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered (including but not limited to the provision to irrevocable reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Holder and the Borrower;

3.20The Company shall fail for any reason to deliver certificates to a Holder prior to the fifth Trading Day after a Conversion Date or the company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversion of any Notes in accordance with the terms hereof or the Company shall fail to deliver documents requested by the Holder or the Holder’s brokerage firm which the Holder or the Holder’s brokerage firm deem necessary to allow Holder to sell the Company’s stock;

3.21During the term of this Agreement, the Company enters into any Prohibited Transaction without the prior written consent of the Holder, which consent may be withheld at the sole discretion of the Holder. For the purposes of this Note, the term “Prohibited Transaction” shall refer to the issuance by the Company of any “future priced securities,” which shall mean the issuance of shares of Common Stock or securities of any type whatsoever that are, or may become, convertible or exchangeable into shares of Common Stock where the purchase, conversion or exchange price for such Common Stock is determined using any floating discount or other post-issuance adjustable discount to the market price of Common Stock, including, without limitation, pursuant to any equity line financing, stand-by equity distribution agreements, at the market transactions or convertible securities and loans, securities in a registered direct public offering or an unregistered private placement where the price per share of such securities is fixed concurrently with the execution of definitive documentation relating to the offering or placement, as applicable and securities issued in connection with a secured debt financing, shall not be a Prohibited Transaction;

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3.22The Borrower fails to provide information requested by the Holder in order to enable the holder to have their converted securities accepted and sold by their brokerage firm, or the Borrower attempts to prevent, block or frustrate in any manner, the Holder from converting this Note; and

3.23The Borrower breaches a negative covenant in Article IV of this Note

Upon the occurrence of any Event of Default, (a) the Outstanding Balance shall immediately increase to 150% of the Outstanding Balance immediately prior to the occurrence of the Event of Defaultand (b) this Note shall then accrue interest at the Default Rate which shall be the maximum amount of interest available under state law during a default on a note (the “Default Rate” and collectively, the “Default Effects”). The Default Effects shall automatically apply upon the occurrence of an Event of Default without the need for any party to give any notice or take any other action. Further, upon the occurrence and during the continuation of any Event of Default, the Holder may by written notice to the Borrower declare the entire Outstanding Balance immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding; provided, however, that upon the occurrence or existence of any Event of Default, immediately and without notice, all outstanding obligations payable by the Borrower hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary (“Automatic Acceleration”). The Holder shall retain all rights under this Note, including the ability to convert the then Outstanding Balance of this Note at all times following the occurrence of an Automatic Acceleration until the entire then Outstanding Balance has been paid in full. If one or more of the “Events of Default” as described in the Agreement shall occur, the Borrower agrees to pay all costs and expenses, including reasonable attorney’s fees, which the Holder may incur in collecting any amount due under, or enforcing any terms of, this Note. The Borrower covenants that until all amounts due under this Note are paid in full, by conversion or otherwise, the Borrower shall notify Holder in writing within one day of any of the above Events of Default.

ARTICLE IV
NEGATIVE COVENANTS

4.1.         Negative Covenants. As long as any portion of this Note remains outstanding, unless the Holder shall have otherwise given prior written consent, the Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

(a)other than Permitted Indebtedness (as defined below), enter into, create, incur, assume, guarantee or suffer to exist any secured indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

(b)other than Permitted Liens (as defined below), enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

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(c)repay, repurchase or offer to repay, repurchase or otherwise acquire for cash more than a de minimis number of shares of its Common Stock other than repurchases of Common Stock of departing officers and directors of the Company, provided that such repurchases shall not exceed an aggregate of $100,000 during the term of this Note; or

(d)pay cash dividends or distributions on any equity securities of the Company.

(e)amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

(f)repay, repurchase or offer to repay, repurchase or otherwise acquire any indebtedness, other than the Debentures if on a pro-rata basis, other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist or occur;

(g)enter into any transaction with any affiliate of the Company which would be required to be disclosed in any public filing with the SEC, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval; or

(h)enter into any agreement with respect to any of the foregoing.

4.2          Definitions. For the purpose of this Note, the following definitions shall apply:

(i)“Permitted Indebtedness” means (i) the Indebtedness evidenced by the Note, (ii) unsecured Indebtedness incurred by the Company, which Indebtedness is not senior in rank to the Note and does not mature prior to six months from the issue date of such Indebtedness, (iii) Indebtedness secured by Permitted Liens, and (iv) extensions, refinancings and renewals of any items in clauses (i) through (iv) above, provided that the principal amount is not increased (other than with respect to the addition of existing or future interest due and payable thereunder to the principal thereunder) or the terms modified to impose materially more burdensome terms upon the Company or its subsidiaries, as the case may be.

(j) “Permitted Lien” means the individual and collective reference to the following: (i) any lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any lien created by operation of law, such as materialmen's liens, mechanics' liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, (v) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described in clause (iv) above, provided that any extension, renewal or replacement lien shall be limited to the property encumbered by the existing lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vi) leases or subleases and licenses and sublicenses granted to others in the ordinary course of the Company's business, not interfering in any material respect with the business of the Company and its Subsidiaries taken as a whole, (vii) liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods, (viii) liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default, (ix) liens incurred in connection with Permitted Indebtedness under clause (i) and, solely to the extent existing as of the Issue Date, clause (ii) of the definition thereof (including any extensions, refinancings and renewals of such Indebtedness that constitute Permitted Indebtedness).

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Article V
REDEMPTION RIGHTS

5.1.           Optional Redemption Right. Subject to the provisions of this Article V, at any time (a) within ninety (90) days after the Effective Date, the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional Redemption Notice Date”) of its irrevocable election to redeem all of the then outstanding principal amount together with all unpaid interest accrued thereon of this Note for cash at a redemption price equal to 150% multiplied by all of the then outstanding principal amount together with all unpaid interest accrued thereon of this Note, on the 20^th Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption Date”, such 20 Trading Day period, the “Optional Redemption Period” and such redemption, the “Optional Redemption”), The Optional Redemption Amount is payable in full on the Optional Redemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions (as defined below) shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full. If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company after the day on which any such Equity Condition has not been met in which case the Optional Redemption Notice shall be null and void, ab initio. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full. “Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Note, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the Conversion Shares issuable upon conversion of such portion of this Note subject to an Optional Redemption (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for such period) or (ii) all of the Conversion Shares issuable upon conversion of such portion of this Note subject to an Optional Redemption may be resold pursuant to Rule 144 during such period, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to this Note are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the Conversion Shares issuable upon conversion of such portion of this Note being redeemed at such time, (f) there is no existing Event of Default and, to the actual knowledge of the Company, no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares issuable to the Holder upon conversion of such portion of this Note subject to an Optional Redemption would not violate the limitations set forth in Section 2.3 under this Note, (h) there has been no public announcement of a pending or proposed Fundamental Transaction that has not been consummated or abandoned, and (i) the applicable Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information. Notwithstanding the foregoing, the Holder may elect to convert the outstanding principal amount of the Note subject to an Optional Redemption Notice pursuant to Article II at any time prior to actual payment in cash for any redemption under this Section 5 by the delivery of an irrevocable Notice of Conversion to the Company.

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Article IV
UNSECURED NOTE

4.1Unsecured Note. Note is an unsecured obligation of the Borrower.

Article V
MISCELLANEOUS

5.1Failure or Indulgence Not Waiver. No failure or delay on the part of Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. Notices. All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall be in writing and either faxed, mailed, e-mailed or delivered to each party at the respective addresses of the parties. All such notices and communications shall be effective (a) when sent by Federal Express or other overnight service of recognized standing on the Trading Day following the deposit with such service; (b) when mailed, by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; (d) when faxed, upon confirmation of receipt; (e) when e-mailed, upon e-mail being sent.

5.3Amendment Provision. No provision of this Note may be modified or amended without the prior written consent of the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

5.4Assignability. Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns. The Holder may assign or transfer this Note to any transferee.

5.5Cost of Collection. If default is made in the payment of Note, Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.

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5.6Governing Law. Note shall only be governed by and construed in accordance with the laws of the State of Delaware, including, but not limited to, Delaware’s statutes of limitations. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the civil or state courts in Delaware or in the federal courts located in Delaware. Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit only to the jurisdiction of such courts in Delaware. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law. Any such provision, which may prove invalid or unenforceable under any law, shall not affect the validity or unenforceability of any other provision of Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower’s obligations to Holder, or to enforce a judgment or other decision in favor of the Holder. This Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding or summary judgment or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of Note, whether or not such other document or agreement was delivered together herewith or was executed apart from Note. If for any reason a Delaware court of law deems that Delaware is not the proper venue, then the Note shall be governed by and construed only in accordance with the laws of the State of Florida, including, but not limited to, Florida’s statutes of limitations and any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the civil or state courts in Miami, Florida or in the federal courts located in Miami, Florida and the individual signing this Agreement on behalf of the Borrower agree to submit only to the jurisdiction of such courts in Florida.

5.7Non-Business Days. Whenever any payment or any action to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of Florida, such payment may be due or action shall be required on the next succeeding Trading Day and, for such payment, such next succeeding day shall be included in the calculation of the amount of accrued interest payable on such date.

5.8Unenforceability. If any term in this Note is found by a court of competent jurisdiction to be unenforceable, then the entire Note shall be rescinded, the consideration proffered by the Holder for the remaining Outstanding Balance acquired by the Holder not converted by the Holder in accordance with this Note shall be returned in its entirety and any Conversion Shares in the possession or control of the Holder shall be returned to the Company.

5.9Entire Understanding. The Note between the Borrower and the Holder (including all Exhibits thereto) constitute the full and entire understanding and agreement between the Borrower and the Holder with respect to the subject hereof. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Borrower and the Holder. Any questions regarding interpretation of this Note shall be solely construed by the Holder in their sole discretion.

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5.10Registration Rights. The Company hereby grants the right to the Holder, at Holder’s expense, to require Company to register any and all issuances, past, present and future, directly connected to this specific Outstanding Balance. If the Holder shall request the registration, the Company shall begin the registration process within 30 days and the Holder shall have the following rights.

5.11Recoupment of Registration Fees. If the Holder shall invoke his rights under section 5.11 of this Agreement, the Company shall reimburse to the Holder all fees, costs, and disbursements, inclusive of attorney’s fees, paid for by Holder, in common stock under the same terms and conditions provided for herein.

5.12Legal Opinion. The Company’s counsel has provided an opinion regarding the applicable exemption from registration under the Securities Act of 1933, as amended, for the issuance of the Conversion Shares pursuant to the terms and conditions of this Agreement and the Note, which provides that upon conversion at any time following the date hereof, the shares received as a result of the conversion shall be issued unrestricted in accordance with the appropriate exemption.

5.13Post-Closing Expenses. The Borrower will bear any and all miscellaneous expenses of the Borrower and Holder that may arise post-closing. These expenses include, but are not limited to, the cost of legal opinion production, transfer agent fees, equity issuance fees, fees charged for delivering, vetting and accepting physical certificates, any and all fees and costs charged by the Holder’s brokers in handling and transacting in the shares of the Company on behalf of the Holder. These fees may be either deducted from future payments or added to the outstanding principal balance of this Note at the sole discretion of the Holder. The failure to pay any and all Post-Closing Expenses will be deemed an Event of Default.

5.14Savings Clause. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provision of this Note will not in any way be affected or impaired thereby. In no event shall the amount of interest paid hereunder exceed the maximum rate of interest on the unpaid principal balance hereof allowable by applicable law. If any sum is collected in excess of the applicable maximum rate, the excess collected shall be applied to reduce the principal debt. If the interest actually collected hereunder is still in excess of the applicable maximum rate, the interest rate shall be reduced so as not to exceed the maximum allowable under law.

5.15Attorneys’ Fees and Cost of Collection. In the event of any action at law or in equity to enforce or interpret the terms of this Note or any of the other documents related to this financing, the parties agree that the party who is awarded the most money shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses  paid by such prevailing party in connection with the litigation and/or dispute without reduction or apportionment based upon the individual claims or defenses  giving rise to the fees and expenses.  Nothing herein shall restrict or impair a court’s power to award fees and expenses for frivolous or bad faith pleading.

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5.16Fees and Charges. The parties acknowledge and agree that upon the Borrower’s failure to comply with the provisions of this Note, the Holder’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to predict future interest rates, the Holder’s increased risk, and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder, among other reasons. Accordingly, any fees, charges, and interest due under this Note are intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not a penalty, and shall not be deemed in any way to limit any other right or remedy Holder may have hereunder, at law or in equity.

5.17Notice of Corporate Events. Except as otherwise provided herein, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s stockholders (and copies of proxy materials and other information sent to stockholders). In the event of any taking by the Borrower of a record of its stockholders for the purpose of determining stockholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining stockholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) calendar days prior to the record date specified therein (or thirty (30) calendar days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this section.

5.18Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the charges assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

[SIGNATURES ON THE FOLLOWING PAGE]

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IN WITNESS WHEREOF, Borrower has caused Note to be signed in its name by an authorized officer as of Epazz, Inc..

EPAZZ, INC.

By:   /s/ Shaun Passley            

Name: Shaun Passley

Title: CEO

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Exhibit B

NOTICE OF CONVERSION

(To be executed by the Registered Holder in order to convert the Note)

The undersigned hereby elects to convert $_________ of the principal amount and $_________ of the interest due on the Note issued by EPAZZ, INC. on December 12, 2013 into shares of common stock of EPAZZ, INC. (the “Borrower”) according to the conditions set forth in such Note, as of the date written below.

Date of Conversion:

Conversion Price:

Shares to Be Delivered:

Notwithstanding anything to the contrary contained herein, this Conversion Notice shall constitute a representation by the Holder of the Note submitting this Conversion Notice that, after giving effect to the conversion provided for in this Conversion Notice, such Holder (together with its affiliates) will not have beneficial ownership (together with the beneficial ownership of such person's affiliates) of a number of shares Common Stock which exceeds the Maximum Percentage (as defined in the Note) of the total outstanding shares Common Stock of the Company as determined pursuant to the provisions of Section 2.3 of the Note.

Signature: _____________________________________________________________________

Vivienne Passley

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Representation of Individual Officer of Epazz, Inc.

Re: Convertible Promissory Note Between Epazz, Inc. (“Borrower”) and Vivienne Passley, LLC Dated 4/1/2014 (“Note”)

In connection with the above referenced Note and exhibits and related agreements and instruments, herein the Agreement, and any present and any future conversion requests of AGS Capital Group, LLC ("AGS") we irrevocably confirm:

1. Borrower is not, and has not been, a shell issuer as described in Rule 144 promulgated with reference to the Securities Act of 1933, as amended (the "Securities Act") nor is or was a "shell" as otherwise commonly understood;

2. Borrower is, unless noted "Not Applicable," subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of1934, as amended (the "Exchange Act").

3. Borrower has to the extent it has been subject to Exchange Act requirements for filing reports, filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months and or has filed with the trading exchange or over the counter disclosure system all such reports and information to be deeded current in all public reporting.

4. The original Outstanding Balances noted in the above referenced Note, and the contents of the above referenced Note are accurate and Borrower did not and will not receive any new consideration for the exchange note issued to AGS Capital Group, LLC.

5. Borrower is now and will remain current with all obligations with its stock transfer agent and the U.S. Securities and Exchange Commission and the state of incorporation. Neither Star Financial Corporation nor AGS Capital Group, LLC is or has been an owner, affiliate or 10% or greater shareholder of Borrower, as that term is defined by Rule 144(a) of the Securities Act of 1933. Neither Star Financial Corporation nor AGS Capital Group, LLC, is directly or indirectly through one or more intermediaries, in control of, controlled by, or under common control with Borrower.

6. Any and all approvals needed in relation to the above referenced Note, this letter, for the assistance of our transfer agent, etc., is obtained. The Note reflects, among other things, conversion rights we otherwise afford to the nonaffiliated debt holders.

Representations herein survive the issuance or closing of any instrument or matter, and we will cooperate as needed to give effect to and protect your rights including as to the transfer agent and you may rely upon these promises and representations.

Effective Date: 4/1/2014

Very truly yours,

__________________________

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EX-10.58

Exhibit 10.58

SETTLEMENT AGREEMENT AND STIPULATION

THIS SETTLEMENT AGREEMENT and STIPULATION dated as of February __, 2014 by and between Epazz, Inc. (“Epazz” or the “Company”), a corporation formed under the laws of the State of Illinois, and IBC Funds, LLC (“IBC”), a Nevada Limited Liability Company.

BACKGROUND:

WHEREAS, there are bona fide outstanding liabilities of the Company in the principal amount of not less than $314,021.18 including principal and accrued interest; and

WHEREAS, these liabilities are past due; and

WHEREAS, IBC acquired such liabilities on the terms and conditions set forth in the annexed Claim Purchase Agreement(s), subject however to the agreement of the Company and compliance with the provisions hereof; and

WHEREAS, IBC and Epazz desires to resolve, settle, and compromise among other things the liabilities as more particularly set forth on Schedule A annexed hereto (hereinafter collectively referred to as the “Claims”).

NOW, THEREFORE, the parties hereto agree as follows:

1.    Defined Terms. As used in this Agreement, the following terms shall have the following meanings specified or indicated (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

"AGREEMENT" shall have the meaning specified in the preamble hereof.

"CLAIM AMOUNT" shall mean $314,021.18.

"COMMON STOCK" shall mean the Company's common stock, $.0001 par value per share, and any shares of any other class of common stock whether now or hereafter authorized, having the right to participate in the distribution of dividends (as and when declared) and assets (upon liquidation of the Company).

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"COURT" shall mean the Circuit Court within Sarasota County, Florida.

"DISCOUNT" shall mean fifty percent (50%).

"DTC" shall have the meaning specified in Section 3b.

"DWAC" shall have the meaning specified in Section 3b.

"FAST" shall have the meaning specified in Section 3b.

"MARKET PRICE" on any given date shall mean the lowest Sale Price during the Valuation Period.

"PRINCIPAL MARKET" shall mean the Nasdaq National Market, the Nasdaq SmallCap Market, the Over the Counter Bulletin Board, QB marketplace, the American Stock Exchange or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock.

"PURCHASE PRICE" shall mean the Market Price during the Valuation Period (or such other date on which the Purchase Price is calculated in accordance with the terms and conditions of this Agreement) less the product of the Discount and the Market Price.

“SELLER” shall mean any individual or entity listed on Schedule A, who originally owned the Claims.

"TRADING DAY" shall mean any day during which the Principal Market shall be open for business.

"TRANSFER AGENT" shall mean the transfer agent for the Common Stock (and to any substitute or replacement transfer agent for the Common Stock upon the Company's appointment of any such substitute or replacement transfer agent).

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"VALUATION PERIOD" shall mean the fifteen (15) day trading period preceding the share request inclusive of the day of any Share Request pursuant to this agreement (the “trading period”); provided that the Valuation Period shall be extended as necessary in the event that (1) the Initial Issuance is delivered in more than one tranches pursuant to Sections 3(a) and 3(e), and/or (2) one or more Additional Issuances is required to be made pursuant to Section 3(d) below, in which case the Valuation Period for each issuance shall be extended to include additional trading days pursuant to such issuance. The Valuation Period shall begin on the date of any Share Request pursuant to this Agreement, but shall be suspended to the extent that any subsequent Initial Issuance tranche and/or Additional Issuance is due to be made until such date as such Initial Issuance tranche and/or Additional Issuance is delivered to IBC pursuant to Section 3(b)(iii). Any period of suspension of the Valuation Period shall be established by means of a written notice from IBC to the Company.

2.     Fairness Hearing. Upon the execution hereof, Company and IBC agree, pursuant to Section 3(a)(10) of the Securities Act of 1933 (the “Act”), to immediately submit the terms and conditions of this Agreement to the Court for a hearing on the fairness of such terms and conditions, and the issuance exempt from registration of the Settlement Shares. This Agreement shall become binding upon the parties only upon entry of an order by the Court substantially in the form annexed hereto as Exhibit A (the “Order”).

3.     Settlement Shares. Following entry of an Order by the Court in accordance with Paragraph 2 herein and the delivery by IBC and Company of the Stipulation of Dismissal (as defined below), Company shall issue and deliver to IBC shares of its Common Stock (the “Settlement Shares”) as follows:

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a.                In settlement of the Claims, Company shall initially issue and deliver to IBC, in one or more tranches as necessary subject to paragraph 3(f) herein, shares of Common Stock (the “Initial Issuance”), subject to adjustment and ownership limitations as set forth below, sufficient to satisfy the compromised amount at a fifty percent (50%) discount to market (the total amount of the claims multiplied by 50%) based on the market price during the valuation period as defined herein through the issuance of freely trading securities issued pursuant to Section 3(a)(10) of the Securities Act (the “settlement shares”). The Company shall also issue to IBC, on the issuance date(s), seventy five million (75,000,000) freely trading shares as a settlement fee.

b.                No later than the first business day following the date that the Court enters the Order, time being of the essence, Company shall: (i) cause its legal counsel to issue an opinion to Company’s transfer agent, in form and substance reasonably acceptable to IBC and such transfer agent, that the shares of Common Stock to be issued as the Initial Issuance and Additional Issuance (as defined below) are legally issued, fully paid and non-assessable, are exempt from registration under the Securities Act, may be issued without restrictive legend, and may be resold by IBC without restriction; (ii) transmit via email, facsimile and overnight delivery an irrevocable and unconditional instruction to Company’s stock transfer agent; and (iii) within three (3) days thereof, issue and deliver to IBC, Settlement Shares in one or more traunches as necessary, without any legends or restrictions on transfer, sufficient to satisfy the compromised amount through the issuance at freely trading securities issued pursuant to Section 3(a)(10) of the Securities Act. Pursuant to this Agreement, IBC Funds, LLC may deliver a request to Epazz which states the dollar amount (designated in U.S. Dollars) of Common Stock to be issued to IBC Funds, LLC (the “Share Request”). The date upon which the first tranche of the Initial Issuance shares have been received into IBC’s account and are available for sale by IBC shall be referred to as the “Issuance Date”. In the event that Company is delinquent on issuance of shares of stock to IBC pursuant to the terms and conditions of this Section 3 within three (3) business days of a request for issuance of shares pursuant to Court Order Granting Approval of this Settlement Agreement, then upon demand of IBC, Company shall be responsible for payment of a penalty of $1,000.00 per day, payable to IBC, until said delinquency is cured.

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c.During the Valuation Period, the Company shall deliver to IBC, through the Initial Issuance and any required Additional Issuance subject to paragraph 3(f) herein, that number of shares (the “Final Amount”) with an aggregate value equal to (A) the sum of the Claim Amount, divided by (B) the Purchase Price. The parties acknowledge that the number of Settlement Shares to be issued pursuant to this Agreement is indeterminable as of the date of its execution, and could well exceed the current existing number of shares outstanding as of the date of its execution.

d.If at any time during the Valuation Period the Market Price is below 90% of the Market Price on the day before the Issuance Date, Company will immediately cause to be issued and delivered to IBC in accordance with the provisions of Section 3(b) herein, such additional shares as may be required to effect the purposes of this Settlement Agreement (each, an “Additional Issuance”), subject to the limitation in the paragraph below. At the end of the Valuation Period, if the sum of the Initial Issuance and any Additional Issuance is greater than the Final Amount, IBC shall promptly deliver any remaining shares to Company or its transfer agent for cancellation.

e.Notwithstanding anything to the contrary contained herein, it is the intention of the parties that the Settlement Shares beneficially owned by IBC at any given time shall not exceed the number of such shares that, when aggregated with all other shares of 5 Company then beneficially owned by IBC, or deemed beneficially owned by IBC, would result in IBC owning more than 9.99% of all of such Common Stock as would be outstanding on such date, as determined in accordance with Section 16 of the Exchange Act and the regulations promulgated thereunder. In compliance therewith, the Company agrees to deliver the Initial Issuance and any Additional Issuances in one or more traunches.

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f.                 For the avoidance of doubt, in the event that applicable laws of the State of Illinois do not allow conversion, sale or trade of shares of stock issued pursuant to this Settlement Agreement and Stipulation as well as Court Order approving same below par value, then the price used to determine the number of shares of Common Stock to be delivered pursuant to any Share Request shall be rounded up to the nearest decimal place that is one-tenth of the par value of the Common Stock. In the event that that the applicable laws of the State of Illinois do allow conversion, sale or trade of shares of stock issued pursuant to this Settlement Agreement and Stipulation as well as Court Order approving same below par value, then the price used to determine the number of shares of Common Stock to be issued pursuant to any share request shall be rounded up to the nearest decimal place of .00001.

4.Necessary Action. At all times after the execution of this Agreement and entry of the Order by the Court, each party hereto agrees to take or cause to be taken all such necessary action including, without limitation, the execution and delivery of such further instruments and documents, as may be reasonably requested by any party for such purposes or otherwise necessary to effect and complete the transactions contemplated hereby.

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5.             Releases. Upon receipt of all of the Settlement Shares for and in consideration of the terms and conditions of this Agreement, and except for the obligations, representations and covenants arising or made hereunder or a breach hereof, the parties hereby release, acquit and 6 forever discharge the other and each, every and all of their current and past officers, directors, shareholders, affiliated corporations, subsidiaries, agents, employees, representatives, attorneys, predecessors, successors and assigns (the “Released Parties”), of and from any and all claims, damages, cause of action, suits and costs, of whatever nature, character or description, whether known or unknown, anticipated or unanticipated, which the parties may now have or may hereafter have or claim to have against each other with respect to the Claims. Nothing contained herein shall be deemed to negate or affect IBC’s right and title to any securities heretofore issued to it by Company or any subsidiary of Company.

6.             Representations. Company hereby represents, warrants and covenants to IBC as follows:

a.There are Nine Billion (9,000,000,000) shares of Common Stock of the Company authorized, of which approximately Three Billion Eighty Five Million One Hundred Sixty Five Thousand Three Hundred Seventy Five (3,085,165,375) Shares of Common Stock are issued and oustanding; and approximately Five Billion Nine Hundred Fourteen Million Eight Hundred Thirty Four Thousand Six Hundred Twenty Five (5,914,834,625) Shares of Common Stock are available for issuance pursuant hereto;

b.The shares of Common Stock to be issued pursuant to the Order are duly authorized, and when issued will be duly and validly issued, fully paid and non-assessable, free and clear of all liens, encumbrances and preemptive and similar rights to subscribe for or purchase securities;

c.The shares will be exempt from registration under the Securities Act and issuable without any restrictive legend;

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d.The Company has reserved from its duly authorized capital stock a number of shares of Common Stock at least equal to the greater of the number of shares that could be issued pursuant to the terms of the Order and that it shall reserve at its transfer agent, at a minimum, Two Billion Five Hundred Million (2,500,000,000) during the Valuation Period in order to ensure that it can properly carry out the terms of this agreement, which may only be released to Company once all of the settlement shares have been delivered and converted pursuant to this agreement and Company’s obligations are otherwise fully satisfied or there has otherwise been a default pursuant to the terms of this agreement;

e.If at any time it appears reasonably likely that there may be insufficient authorized shares to fully comply with the Order, Company shall promptly increase its authorized shares to ensure its ability to timely comply with the Order;

f.The execution of this Agreement and performance of the Order by Company and IBC will not (1) conflict with, violate or cause a breach or default under any agreements between Company and any creditor (or any affiliate thereof) related to the account receivables comprising the Claims, or (2) require any waiver, consent, or other action of the Company or any creditor, or their respective affiliates, that has not already been obtained;

g.Without limitation, the Company hereby waives any provision in any agreement related to the account receivables comprising the Claims requiring payments to be applied in a certain order, manner, or fashion, or providing for exclusive jurisdiction in any court other than this Court;

h.The Company has all necessary power and authority to execute, deliver and perform all of its obligations under this Agreement;

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i.The execution, delivery and performance of this Agreement by Company has been duly authorized by all requisite action on the part of Company and its Board of Directors (including a majority of its independent directors), and this Agreement has been duly executed and delivered by Company;

j.Company did not enter into the transaction giving rise to the Claims in contemplation of any sale or distribution of Company’s common stock or other securities;

k.There has been no modification, compromise, forbearance, or waiver entered into or given with respect to the Claims. There is no action based on the Claims that is currently pending in any court or other legal venue, and no judgments based upon the Claims have been previously entered in any legal proceeding;

l.There are no taxes due, payable or withholdable as an incident of Seller’s provision of goods and services, and no taxes will be due, payable or withholdable as a result of settlement of the Claims;

m.Seller was not and within the past ninety (90) days has not been directly or indirectly through one or more intermediaries in control, controlled by, or under common control with, the Company and is not an affiliate of the Company as defined in Rule 144 promulgated under the Act;

n.To the best of the Company’s knowledge, Seller is not, directly or indirectly, utilizing any of the proceeds received from IBC for selling the Claims to provide any consideration to or invest in any manner in the Company or any affiliate of the Company;

o.Company has not received any notice (oral or written) from the SEC or Principal Market regarding a halt, limitation or suspension of trading in the Common Stock; and

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p.Seller will not, directly or indirectly, receive any consideration from or be compensated in any manner by, the Company, or any affiliate of the Company, in exchange for or in consideration of selling the Claims;

q.Company represents that none of the services provided or to be provided which gave rise to the Claims were or are services related to promoting the Company’s Securities or that may be considered relations services;

r.Company represents that each Claim being purchased pursuant hereto is a bona-fide Claim against the Company, are fully due and owing, that the invoices or written contract(s)/promissory notes underlying each Claim are accurate representations of the nature of the debt and the amounts owed by the Company to Seller and that the claims/promissory notes are in default due to the company’s failure to pay interest and/or principal payments when due;

s.Company acknowledges that IBC or its affiliates may from time to time hold outstanding securities of the Company which may be convertible in shares of the Company’s common stock at a floating conversion rate tied to the current market price for the stock. The number of shares of Common Stock issuable pursuant to this Agreement may increase substantially in certain circumstances, including, but not necessarily limited to the circumstance wherein the trading price of the Common Stock declines during the Valuation Period. The Company’s executive officers and directors have studied and fully understand the nature of the transaction contemplated by this Agreement and recognize that they have a potential dilutive effect. The board of directors of the Company has concluded in its good faith business judgment that such transaction is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Settlement Shares is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company. The Board of Directors of the Company has further given its consent for each conversion of shares of stock pursuant to this agreement and agrees and consents that same may occur below the par value of the Company’s Common Stock.

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t.                 None of the transactions agreements or proceedings described above is party of a plan or scheme to evade the registration requirements of the Securities Act and Epazz and IBC are acting and has acted in an arms length capacity.

7.Continuing Jurisdiction. Simultaneously with the execution of this Agreement, the attorneys representing the parties hereto will execute a stipulation of dismissal substantially in the form annexed hereto as Exhibit B (the “Stipulation of Dismissal”). In order to enable the Court to grant specific enforcement or other equitable relief in connection with this Agreement, (a) the parties consent to the jurisdiction of the Court for purposes of enforcing this Agreement, and (b) each party to this Agreement expressly waives any contention that there is an adequate remedy at law or any like doctrine that might otherwise preclude injunctive relief to enforce this Agreement.

8.Conditions Precedent/ Default .

a.If Company shall default in promptly delivering the Settlement Shares to IBC in the form and mode of delivery as required by Paragraphs 2, 3, 4 and 6 herein or otherwise fail in any way to fully comply with the provisions thereof;

b.               If the Order shall not have been entered by the Court on or prior to ninety (90) days after execution of this agreement;

c.If the Company shall fail to comply with the Covenants set forth in Paragraph 14 hereof;

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d.               If Bankruptcy, dissolution, receivership, reorganization, insolvency or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors or other legal proceedings for any reason shall be instituted by or against the Company; or if the trading of the Common Stock shall have been halted, limited, or suspended by the SEC or on the Principal Market; or trading in securities generally on the Principal Market shall have been suspended or limited; or, minimum prices shall been established for securities traded on the Principal Market or eligible for delivery via DTC or DWAC; or the Common Stock is not eligible or unable to be deposited for trade on the Principal Market; or the Common Stock is no longer eligible for book transfer delivery via DWAC; or the Company is delinquent or has not made its required Securities and Exchange Commission filings; or the sales volume of the Company’s Common Stock drops below an average of $10,000.00 per day for five (5) consecutive days on the Principal Market; or if at any time the Market Price for the Company’s Common Stock drops below .0001; or there shall have been any material adverse change (i) in the Company’s finances or operations, or (ii) in the financial markets such that, in the reasonable judgment of the IBC, makes it impracticable or inadvisable to trade the Settlement Shares; and such suspension, limitation or other action is not cured within ten (10) trading days; then the Company shall be deemed in default of the Agreement and Order and this Agreement shall be voidable in the sole discretion of IBC;

e.                In the event that the Company fails to fully comply with the conditions precedent as specified in paragraph 8 a. through d. herein, then the Company shall be deemed in default of the agreement and IBC, at its option and in its sole discretion, may declare Company to be in default of the Agreement and Order, and this Agreement shall be voidable in the sold discretion of IBC. In said event, IBC shall have no further obligation to comply with the terms of this agreement and can thus opt out of making any remaining payments, if applicable, not previously made to creditors as contemplated by the Claims Purchase Agreements as referenced in schedule A, 1 through 6.

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9.Information. Company and IBC each represent that prior to the execution of this Agreement, they have fully informed themselves of its terms, contents, conditions and effects, and that no promise or representation of any kind has been made to them except as expressly stated in this Agreement.

10.Ownership and Authority. Company and IBC represent and warrant that they have not sold, assigned, transferred, conveyed or otherwise disposed of any or all of any claim, demand, right, or cause of action, relating to any matter which is covered by this Agreement, that each is the sole owner of such claim, demand, right or cause of action, and each has the power and authority and has been duly authorized to enter into and perform this Agreement and that this Agreement is the binding obligation of each, enforceable in accordance with its terms.

11.No Admission. This Agreement is contractual and it has been entered into in order to compromise disputed claims and to avoid the uncertainty and expense of the litigation. This Agreement and each of its provisions in any orders of the Court relating to it shall not be offered or received in evidence in any action, proceeding or otherwise used as an admission or concession as to the merits of the Action or the liability of any nature on the part of any of the parties hereto except to enforce its terms.

12.Binding Nature. This Agreement shall be binding on all parties executing this Agreement and their respective successors, assigns and heirs.

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13.Authority to Bind. Each party to this Agreement represents and warrants that the execution, delivery and performance of this Agreement and the consummation of the 13 transactions provided in this Agreement have been duly authorized by all necessary action of the respective entity and that the person executing this Agreement on its behalf has the full capacity to bind that entity. Each party further represents and warrants that it has been represented by independent counsel of its choice in connection with the negotiation and execution of this Agreement, and that counsel has reviewed this Agreement.

14. Covenants.

a.                For so long as IBC or any of its affiliates holds any shares of Common Stock, neither Company nor any of its affiliates shall vote any shares of Common Stock owned or controlled by it (unless voting in favor of a proposal approved by a majority of Company’s Board of Directors), or solicit any proxies or seek to advise or influence any person with respect to any voting securities of Company; in favor of (1) an extraordinary corporate transaction, such as a reorganization or liquidation, involving Company or any of its subsidiaries, (2) a sale or transfer of a material amount of assets of Company or any of its subsidiaries, (3) any material change in the present capitalization or dividend policy of Company, (4) any other material change in Company’s business or corporate structure, (5) a change in Company’s charter, bylaws or instruments corresponding thereto (6) causing a class of securities of Defendant to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, (7) causing a class of equity securities of Company to become eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended, (8) terminating its Transfer Agent (9) taking any action which would impede the purposes and objects of this Settlement Agreement or (10) taking any action, intention, plan or arrangement similar to any of those enumerated above. Nothing in this section shall be deemed to exclude strategic decisions by Company made in an effort to expand the Company except as expressly stated herein. The provisions of this paragraph may not be modified or waived without further order of the Court.

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b.                Immediately upon the signing of the Settlement Order by the Court, the Company shall cause to be filed a Form 8-K with the Securities and Exchange Commission disclosing the settlement. The Company shall file such additional SEC filings as may be required in respect of the transactions.

15.Indemnification. Company shall indemnify, defend and hold IBC and its
affiliates harmless with respect to all obligations of Company arising from or incident or related to this Agreement, including, without limitation, any claim or action brought derivatively or by the Seller or shareholders of Company.

16.Legal Effect. The parties to this Agreement represent that each of them has been advised as to the terms and legal effect of this Agreement and the Order provided for herein, and that the settlement and compromise stated herein is final and conclusive forthwith, subject to the conditions stated herein, and each attorney represents that his or her client has freely consented to and authorized this Agreement after have been so advised.

17.Waiver of Defense. Each party hereto waives a statement of decision, and the right to appeal from the Order after its entry. Company further waives any defense based on the rule against splitting causes of action. The prevailing party in any motion to enforce the Order shall be awarded its reasonably attorney fees and expenses in connection with such motion. Except as expressly set forth herein, each party shall bear its own attorneys’ fees, expenses and costs.

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18.Signatures. This Agreement may be signed in counterparts and the Agreement, together with its counterpart signature pages, shall be deemed valid and binding on each party when duly executed by all parties. Facsimile and electronically scanned signatures shall be deemed valid and binding for all purposes. This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement thereof. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

19.Choice of Law, Etc. Notwithstanding the place where this Agreement may be executed by either of the parties, or any other factor, all terms and provisions hereof shall be governed by and construed in accordance with the laws of the State of Florida, applicable to agreements made and to be fully performed in that State and without regard to the principles of conflicts of laws thereof. Any action brought to enforce, or otherwise arising out of this Agreement shall be brought only in State Court sitting in Sarasota County, Florida.

20.Exclusivity. For a period of the later of one hundred eighty (180) days from the date of the execution of this Agreement or upon IBC’s final sale of all shares of stock issued pursuant hereto subsequent to final adjustment; (a) Company and its representatives shall not enter into any exchange transaction under Section 3(a)(10) of the Securities Act nor directly or indirectly discuss, negotiate or consider any proposal, plan or offer from any other party relating to any liabilities, or any financial transaction having an effect or result similar to the transactions contemplated hereby, and (b) IBC shall have the exclusive right to negotiate and execute definitive documentation embodying the terms set forth herein and other mutually acceptable terms.

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21.Inconsistency. In the event of any inconsistency between the terms of this Agreement and any other document executed in connection herewith, the terms of this Agreement shall control to the extent necessary to resolve such inconsistency.

22.NOTICES. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of

(a)the date delivered, if delivered by personal delivery as against written receipt therefore or by confirmed facsimile or e-mail transmission,

(b)the seventh business day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or

(c)the second business day after mailing by domestic or international express courier, with delivery costs and fees prepaid,

in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) days’ advance written notice similarly given to each of the other parties hereto):

Company:	Epazz, Inc.
	205 W. Wacker Drive
	Suite 1320
	Chicago, Illinois 60606
	Attn: Chief Financial Officer
	Telephone No.: 312-955-0512
	E-mail: shaun@epazz.net

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with a copy to:

Michael G. Brown, Esquire

P.O. Box 19702

Sarasota, Florida 34237

941-780-1300 (phone)

941-296-7500 (fax)

Florida Bar No. 0148709

IBC Funds, LLC

Attn: Samuel Oshana

1170 Kane Concourse, Suite 404

Bay Harbor, Florida 33154

Telephone: 305-647-0729

samueloshana@ibcfunds.com

and

Charles N. Cleland, Jr., P.A.

2127 Ringling Boulevard, Suite 104

Sarasota, Florida 34237

(941) 955-1595 phone

(941) 953-7185 facsimile

Florida Bar No. 0896195

ccleland@clelandpa.com email

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IN WITNESS WHEREOF, the parties have duly executed this Settlement Agreement and Stipulation as of the date first indicated above.

IBC Funds, LLC

By: /s/ Samuel Oshana              

Name: Samuel Oshana

Title: Mng Mbr

Epazz, Inc.

By: /s/ Shaun Passley                

Name: Shaun Passley

Title: President

Affiliates

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EXHIBIT A

IN THE CIRCUIT COURT IN THE TWELFTH JUDICIAL CIRCUIT
IN AND FOR SARASOTA COUNTY, FLORIDA

CIVIL ACTION NO.

IBC Funds, LLC,

a Nevada Limited Liability Company,

Plaintiff,

-against-

Epazz, Inc.,

a Illinois Corporation,

Defendant.

                                                                                                        ^/

ORDER GRANTING APPROVAL OF
SETTLEMENT AGREEMENT AND STIPULATION

This matter having come on for a hearing on the ____ day of February, 2014, to approve the Settlement Agreement entered into as of                       , 2014 between Plaintiff, IBC Funds, LLC (“Plaintiff”) and Defendant, Epazz, Inc. (“Defendant” and collectively with Plaintiff, the “Parties”), and the Court having held a hearing as to the fairness of the terms and conditions of the Settlement Agreement and Stipulation and being otherwise fully advised in the premises, the Court hereby finds as follows:

1.              The Court has been advised that the Parties intend that the sale of the Shares (as defined by the Settlement Agreement and, hereinafter, the “Shares”) to and the resale of the Shares by Plaintiff in the United States, assuming satisfaction of all other applicable securities laws and regulations, will be exempt from registration under the Securities Act of 1933 (the “Securities Act”) in reliance upon Section 3(a)(10) of the Securities Act based upon this Court’s finding herein that the terms and conditions of the issuance of the Shares by Defendant to Plaintiff are fair to Plaintiff;

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2.The hearing having been scheduled upon the consent of Plaintiff and Defendant, Plaintiff has had adequate notice of the hearing and Plaintiff is the only party to whom Shares will be issued pursuant to the Settlement Agreement;

3.The terms and conditions of the issuance of the Shares in exchange for the release of certain claims as set forth in the Settlement Agreement are fair to Plaintiff, the only party to whom the Shares will be issued;

4.The fairness hearing was open to Plaintiff. Plaintiff was represented by counsel at the hearing who acknowledged that adequate notice of the hearing was given and consented to the entry of this Order.

It is hereby ORDERED AND ADJUDGED that the Settlement Agreement and Stipulation is hereby approved as fair to the party to whom the Shares will be issued, within the meaning of Section 3(a)(10) of the Securities Act and that the sale of the Shares to Plaintiff and the resale of the Shares in the United States by Plaintiff, assuming satisfaction of all other applicable securities laws and regulations, will be exempt from registration under the Securities Act of 1933.

SO ORDERED, this         day of                      , 2014.

The Honorable                                   

Conformed copies to:

Charles N. Cleland, Jr., Esq.
Michael G. Brown, Esq.

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IN THE CIRCUIT COURT IN THE TWELFTH JUDICIAL CIRCUIT

IN AND FOR SARASOTA COUNTY, FLORIDA

CIVIL ACTION NO.

IBC Funds, LLC,

a Nevada Limited Liability Company,

Plaintiff,

-against-

Epazz, Inc.,

a Illinois Corporation,

Defendant.

                                                                                                          ^/

STIPULATION OF DISMISSAL

IT IS HEREBY STIPULATED AND AGREED, by and between the undersigned, the attorneys of record for all the parties to the above-entitled action, pursuant to the Florida Rules of Civil Procedure, that whereas no party hereto is an infant or incompetent person for whom a committee has been appointed or conservatee and no person not a party has an interest in the subject matter of the action, the above-entitled action be, and the same hereby is, dismissed, each party to bear its own costs.

This Stipulation may be filed without further notice with the Clerk of the Court.

Dated:                                      , 2014

Charles N. Cleland, Jr., Esq.	Michael G. Brown, Esquire
CHARLES N. CLELAND, JR., P.A.	P.O. Box 19702
Florida Bar No. 0896195	Sarasota, Florida 34237
2127 Ringling Blvd., Suite 104	941-780-1300 (phone)
Sarasota, Florida 34237	941-296-7500 (fax)
(941) 955-1595 phone	Florida Bar No. 0148709
(941) 953-7185 facsimile	Attorney for Defendant Attorney for Plaintiff

SO ORDERED:
	The Honorable

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Epazz Inc

205 W Wacker Dr.
Suite 1320

Chicago IL 606060

February 14, 2014

IBC Funds

1170 Kane Concourse

Bay Harbor FL 33154

RE:         3(a)(10) Settlement

Gentlemen:

This letter will serve as our acknowledgment that you have advised us of and we fully understand the risks and dilutive effects of the 3(a)(10) transaction with IBC Funds LLC. pursuant to the Settlement Agreement between Epazz, Inc and IBC Funds:

1.The issuance of shares upon conversion of the convertible promissory note (the “Note”) being sold are likely to result in substantial dilution to the interests of other stockholders of Mind Solutions Inc (the “Company”). Although the Note holder may not convert the Note into more than 4.99%, respectively, of our outstanding common stock, this restriction does not prevent the investor from converting and/or exercising some of their holdings and then converting the rest of their holdings. In this way, the investor could sell considerably more than 4.99% of our stock while never actually holding more than this limit. This will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock and may result in a change of control of the Company. In addition, the 4.99% limitation may be changed as set forth in the Note.

2.The conversion price (the “Conversion Price”) of the Note is equal the Variable Conversion Price (subject to adjustment as provided in the Note). The "Variable Conversion Price" shall mean 50% multiplied by the Market Price (as defined in the Note) (representing a discount rate of 50%). “Market Price” means the lowest price traded(as defined below) for the Common Stock during the 15 Trading Days. We are aware that the significant downward pressure on the price of the common stock as the selling stockholder converts and sells material amounts of our common stock could encourage short sales. This could place further downward pressure on the price of the common stock. Subject to any applicable terms of the Securities Purchase Agreement, the Note and any applicable laws, the selling stockholder could sell common stock into the market in anticipation of covering the short sale by converting their securities, which would cause the further downward pressure on the stock price.

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3.The number of shares of common stock issuable upon conversion of the convertible Note is subject to adjustment, depending on the market price of our common stock. To the extent that the price of our common stock decreases, we will be required to issue additional shares upon conversion.

An increase in the number of shares of our common stock that will become available for sale in the public market may adversely affect the market price of our common stock and, as a result, could impair our ability to raise additional capital through the sale of our equity securities or convertible securities.

4.We anticipate that the full amount of the settlement, will be converted into shares of our common stock, in accordance with the terms of the settlement. If we were unable to convert the settlement shares when required, IBC could commence legal action against us to recover the amounts due which ultimately could require the disposition of some or all of our assets. Any such action would require us to curtail or cease operations.

I have advised our Board of Directors of the foregoing risks associated with this financing transaction and they have unanimously authorized me to provide this acknowledgement to you.

By: /s/ Shaun Passley                      

Name: Shaun Passley

Title: CEO

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EX-10.59

Exhibit 10.59

IN THE CIRCUIT COURT IN THE TWELFTH JUDICIAL CIRCUIT
IN AND FOR SARASOTA COUNTY, FLORIDA

CIVIL ACTION NO.

2014 CA 000899

IBC Funds, LLC,

a Nevada Limited Liability Company,

Plaintiff,

-against-

Epazz, Inc.,

a Illinois Corporation,

Defendant.

                                                                                                             /

ORDER GRANTING APPROVAL OF
SETTLEMENT AGREEMENT AND STIPULATION

This matter having come on for a hearing on the 14th day of February, 2014, to approve the Settlement Agreement entered into as of February 12, 2014 between Plaintiff, IBC Funds, LLC ("Plaintiff') and Defendant, Epazz, Inc. ("Defendant" and collectively with Plaintiff, the "Parties"), and the Court having held a hearing as to the fairness of the terms and conditions of the Settlement Agreement and Stipulation and being otherwise fully advised in the premises, the Court hereby finds as follows:

1.               The Court has been advised that the Parties intend that the sale of the Shares (as
defined by the Settlement Agreement and, hereinafter, the "Shares") to and the resale of the Shares by Plaintiff in the United States, assuming satisfaction of all other applicable securities laws and regulations, will be exempt from registration under the Securities Act of 1933 (the "Securities Act") in reliance upon Section 3(a)(10) of the Securities Act based upon this Court's finding herein that the terms and conditions of the issuance of the Shares by Defendant to Plaintiff are fair to Plaintiff;

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2.The hearing having been scheduled upon the consent of Plaintiff and Defendant, Plaintiff has had adequate notice of the hearing and Plaintiff is the only party to whom Shares will be issued pursuant to the Settlement Agreement;

3.The terms and conditions of the issuance of the Shares in exchange for the release of certain claims as set forth in the Settlement Agreement are fair to Plaintiff, the only party to whom the Shares will be issued;

4.The fairness hearing was open to Plaintiff. Plaintiff was represented by counsel at the hearing who acknowledged that adequate notice of the hearing was given and consented to the entry of this Order.

It is hereby ORDERED AND ADJUDGED that the Settlement Agreement and Stipulation is hereby approved as fair to the party to whom the Shares will be issued, within the meaning of Section 3(a)(10) of the Securities Act and that the sale of the Shares to Plaintiff and the resale of the Shares in the United States by Plaintiff, assuming satisfaction of all other applicable securities laws and regulations, will be exempt from registration under the Securities Act of 1933.

 

Conformed copies to:

Charles N. Cleland, Jr., Esq.
Michael G. Brown, Esq.

2

EX-10.60

Exhibit 10.60

ST GEORGE INVESTMENTS LLC
303 EAST WACKER DRIVE, SUITE 1200
CHICAGO, IL 60601

September 24, 2014

VIA EMAIL

Epazz, Inc.

Attn: Shaun Passley

205 W. Wacker Dr., Suite 1320

Chicago, IL 60606

email: shaun@epazz.net

RE:       DEFAULT NOTICE

Dear Mr. Passley:

I write in connection with that certain Convertible Promissory Note dated September 5,2013 issued by Epazz, Inc., an Illinois corporation (the "Borrower"), in favor of St George Investments LLC, a Utah limited liability company (the "Holder"), in the original principal amount of $56,900.00 (the "Note"), and that certain Note Purchase Agreement dated September 5,2013 by and between the Borrower and the Holder (the "Agreement"). Capitalized terms used in this letter without definition shall have the meanings given to them in the Note.

Events of Default

Section 3.10) of the Note requires the Borrower to comply with the reporting requirements of the Securities Exchange Act of 1934. The Borrower was required to file their Form 10-K for the period ending December 31,2013 on or before March 31,2014 (the "Form 10-K Filing Due Date"). The Borrower did not file their Form 10-K until July 18, 2014. As a result of the Borrower's failure to file their Form 10-K for the period ending December 31, 2013 by the Form 10-K Filing Due Date, an Event of Default has occurred under the Note as of March 31, 2014 (the "Filing Default Date").

Additionally, pursuant to Section 3.1(a) of the note, the Borrower was required to pay the Outstanding Balance of the Note on June 5,2014 (the "Maturity Date"). The Borrower failed to pay the Outstanding Balance of the Note by the Maturity Date, nor has it been paid as of the date of this letter. As a result of the Borrower's failure to repay the Note on the Maturity Date, a second Event of Default occurred under the Note as of June 5, 2014 (the "Payment Default Date").

Default Effects

In accordance with Section 3.2 of the Note, upon the occurrence of any Event of Default, (a) the Outstanding Balance shall increase to 150% of the Outstanding Balance immediately prior to the occurrence of the Event of Default (the "Balance Increase"), and (b) this Note shall then accrue interest at the Default Interest rate of 22% per annum; provided, however, that in no event shall the Balance Increase be applied more than two times.

The Outstanding Balance of the Note immediately prior to the Filing Default Date (before applying the first of two Balance Increases) was $44,488.14. After applying the Balance Increase to the Outstanding Balance, the Outstanding Balance increased to $66,732.21 ($44,488.14 x 150%). The Outstanding Balance of the Note immediately prior to the Payment Default Date (before applying the second of two Balance Increases) was $69,445.75. After applying the Balance Increase to the Outstanding Balance, the

1

ST GEORGE INVESTMENTS LLC
303 EAST WACICER DRIVE, SUITE 1200
CHICAGO, IL 60601

Outstanding Balance increased to $104,168.63 ($69,445.75 x 150%). Additionally, the Outstanding Balance of the Note began accruing interest at 22% per annum on April 1,2014.

Late Clearing Adjustment Amount

On March 7,2014 (the "Conversion Date"), the Holder delivered a Notice of Conversion to the Borrower in which the Holder elected to convert $15,000.00 of the Outstanding Balance of the Note into 125,000,000 shares of the Borrower's Common Stock (the "Conversion Shares").

Pursuant to Section 1.6(g) of the Note, if the Holder delivers a Notice of Conversion and the Conversion Shares are delivered to Holder or its broker, but it takes longer than five (5) business days after such delivery for such Conversion Shares to be electronically cleared for trading in Holder's brokerage account, then the Late Clearing Adjustment Amount (as defined below) shall be added to the Outstanding Balance of this Note. The "Late Clearing Adjustment Amount" is the amount equal to the number of applicable Conversion Shares multiplied by the excess, if any, of (1) the Trading Price of the Common Stock on the Conversion Date, over (2) the Trading Price of the Common Stock on the date the certificated DTC Eligible Conversion Shares are electronically cleared for trading in the Holder's brokerage account.

The 125,000,000 Conversion Shares were not cleared for trading until September 10,2014 (the "Clearing Date"). The Trading Price of the Common Stock on the Conversion Date was $0.0003, while the Trading Price of the Common Stock on the Clearing Date was $0.0001. As a result of the Trading Price of the Common Stock being lower on the Clearing Date than on the Conversion Date, the Outstanding Balance of the Note increased by the Late Clearing Adjustment Amount of $25,000.00 (125,000,000 Conversion Shares * ($0.0003 - $0.0001)) on September 10, 2014.

As of the date of this letter, the Outstanding Balance of the Note is $136,737.76.

Notwithstanding anything to the contrary herein, the Holder reserves all rights and remedies available to it under the Note and the other Transaction Documents with respect to any Event of Default thereunder. Moreover, any failure or delay by the Holder to exercise any right, power, or remedy shall not constitute a waiver of such right, power, or remedy. If there are any inconsistencies between this Notice and the Transaction Documents, the Transaction Documents shall govern.

If you have any questions, please contact me at jfife@chicagoventure.com or at (312) 297-7001 or Tina Saxton at tsaxton@chicagoventure.com or at (312) 297-7018.

[SIGNATURE PAGE TO FOLLOW]

2

ST GEORGE INVESTMENTS LLC
303 EAST WACKER DRIVE, SUITE 1200
CHICAGO, IL 60601

Sincerely,

ST GEORGE INVESTMENTS LLC

By: Fife Tradin Inc., Manager

By: /s/ John M Fife                               

John M Fife, President

cc: J. Hansen — Hansen Black Anderson Ashcraft PLLC (via email only)

3

EX-21.1

Exhibit 21.1

Subsidiaries

	State of		Abbreviated
Name of Entity(2)	Incorporation	Relationship(1)	Reference
Epazz, Inc.	Illinois	Parent	Epazz
IntelliSys, Inc.	Wisconsin	Subsidiary	IntelliSys
Professional Resource Management, Inc.	Illinois	Subsidiary	PRMI
Desk Flex, Inc.	Illinois	Subsidiary	DFI
K9 Bytes, Inc.	Illinois	Subsidiary	K9 Bytes
MS Health, Inc.	Illinois	Subsidiary	MS Health
Terran Power, Inc.(5)	Illinois	Subsidiary	Terran
Telecorp Products, Inc.	Michigan	Subsidiary	Telecorp
Jadian, Inc.	Illinois	Subsidiary	Jadian
FlexFridge, Inc.(3)	Illinois	Subsidiary(4)	FlexFridge

⁽¹⁾ All subsidiaries, with the exception of FlexFridge, are wholly-owned subsidiaries.

⁽²⁾ All entities are in the form of Corporations.

⁽³⁾ Formerly Z Fridge, Inc. and Cooling Technology Solutions, Inc.

⁽⁴⁾ FlexFridge, Inc. was spun-off on November 21, 2013, and distributed on a 1:10 basis to shareholders of record on September 15, 2013. Epazz has a controlling financial interest in FlexFridge. As such, FlexFridge is consolidated within these financial statements pursuant to Accounting Standards Codification (“ASC”) 810-10. There has been no material activity within FlexFridge to date.

⁽⁵⁾ Entity formed for prospective purposes, but has not incurred any income or expenses to date.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Shaun Passley, certify that:

1. I have reviewed this report on Form 10-Q of Epazz, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation: and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 2, 2014

By:/s/ Shaun Passley

Shaun Passley,

Chief Executive Officer and Chief Financial Officer

(Principal Executive Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Shaun Passley, Chief Executive Officer and Principal Financial Officer of Epazz, Inc., a Illinois corporation (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The report on Form 10-Q of Epazz, Inc. (the "Registrant") for the quarter ended June 30, 2014 (the "Report") which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 2, 2014

By:/s/ Shaun Passley

Shaun Passley,

Chief Executive Officer and Chief Financial Officer

(Principal Executive Officer and Principal Accounting Officer)

XML

1. Basis of Presentation and Consolidation (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Amortization expense of intangibles	$ 71,606	$ 87,324
Common stock issued for services and compensation	$ 2,280,902	$ 1,522,000

XML

13. Notes Payable, Related Parties (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Related Party Transaction [Line Items]
Total notes payable, related parties	$ 930,868	$ 397,368
Notes payable, related parties, less current portion	0	85,000
Note Payable 1
Related Party Transaction [Line Items]
Total notes payable, related parties	0	0
Note Payable 2
Related Party Transaction [Line Items]
Total notes payable, related parties	20,000	0
Note Payable 3
Related Party Transaction [Line Items]
Total notes payable, related parties	21,250	0
Note Payable 4
Related Party Transaction [Line Items]
Total notes payable, related parties	5,000	0
Note Payable 5
Related Party Transaction [Line Items]
Total notes payable, related parties	25,000	0
Note Payable 6
Related Party Transaction [Line Items]
Total notes payable, related parties	32,500	0
Note Payable 7
Related Party Transaction [Line Items]
Total notes payable, related parties	125,000	0
Note Payable 8
Related Party Transaction [Line Items]
Total notes payable, related parties	150,000	0
Note Payable 9
Related Party Transaction [Line Items]
Total notes payable, related parties	35,000	0
Note Payable 10
Related Party Transaction [Line Items]
Total notes payable, related parties	25,000	0
Note Payable 11
Related Party Transaction [Line Items]
Total notes payable, related parties	18,750	0
Note Payable 12
Related Party Transaction [Line Items]
Total notes payable, related parties	37,500	0
Note Payable 13
Related Party Transaction [Line Items]
Total notes payable, related parties	25,000	0
Note Payable 14
Related Party Transaction [Line Items]
Total notes payable, related parties	30,000	0
Note Payable 15
Related Party Transaction [Line Items]
Total notes payable, related parties	22,000	0
Note Payable 16
Related Party Transaction [Line Items]
Total notes payable, related parties	100,000	0
Note Payable 20
Related Party Transaction [Line Items]
Total notes payable, related parties	75,000	0
Note Payable 17
Related Party Transaction [Line Items]
Total notes payable, related parties	13,000	0
Note Payable 18
Related Party Transaction [Line Items]
Total notes payable, related parties	26,000	0
Note Payable 19
Related Party Transaction [Line Items]
Total notes payable, related parties	43,000	0
Note Payable 21
Related Party Transaction [Line Items]
Total notes payable, related parties	0	125,000
Note Payable 22
Related Party Transaction [Line Items]
Total notes payable, related parties	18,000	18,000
Note Payable 23
Related Party Transaction [Line Items]
Total notes payable, related parties	0	65,000
Note Payable 24
Related Party Transaction [Line Items]
Total notes payable, related parties	25,000	25,000
Note Payable 25
Related Party Transaction [Line Items]
Total notes payable, related parties	0	51,000
Note Payable 26
Related Party Transaction [Line Items]
Total notes payable, related parties	0	23,000
Note Payable 27
Related Party Transaction [Line Items]
Total notes payable, related parties	0	12,500
Note Payable 28
Related Party Transaction [Line Items]
Total notes payable, related parties	24,000	24,000
Note Payable 29
Related Party Transaction [Line Items]
Total notes payable, related parties	32,000	32,000
Note Payable 30
Related Party Transaction [Line Items]
Total notes payable, related parties	0	32,000
Note Payable 31
Related Party Transaction [Line Items]
Total notes payable, related parties	0	10,000
Note Payable 32
Related Party Transaction [Line Items]
Total notes payable, related parties	0	57,000
Note Payable 33
Related Party Transaction [Line Items]
Total notes payable, related parties	2,000	2,000
Note Payable 34
Related Party Transaction [Line Items]
Total notes payable, related parties	868	5,868
Note Payable
Related Party Transaction [Line Items]
Total notes payable, related parties	930,868	482,368
Less: current portion	(930,868)	(397,368)
Notes payable, related parties, less current portion	$ 0	$ 85,000

XML

7. Other Current Assets (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Amortization expense	$ 233,277	$ 19,905

XML

14. Convertible Debt (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Debt Instrument [Line Items]
Total convertible debts	$ 152,275	$ 266,877
Less: unamortized discount on beneficial conversion feature	0	(103,188)
Less: unamortized OID	(1,112)	(6,395)
Convertible debts	151,163	157,294
Less: current maturities of convertible debts	(151,163)	(115,128)
Long term convertible debts	0	42,166
Convertible Debt A
Debt Instrument [Line Items]
Total convertible debts	0	0
Convertible Debt B
Debt Instrument [Line Items]
Total convertible debts	0	0
Convertible Debt C
Debt Instrument [Line Items]
Total convertible debts	0	0
Convertible Debt D
Debt Instrument [Line Items]
Total convertible debts	33,000	33,000
Convertible Debt E
Debt Instrument [Line Items]
Total convertible debts	0	35,028
Convertible Debt F
Debt Instrument [Line Items]
Total convertible debts	119,275	56,900
Convertible Debt G
Debt Instrument [Line Items]
Total convertible debts	0	42,500
Convertible Debt H
Debt Instrument [Line Items]
Total convertible debts	0	53,000
Convertible Debt I
Debt Instrument [Line Items]
Total convertible debts	$ 0	$ 46,449

XML

6. Fair Value of Financial Instruments (Details Narrative) (USD $)	3 Months Ended	6 Months Ended
	Dec. 31, 2013	Jun. 30, 2014
Fair Value Disclosures [Abstract]
Fair value adjustments related to intangible assets	$ 276,282	$ 0

XML

12. Capital Lease Obligations Payable (Tables)

6 Months Ended

Jun. 30, 2014

Leases, Capital [Abstract]

Schedule of Future Minimum Lease Payments

Twelve Months
Ending
June 30,	Amount
2015	$	5,757
2016		3,311
Total minimum payments	$	9,068
Less: amount representing interest		(907	)
Present value of net minimum lease payments		8,161
Less: Current maturities of capital lease obligations		(4,987	)
Long-term capital lease obligations	$	3,174

XML

16. Derivative Liabilities - By Instruments (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013	Dec. 31, 2012
Derivative liability	$ 0	$ 0	$ 0
Convertible notes, Magna Group
Derivative liability	0	0
Convertible debt, IBC Funds, LLC
Derivative liability	$ 0	$ 0

XML

1. Basis of Presentation and Consolidation (Tables)

6 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Consolidated Entities

	State of		Abbreviated
Name of Entity(2)	Incorporation	Relationship(1)	Reference
Epazz, Inc.	Illinois	Parent	Epazz
IntelliSys, Inc.	Wisconsin	Subsidiary	IntelliSys
Professional Resource Management, Inc.	Illinois	Subsidiary	PRMI
Desk Flex, Inc.	Illinois	Subsidiary	DFI
K9 Bytes, Inc.	Illinois	Subsidiary	K9 Bytes
MS Health, Inc.	Illinois	Subsidiary	MS Health
Terran Power, Inc.(5)	Illinois	Subsidiary	Terran
Telecorp Products, Inc.	Michigan	Subsidiary	Telecorp
Jadian, Inc.	Illinois	Subsidiary	Jadian
FlexFridge, Inc.(3)	Illinois	Subsidiary(4)	FlexFridge

XML

9. Intangible Assets (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Intangible assets, gross	$ 863,862	$ 690,000
Less: accumulated amortization	(387,444)	(315,838)
Total intangible assets, net	476,418	374,162
Technology-Based Intangible Assets [Member] | Cynergy
Intangible assets, gross	8,035	0
Useful Life, years	5 years
Technology-Based Intangible Assets [Member] | Jadian [Member]
Intangible assets, gross	37,180	0
Useful Life, years	5 years
Technology-Based Intangible Assets [Member] | IntelliSys [Member]
Intangible assets, gross	200,000	200,000
Useful Life, years	5 years
Technology-Based Intangible Assets [Member] | K9 Bytes [Member]
Intangible assets, gross	42,000	42,000
Useful Life, years	5 years
Technology-Based Intangible Assets [Member] | MS Health
Intangible assets, gross	124,000	124,000
Useful Life, years	5 years
Technology-Based Intangible Assets [Member] | Telecorp
Intangible assets, gross	72,490	0
Useful Life, years	5 years
Contracts [Member] | MS Health
Intangible assets, gross	258,000	258,000
Useful Life, years	6 years
Trade Name [Member] | K9 Bytes [Member]
Intangible assets, gross	22,000	22,000
Useful Life, years	5 years
Trade Name [Member] | Telecorp
Intangible assets, gross	29,390	0
Useful Life, years	5 years
Other Intangible Assets [Member] | K9 Bytes [Member]
Intangible assets, gross	26,000	26,000
Useful Life, years	2 years
Other Intangible Assets [Member] | MS Health
Intangible assets, gross	$ 18,000	$ 18,000
Useful Life, years	2 years

XML

4. Mergers and Acquisitions (Details - Net income) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Expenses:
Weighted average number of common shares Outstanding - basic and fully diluted	5,939,090,272	2,045,979,796	4,783,826,881	1,666,897,778
Telecorp
Business Acquisition [Line Items]
Revenue:			$ 341,255	$ 358,741
Expenses:
Operating expenses			2,757,750	590,650
Net operating income (loss)			(2,416,495)	(231,909)
Other income (expense)			(1,309,466)	(201,577)
Net income (loss)			(3,725,961)	(433,486)
Weighted average number of common shares Outstanding - basic and fully diluted			3,615,727,230	1,283,603,738
Net income (loss) per share - basic and fully diluted			$ 0.00	$ 0.00
Jadian [Member]
Business Acquisition [Line Items]
Revenue:			748,952	745,071
Expenses:
Operating expenses			3,249,648	2,440,624
Net operating income (loss)			(2,500,696)	(1,695,553)
Other income (expense)			(1,972,184)	(366,946)
Net income (loss)			$ (4,472,880)	$ (2,062,499)
Weighted average number of common shares Outstanding - basic and fully diluted			4,783,826,881	1,666,897,778
Net income (loss) per share - basic and fully diluted			$ 0.00	$ 0.00

XML

16. Derivative Liabilities (Tables)

6 Months Ended

Jun. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Liability Value by Instrument Type

	June 30, 2014		December 31, 2013
Convertible notes, Magna Group	$	–	$	–
Convertible debt, IBC Funds, LLC		–		–
	$	–	$	–

Changes in the fair market value of the derivative liability

	Derivative Liability Total
Balance, December 31, 2012	$	–
Increase in derivative value due to issuances of convertible promissory notes, Magna Group		–
Increase in derivative value due to issuances of debt, IBC Funds, LLC		–
Change in fair market value of derivative liabilities due to the mark to market adjustment		–
Debt conversions		–
Balance, December 31, 2013	$	–
Increase in derivative value due to issuances of convertible promissory notes, Magna Group		124,323
Increase in derivative value due to issuances of debt, IBC Funds, LLC		1,134,927
Change in fair market value of derivative liabilities due to the mark to market adjustment		(59,346	)
Debt conversions		(1,199,904	)
Balance, June 30, 2014	$	–

XML

11. Line of Credit (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Line of Credit Facility [Line Items]
Total line of credit	$ 86,544	$ 73,232
Less: current portion	(86,544)	(73,232)
Line of credit, less current portion	0	0
US Bank [Member]
Line of Credit Facility [Line Items]
Total line of credit	16,351	18,087
Dell Business Credit [Member]
Line of Credit Facility [Line Items]
Total line of credit	0	5,637
Bank of America
Line of Credit Facility [Line Items]
Total line of credit	20,285	0
PNC Bank [Member]
Line of Credit Facility [Line Items]
Total line of credit	$ 49,908	$ 49,508

XML

7. Other Current Assets (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Deferred financing costs	$ 47,980	$ 44,986
Other receivable	38	51,250
Security deposits	17,378	9,878
Other current assets	$ 65,396	$ 106,114

XML

4. Mergers and Acquisitions

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Mergers and Acquisitions

Stock Purchase Acquisition – Telecorp Products, Inc., February 28, 2014

On February 28, 2014, the Company entered into a Stock Purchase Agreement (the “Telecorp Purchase Agreement”) with Troy Holdings International, Inc., an Ontario Canada corporation (“Troy Holdings”), Telecorp Products, Inc. a Michigan corporation and Troy, Inc., a shareholder and the sole stockholder of Telecorp. Pursuant to the Telecorp Purchase Agreement, the Company purchased 100% of the outstanding shares of Telecorp from Troy Holdings, for an aggregate purchase price of $302,000 (the “Purchase Price”). The Purchase Price was payable as follows:

(a)

The Company paid Troy Holdings $200,000 at the Closing (the “Cash Consideration”) of the Telecorp Purchase Agreement; and

(b)

The Company provided Troy Holdings with a Promissory Note in the amount of $102,000 (the “Telecorp Note”), as adjusted from an original $120,000 by $18,000 of liabilities acquired in excess of the agreed upon limit of $50,000 of liabilities, which provides for six (6) equal monthly payments of $20,000 commencing thirty (30) days after the Closing. The Telecorp Note is non-interest bearing except upon default, in which case the interest rate shall be 10% per annum.

Additionally, the Company agreed to assume aggregate outstanding Telecorp liabilities of up to $50,000 in connection with the Closing. A total of $68,000 of liabilities was actually acquired, and the resulting $18,000 of excess liabilities was credited as payment against the Telecorp Note. As a result of the Closing, Telecorp became a wholly-owned subsidiary of the Company.

Telecorp developed and sells software to effectively operate contact centers. Telecorp’s solutions work with equipment from the giants of the computer telephony industry, such as Avaya, Cisco and Nortel Networks. In connection with the Stock Purchase Agreement, the shareholders of Telecorp and the Company entered into a Non-Disclosure/Non-Compete Agreement, pursuant to which the shareholders of Telecorp and the Company, each agreed to not for a period of one (1) year, communicate or divulge to, or use for the benefit of itself or any other person, firm, association or corporation, any information in any way relating to the Proprietary Property, in competition with the business of the Company, and pursuant to the agreement, the shareholders of Telecorp agreed not to compete against the Company for one (1) year from the closing of the acquisition.

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 $428,577 of goodwill. According to the purchase method of accounting, the Company recognized the identifiable assets acquired and liabilities assumed as follows:

	February 28,
	2014
Consideration:
Cash paid at, and prior to, closing	$	200,000
Seller financed note payable(1)(2)		120,000
Excess liability adjustment to seller financed note payable(3)		(18,000	)
		302,000
Fair value of identifiable liabilities acquired:
Accounts payable and accrued expenses		43,500
Deferred revenue		162,016
Line of credit		24,500
Fair value of total consideration exchanged	$	532,016
Fair value of identifiable assets acquired assumed:
Cash	$	736
Other current assets		823
Technology-based intangible assets		72,490
Trade name		29,390
Total fair value of assets assumed		117,189
Consideration paid in excess of fair value (Goodwill)(4)	$	428,577

______________

⁽¹⁾Consideration included an unsecured $120,000 seller financed note payable (“Telecorp Note”), which provides for six (6) equal monthly payments of $20,000 commencing thirty (30) days after the Closing. The Telecorp Note is non-interest bearing except upon default, in which case the interest rate shall be 10% per annum.

⁽²⁾The fair value of the seller financed note in excess of the $102,000 principal balance attributable to the deferred payment terms will be amortized to interest expense over the deferred financing period.

⁽³⁾The Company agreed to assume aggregate outstanding Telecorp liabilities of up to $50,000 in connection with the Closing. A total of $68,000 of liabilities was actually acquired, and the resulting $18,000 of excess liabilities was credited as payment against the Telecorp Note.

⁽⁴⁾The consideration paid in excess of the net fair value of assets acquired and liabilities assumed has been recognized as goodwill.

Management believes the product line of Telecorp, customer base and other assets acquired will enable the Company to enhance their business model and strengthen its future cash flows to fund operations and take advantage of additional growth opportunities.

The unaudited supplemental pro forma results of operations of the combined entities had the dates of the acquisitions been January 1, 2014 or January 1, 2013 are as follows:

	Combined Pro Forma:
		For the three months ended March 31,
		2014			2013
Revenue:		$	341,255		$	358,741
Expenses:
Operating expenses			2,757,750			590,650
Net operating income (loss)			(2,416,495	)		(231,909	)
Other income (expense)			(1,309,466	)		(201,577	)
Net income (loss)		$	(3,725,961	)	$	(433,486	)
Weighted average number of common shares
Outstanding – basic and fully diluted			3,615,727,230			1,283,603,738
Net income (loss) per share – basic and fully diluted		$	(0.00	)	$	(0.00	)

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4. Mergers and Aquisitions (Details - Revenue for Relevant Year) (USD $)	6 Months Ended
	Jun. 30, 2014
Mergers And Aquisitions Details - Revenue For Relevant Year
$-0- to $500,000	$ 0
$500,000 to $600,000	25,000
$600,000 to $700,000	50,000
$700,000 to $800,000	75,000
$800,000 or more	$ 100,000

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7. Other Current Assets (Tables)

6 Months Ended

Jun. 30, 2014

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Other Current Assets

	June 30,		December 31,
	2014		2013
Deferred financing costs	$	47,980	$	44,986
Other receivable		38		51,250
Security deposits		17,378		9,878
	$	65,396	$	106,114

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6. Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Schedule of Assets and Liabilities Measured on a Non-recurring Basis

	Fair Value Measurements at June 30, 2014
	Level 1		Level 2			Level 3
Assets
Cash	$	101,871	$	–		$	–
Intangible assets		–		–			476,418
Goodwill		–		–			1,149,041
Total assets		101,871		–			1,625,459
Liabilities
Lines of credit		–		86,544			–
Capital leases		–		8,161			–
Notes payable, related parties		–		930,868			–
Convertible debts, net of discount of $1,112		–		151,163			–
Long term debts, including current maturities		–		1,652,370			–
Total Liabilities		–		2,829,106			–
	$	101,871	$	(2,829,106	)	$	1,625,459

	Fair Value Measurements at December 31, 2013
	Level 1		Level 2			Level 3
Assets
Cash	$	208,567	$	–		$	–
Intangible assets		–		–			374,162
Goodwill		–		–			255,460
Total assets		208,567		–			629,622
Liabilities
Lines of credit		–		73,232			–
Capital leases		–		17,421			–
Long term debts		–		1,211,929			–
Notes payable, related parties		–		482,368			–
Convertible debts, net of discount of $109,583		–		157,294			–
Total Liabilities		–		1,942,244			–
	$	208,567	$	(1,942,244	)	$	629,622

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15. Long Term Debt (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Less: current portion	$ (612,898)	$ (354,786)
Long term debt, less current portion	1,039,472	857,143
Long Term Debt A
Total long term debt	39,021	0
Long Term Debt B
Total long term debt	208,462	0
Long Term Debt C
Total long term debt	34,493	0
Long Term Debt D
Total long term debt	57,119	0
Long Term Debt E
Total long term debt	22,463	0
Long Term Debt F
Total long term debt	22,163	0
Long Term Debt G
Total long term debt	21,639	0
Long Term Debt H
Total long term debt	67,616	0
Long Term Debt I
Total long term debt	14,153	0
Long Term Debt J
Total long term debt	133,425	98,984
Long Term Debt K
Total long term debt	0	9,417
Long Term Debt L
Total long term debt	38,662	47,321
Long Term Debt M
Total long term debt	28,220	32,025
Long Term Debt N
Total long term debt	13,261	5,202
Long Term Debt O
Total long term debt	14,181	0
Long Term Debt P
Total long term debt	33,210	41,167
Long Term Debt Q
Total long term debt	28,948	38,361
Long Term Debt R
Total long term debt	32,010	40,108
Long Term Debt S
Total long term debt	8,200	10,228
Long Term Debt T
Total long term debt	57,170	78,603
Long Term Debt U
Total long term debt	298,043	312,095
Long Term Debt V
Total long term debt	103,228	94,000
Long Term Debt W
Total long term debt	1,544	2,510
Long Term Debt X
Total long term debt	8,454	8,186
Long Term Debt Y
Total long term debt	50,954	60,573
Long Term Debt Z
Total long term debt	128,699	137,087
Long Term Debt AA
Total long term debt	187,032	197,062
Long Term Debt
Total long term debt	1,652,370	1,211,929
Less: current portion	612,898	354,786
Long term debt, less current portion	$ 1,039,472	$ 857,143

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5. Related Parties (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Total convertible debts, related parties	$ 0	$ 46,449
Less: unamortized discount on beneficial conversion feature	0	(103,188)
Convertible debts	0	40,796
Less: current maturities of convertible debts, related parties included in convertible debts	0	0
Long term convertible debts, related parties included in convertible debts	0	40,796
First Vivienne Passley Note
Total convertible debts, related parties	0	0
Star Convertible Note
Total convertible debts, related parties	$ 0	$ 46,449

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8. Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2014

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

	June 30,			December 31,
	2014			2013
Furniture and fixtures	$	23,279		$	2,187
Computers and equipment		182,074			325,105
Software		15,660			67,986
Assets held under capital leases		17,855			134,800
		238,868			530,078
Less accumulated depreciation and amortization		(107,895	)		(416,668	)
	$	130,973		$	113,410

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9. Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

	Useful		June 30,			December 31,
Description	Life		2014			2013
Technology-based intangible assets - IntelliSys		5 Years	$	200,000		$	200,000
Technology-based intangible assets - K9 Bytes		5 Years		42,000			42,000
Technology-based intangible assets – MS Health		5 Years		124,000			124,000
Technology-based intangible assets – Telecorp		5 Years		72,490			–
Technology-based intangible assets – Cynergy		5 Years		8,035			–
Technology-based intangible assets – Jadian		5 Years		37,180			–
Contracts – MS Health		6 Years		258,000			258,000
Trade name - K9 Bytes		5 Years		22,000			22,000
Trade name - Telecorp		5 Years		29,390			–
Trade name - Cynergy		5 Years		1,826			–
Trade name - Jadian		5 Years		24,941			–
Other intangible assets – MS Health		2 Years		18,000			18,000
Other intangible assets - K9 Bytes		2 Years		26,000			26,000
Total intangible assets				863,862			690,000
Less: accumulated amortization				(387,444	)		(315,838	)
Intangible assets, net			$	476,418		$	374,162

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3. Subsidiary Formation

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

3. Subsidiary Formation

Formation of Subsidiary – Terran Power, Inc., September 19, 2013

On September 19, 2013, the Board of Directors, consisting solely of Shaun Passley, Ph.D., the Company’s majority shareholder, approved the formation of a new wholly-owned subsidiary of the Company named Terran Power, Inc. The Company plans to file a non-provisional patent application to develop a mobile power device that allows iPhone and other smartphone users to power up their phone on the go without needing an outlet or a second battery, however, as of the date of this filing there has been no activity and, as such, there are no revenues or expenses.

Subsidiary Formation – FlexFridge, Inc., March 4, 2013

On March 4, 2013, the Board of Directors of Epazz, Inc. (the “Company”), consisting solely of Shaun Passley, Ph.D., the Company’s majority shareholder, approved the formation of a new wholly-owned subsidiary of the Company named Cooling Technology Solutions, Inc., which was later renamed, Z Fridge, Inc., and ultimately again renamed as, FlexFridge, Inc. (“FlexFridge”) on May 29, 2014. The Company has filed a non-provisional patent application for its Project Flex product, which consists of a patent pending foldable mini-fridge. On November 21, 2013, the Company was spun off to shareholders of record on September 15, 2013, whereby shareholders of Epazz, Inc. received one (1) share of FlexFridge in exchange for each ten (10) shares held of Epazz, Inc. Epazz has a controlling financial interest in FlexFridge. As such, FlexFridge is consolidated within these financial statements pursuant to Accounting Standards Codification (“ASC”) 810-10. There has been no material activity within FlexFridge to date.

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11. Lines of Credit (Tables)

6 Months Ended

Jun. 30, 2014

Line of Credit Facility [Abstract]

Schedule of Lines of Credit

	June 30,			December 31,
	2014			2013
Line of credit of $50,000 from PNC bank, originating on February 16, 2012. The outstanding balance on the line of credit bears interest at an introductory rate of 4.25% for the first year, subject to renewal thereafter. Payments of $739 are due monthly.	$	49,908		$	49,508
Line of credit of $20,000 from US Bank, originating on June 8, 2012. The outstanding balance on the line of credit bears interest at 9.75%, maturing on June 5, 2019. Payments of $500 are due monthly.		16,351			18,087
Line of credit of $40,000 from Dell Business Credit available for the purchase of Dell products, such as computer and software equipment. The outstanding balance on the line of credit bears interest at a rate of 26.99%. Variable payments are due monthly.		–			5,637
Line of credit of $25,000 from Bank of America. The outstanding balance on the line of credit bears interest at a rate of 4.25%. Variable payments are due monthly. A total of $24,500 was acquired with the acquisition of Telecorp.		20,285			–
Total line of credit		86,544			73,232
Less: current portion		(86,544	)		(73,232	)
Line of credit, less current portion	$	–		$	–

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2. Going Concern (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Going Concern Details
Accumulated deficit	$ (11,997,598)	$ (7,501,994)
Working capital	(2,469,820)
Total liabilities over total assets (shown as negative)	$ (1,756,034)

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12. Capital Lease Obligations Payable (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Leases, Capital [Abstract]
2015	$ 5,757
2016	3,311
Total minimum payments	9,068
Less: amount representing interest	907
Present value of net minimum lease payments	8,161
Less: Current maturities of capital lease obligations	(4,987)	(17,421)
Long-term capital lease obligations	$ 3,174	$ 0

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash	$ 101,871	$ 208,567
Accounts receivable, net	71,762	25,248
Other current assets	65,396	106,114
Total current assets	239,029	339,929
Property and equipment, net	130,973	113,410
Intangible assets, net	476,418	374,162
Goodwill	1,149,041	255,460
Total assets	1,995,461	1,082,961
Current liabilities:
Dividends payable	11,000	11,000
Accounts payable	312,005	258,163
Accrued expenses	55,193	45,298
Accrued expenses, related parties	47,681	28,741
Deferred revenue	496,510	322,130
Lines of credit	86,544	73,232
Current maturities of capital lease obligations payable	4,987	17,421
Current maturities of notes payable, related parties ($841,618 currently in default)	930,868	397,368
Convertible debts, net of discounts of $1,112 and $105,300, respectively ($119,275 currently in default)	151,163	115,128
Current maturities of long term debts	612,898	354,786
Total current liabilities	2,708,849	1,623,267
Capital lease obligations payable, net of current maturities	3,174	0
Notes payable, related parties	0	85,000
Convertible debts, net of discounts of $-0- and $4,283, respectively	0	42,166
Long term debt, net of current maturities	1,039,472	857,143
Total liabilities	3,751,495	2,607,576
Stockholders' equity (deficit):
Preferred stock	292,472	0
Common stock	681,973	347,886
Additional paid in capital	9,240,766	6,429,493
Stockholders' payable, consisting of 19,000,000 shares of Series C Convertible Preferred Stock and 28,875,000 shares of Class A Common Stock at June 30, 2014	26,353	0
Stockholders' receivable, consisting of -0- and 20,000,000 shares of Class A Common Stock, respectively	0	(800,000)
Accumulated deficit	(11,997,598)	(7,501,994)
Total stockholders' equity (deficit)	(1,756,034)	(1,524,615)
Total liabilities and stockholders' equity (deficit)	1,995,461	1,082,961
Series A Preferred Stock [Member]
Stockholders' equity (deficit):
Preferred stock	0	0
Series B Preferred Stock [Member]
Stockholders' equity (deficit):
Preferred stock	0	0
Series C Preferred Stock [Member]
Stockholders' equity (deficit):
Preferred stock	292,472	0
Class A [Member]
Stockholders' equity (deficit):
Common stock	679,673	346,836
Class B [Member]
Stockholders' equity (deficit):
Common stock	$ 2,300	$ 1,050

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6. Fair Value of Financial Instruments (Details) (Fair Value, Measurements, Nonrecurring [Member], USD $)	Jun. 30, 2014	Dec. 31, 2013
Fair Value, Inputs, Level 1 [Member]
Assets
Cash	$ 101,871	$ 0
Intangible assets	0	374,162
Goodwill	0	255,460
Total assets	101,871	629,622
Liabilities
Lines of credit	0	0
Capital leases	0	0
Notes payable, related parties	0	0
Convertible debts, net of discounts	0	0
Long term debts, including current maturities	0	0
Total Liabilities	0	0
Total assets over liabilities	101,871	629,622
Fair Value, Inputs, Level 2 [Member]
Assets
Cash	0	0
Intangible assets	0	0
Goodwill	0	0
Total assets	0	0
Liabilities
Lines of credit	86,544	73,232
Capital leases	8,161	17,421
Notes payable, related parties	930,868	1,211,929
Convertible debts, net of discounts	151,163	482,368
Long term debts, including current maturities	1,652,370	157,294
Total Liabilities	2,829,106	1,942,244
Total assets over liabilities	(2,829,106)	(1,942,244)
Fair Value, Inputs, Level 3 [Member]
Assets
Cash	0	208,567
Intangible assets	476,418	0
Goodwill	1,149,041	0
Total assets	1,625,459	208,567
Liabilities
Lines of credit	0	0
Capital leases	0	0
Notes payable, related parties	0	0
Convertible debts, net of discounts	0	0
Long term debts, including current maturities	0	0
Total Liabilities	0	0
Total assets over liabilities	$ 1,625,459	$ 208,567

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1. Basis of Presentation and Consolidation

6 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Consolidation

The interim condensed consolidated financial statements of Epazz, Inc. (“Epazz” or the “Company”), an Illinois corporation, included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to not make the information presented misleading.

These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2013 and notes thereto included in the Company's 10-K annual report. The Company follows the same accounting policies in the preparation of interim reports.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the following entities, all of which are under common control and ownership:

	State of		Abbreviated
Name of Entity(2)	Incorporation	Relationship(1)	Reference
Epazz, Inc.	Illinois	Parent	Epazz
IntelliSys, Inc.	Wisconsin	Subsidiary	IntelliSys
Professional Resource Management, Inc.	Illinois	Subsidiary	PRMI
Desk Flex, Inc.	Illinois	Subsidiary	DFI
K9 Bytes, Inc.	Illinois	Subsidiary	K9 Bytes
MS Health, Inc.	Illinois	Subsidiary	MS Health
Terran Power, Inc.(5)	Illinois	Subsidiary	Terran
Telecorp Products, Inc.	Michigan	Subsidiary	Telecorp
Jadian, Inc.	Illinois	Subsidiary	Jadian
FlexFridge, Inc.(3)	Illinois	Subsidiary(4)	FlexFridge

______________

⁽¹⁾All subsidiaries, with the exception of FlexFridge, are wholly-owned subsidiaries.

⁽²⁾All entities are in the form of Corporations.

⁽³⁾Formerly Z Fridge, Inc. and Cooling Technology Solutions, Inc.

⁽⁴⁾FlexFridge, Inc. was spun-off on November 21, 2013, and distributed on a 1:10 basis to shareholders of record on September 15, 2013. Epazz has a controlling financial interest in FlexFridge. As such, FlexFridge is consolidated within these financial statements pursuant to Accounting Standards Codification (“ASC”) 810-10. There has been no material activity within FlexFridge to date.

⁽⁵⁾Entity formed for prospective purposes, but has not incurred any income or expenses to date.

The condensed consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. All significant inter-company transactions have been eliminated in the preparation of these financial statements. The parent company, Epazz and subsidiaries, IntelliSys, PRMI, DFI, K9 Bytes, MS Health, Terran, Telecorp, Jadian and FlexFridge will be collectively referred to herein as the “Company”, or “Epazz”. The Company's headquarters are located in Chicago, Illinois and substantially all of its customers are within the United States.

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.

Segment Reporting

FASB ASC 280-10-50 requires annual and interim reporting for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. All of the Company’s software products are considered operating segments, and will be aggregated into one reportable segment given the similarities in economic characteristics among the operations represented by the common nature of the products, customers and methods of distribution.

Reclassifications

Certain amounts in the financial statements of the prior year have been reclassified to conform to the presentation of the current year for comparative purposes.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company had debt instruments that required fair value measurement on a recurring basis.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit of five to fifteen years. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No material impairments of intangible assets have been identified during any of the periods presented. Amortization expense on intangible assets totaled $71,606 and $87,324 for the six months ended June 30, 2014 and 2013, respectively.

Goodwill

The Company evaluates the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit's carrying amount, including goodwill. The fair value of the reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies' data. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. The Company's evaluation of goodwill completed during the year ended December 31, 2013 resulted in no impairment losses.

Beneficial Conversion Features

From time to time, the Company may issue convertible notes that may contain an imbedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

Derivative Liability

The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. We analyzed the derivative financial instruments (the Convertible Note and tainted Warrant), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

Basic and Diluted Net Earnings per Share

Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. There were no outstanding potential common stock equivalents for the periods presented. As such, basic and diluted earnings per share resulted in the same figure for the six months ending June 30, 2014 and 2013.

Stock-Based Compensation

Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, are to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Common stock issued for services and compensation was $2,280,902 and $1,522,000 for the six months ended June 30, 2014 and 2013, respectively.

Revenue Recognition

The Company designs and sells various software programs to business enterprises including, among others, hospitals, pet stores, and Government and post-secondary institutions. Prior to shipment, each software product is tested extensively to meet Company specifications. The software is shipped fully functional via electronic delivery, but some installation and setup is required. No other entities sell the same or largely interchangeable software.

Installation is a standard process, outlined in the owner's manual, consisting principally of setup, calibrating, and testing the software. A purchaser of the software could complete the process using the information in the owner's manual, although it would probably take significantly longer than it would take the Company’s technicians to perform the tasks. Although other vendors do not install the Company’s software, they do provide largely interchangeable installation services for a fee. Historically, the Company has never sold the software without installation. Most installations are performed by the Company within 7 to 24 days of shipment and are included in the overall sales price of the software. In addition, the customer must pay for support contracts and training packages, depending on their desired level of service. The Company is the only manufacturer of the software and it only sells software on a standalone basis directly to the end user.

The sales price of the arrangement consists of the software, installation, and training and support services, which the customer is obligated to pay in full upon delivery of the software. In addition, there are no general rights of return involved in these arrangements. Therefore, the software is accounted for as a separate unit of accounting.

The Company does not have vendor-specific objective evidence of selling price for the software because it does not sell the software separately (without installation services and support contracts). In addition, third-party evidence of selling price does not exist as no vendor separately sells the same or largely interchangeable software. Therefore, the Company uses its best estimate of selling price when allocating such arrangement consideration.

In estimating its selling price for the software, the Company considers the cost to produce the software, profit margin for similar arrangements, customer demand, effect of competitors on the Company’s software, and other market constraints. When applying the relative selling price method, the Company uses its best estimate of selling price for the software, and third-party evidence of selling price for the installation. Accordingly, without considering whether any portion of the amount allocable to the software is contingent upon delivery of the other items, the Company allocates the selling price to the software, support, and installation.

The Company doesn’t currently provide product warranties, but if it does in the future it will provide for specific product lines and accrue for estimated future warranty costs in the period in which the revenue is recognized.

Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.

In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-10 is not expected to have a material impact on our financial position or results of operations.

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14. Convertible Debt (Tables)

6 Months Ended

Jun. 30, 2014

Convertible Debt [Abstract]

Schedule of Convertible Debt

	June 30,		December 31,
	2014		2013
Originated April 2, 2014, an unsecured $51,000 convertible promissory note, carried a 15% interest rate, matured on August 1, 2014, (“First Vivienne Passley Note”) owed to Vivienne Passley, a related party. The convertible promissory note was issued in exchange for a promissory note originally issued on August 12, 2013 to the same debt holder, which did not carry conversion terms. The principal and accrued interest was convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.0001 per share. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The debt modification resulted in a loss on debt modifications, related party of $172,864. The assigned principal of $51,000, interest of $4,933 and liquidated damages incurred prior to assignment of $2,500 was subsequently converted to a total of 584,333,745 shares of common stock over various dates from April 2, 2014 to June 17, 2014 in complete satisfaction of the debt.	$	–	$	–
Originated February 19, 2014, an unsecured $37,700 convertible promissory note, carries a 12% interest rate, matures on February 17, 2015, (“Third Magna Group Note”) owed to Magna Group, LLC, consisting of a promissory note acquired and assigned from Star Financial Corporation, a related party, consisting of $32,000 of principal and $5,700 of accrued interest. The acquired promissory note did not carry conversion terms, and were subsequently exchanged for the convertible note. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty percent (50%) of the lowest trading price of the Company’s common stock for the five (5) days prior to the conversion date, or $0.00004 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The assigned principal and interest of $35,491 was subsequently converted to a total of 377,000,000 shares of common stock over various dates from March 10, 2014 to March 19, 2014 in complete satisfaction of the debt.		–		–
Originated February 4, 2014, an unsecured $35,491 convertible promissory note, carries a 12% interest rate, matures on February 4, 2015, (“Second Magna Group Note”) owed to Magna Group, LLC, consisting of two notes acquired and assigned from Star Financial Corporation, a related party, consisting of a total of $33,000 of principal and $2,491 of accrued interest. The acquired promissory notes did not carry conversion terms, and were subsequently exchanged for the convertible note. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty percent (50%) of the lowest trading price of the Company’s common stock for the five (5) days prior to the conversion date, or $0.00004 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The assigned principal and interest of $35,491 was subsequently converted to a total of 236,606,400 shares of common stock over various dates from February 13, 2014 to February 27, 2014 in complete satisfaction of the debt.		–		–
Unsecured $33,000 convertible promissory note originated on November 13, 2013, including an Original Issue Discount (“OID”) of $3,000, carries a 12% interest rate (“Second JMJ Note”), matures on November 12, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the lowest trading price of the Company’s common stock for the twenty five (25) trading days prior to the conversion date, or $0.00009 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The unamortized OID is $2,604 at December 31, 2013. On July 11, 2014, the Company and JMJ Financial amended this note. The amendment specifies that due to the previously delinquent SEC filings, any future borrowings shall only be made by mutual agreement of both the borrower and lender.		33,000		33,000

Unsecured $35,028 convertible promissory note originated on December 31, 2013, carries an 12% interest rate (“First Magna Group Note”) owed to Magna Group, LLC. Two notes totaling $33,000 of principal and $1,028 of accrued interest were acquired from and assigned by Star Financial on December 31, 2013 prior to being exchanged for the convertible note, including $1,000 of loan origination costs. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty percent (50%) of the lowest trading price of the Company’s common stock for the five (5) days prior to the conversion date, or $0.00004 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The assigned principal and interest of $35,028 was subsequently converted to a total of 216,806,667 shares of common stock over various dates from January 7, 2014 to February 6, 2014 in complete satisfaction of the debt.	–	35,028
Unsecured $56,900 convertible promissory note, including an Original Issue Discount (“OID”) of $6,900, carries an 8% interest rate (“First St. George Note”), matures on May 30, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the average of the two lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The note holder converted $15,000 of outstanding principal into 125,000,000 shares pursuant to debt conversion on March 7, 2014.The unamortized OID is $3,791 at December 31, 2013. During the 2nd quarter of 2014, a total of $77,375 of principal and another $7,512 of accrued interest was added to the debt due to default provisions, including $25,000 of principal due to a Late Clearing Adjustment penalty. Currently in default.	119,275	56,900
Unsecured $42,500 convertible promissory note carries an 8% interest rate (“Eighth Asher Note”), matures on June 20, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-nine percent (59%) of the average of the three lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The note holder converted $41,000 of outstanding principal into 341,666,667 shares pursuant to debt conversion on March 25, 2014, and $2,750, consisting of $1,500 of principal and $1,250 of interest was repaid in cash during the second quarter of 2014.	–	42,500
Unsecured $53,000 convertible promissory note carries an 8% interest rate (“Seventh Asher Note”), matures on May 21, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-nine percent (59%) of the average of the three lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The note holder converted $27,000 of outstanding principal into 150,000,000 shares pursuant to debt conversion on March 3, 2014, and $28,120, consisting of $26,000 of principal and $2,120 of accrued interest into 200,857,143 shares pursuant to debt conversion on March 5, 2014 in complete satisfaction of the debt.	–	53,000

Unsecured $440,849 convertible promissory note due to a related party, carries a 10% interest rate (“Star Convertible Note”), matures on July 2, 2017. The principal and unpaid interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 75% of the average closing price of the Company’s common stock over the five (5) consecutive trading days immediately preceding the date of conversion, or the fixed price of $0.005 per share, whichever is greater. The note carries a fourteen percent (14%) interest rate in the event of default, and the debt holder is limited to owning 9.99% of the Company’s issued and outstanding shares. This note was subsequently amended on March 5, 2013 to change the conversion price to, "equal to the greater of, (a) 50% of the Market Price, or (b) the fixed conversion price of $0.00075 per share". The modification resulted in a loss on debt modification of $81,792. The note holder converted $250,000 of outstanding principal into 50,000,000 shares pursuant to debt conversion on September 15, 2012, $46,000 into 50,000,000 shares pursuant to debt conversion on March 14, 2013, $40,000 into 50,000,000 shares pursuant to debt conversion on April 10, 2013, $26,400 into 80,000,000 shares pursuant to debt conversion on July 9, 2013 and $32,000 into 40,000,000 shares pursuant to debt conversion on August 7, 2013, $18,750 into 125,000,000 shares pursuant to debt conversion on April 7, 2014, $20,000 into 200,000,000 shares pursuant to debt conversion on May 3, 2014, and $15,000, consisting of $7,699 of principal and $7,301 of interest into 150,000,000 shares pursuant to the final debt conversion on May 22, 2014.		–			46,449
Total convertible debts		152,275			266,877
Less: unamortized discount on beneficial conversion feature		–			(103,188	)
Less: unamortized OID		(1,112	)		(6,395	)
Convertible debts		151,163			157,294
Less: current maturities of convertible debts		(151,163	)		(115,128	)
Long term convertible debts	$	–		$	42,166

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17. Changes in Stockholder's Equity (Deficit)

6 Months Ended

Jun. 30, 2014

Stockholders' Equity Note [Abstract]

Changes in Stockholder's Equity (Deficit)

On February 21, 2014, the Company issued 10,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $75,000 short term promissory note. The total fair value of the common stock was $9,562 based on an independent valuation on the date of grant.

On February 22, 2014, the Company issued 15,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $100,000 short term promissory note. The total fair value of the common stock was $14,266 based on an independent valuation on the date of grant.

On March 7, 2014, the Company issued 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $30,000 short term promissory note. The total fair value of the common stock was $2,912 based on an independent valuation on the date of grant.

On March 22, 2014, the Company issued 200,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, for providing a personal guaranty on an acquisition loan. The total fair value of the common stock was $127,746 based on an independent valuation on the date of grant.

On March 22, 2014, the Company issued 200,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, for providing a personal guaranty on an acquisition loan. The total fair value of the common stock was $127,746 based on an independent valuation on the date of grant.

On March 22, 2014, the Company issued 1,821,052,632 shares of the Series C Convertible Preferred Stock to the Company’s CEO in exchange for 1,821,052,632 shares, consisting of 1,730,526,316 previously issued and unvested shares of Class A Common Stock and 90,526,316 shares of his previously issued and vested Class A Common Stock. The vesting terms were accelerated commensurate with the exchange. The total fair value of the Series C Convertible Preferred Stock was $1,163,162 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $707,025 due to the difference in the fair value of the Class A Common Stock exchanged.

On March 22, 2014, the Company issued 13,669,568 shares of the Series C Convertible Preferred Stock to L&F Lawn Services, a company owned by our CEO’s family member, a related party, in exchange for 13,669,568 of their previously issued Class A Common Stock. The total fair value of the Series C Convertible Preferred Stock was $8,731 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $5,307 due to the difference in the fair value of the Class A Common Stock exchanged.

On March 22, 2014, the Company issued 60,000,000 shares of the Series C Convertible Preferred Stock to the Company’s CEO in exchange for 60,000,000 shares, consisting of 54,000,000 previously issued and unvested shares of Class A Common Stock and 6,000,000 shares of his previously issued and vested Class A Common Stock. The vesting terms were accelerated commensurate with the exchange. The total fair value of the Series C Convertible Preferred Stock was $38,324 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $23,295 due to the difference in the fair value of the Class A Common Stock exchanged.

Subscriptions Payable Issued for Shares of Convertible Series C Preferred Stock Granted for Services to Related Parties

On January 15, 2014, the Company granted 5,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $43,000 short term promissory note. The total fair value of the common stock was $6,465 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On February 8, 2014, the Company granted 1,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $13,000 short term promissory note. The total fair value of the common stock was $1,193 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 7, 2014, the Company granted 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $22,000 short term promissory note. The total fair value of the common stock was $1,942 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 26, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $37,500 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 26, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 28, 2014, the Company granted 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $18,750 short term promissory note. The total fair value of the common stock was $1,594 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 28, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,390 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

Common Stock, Class A

The Company has 9 billion authorized shares of $0.0001 par value Class A Common Stock.

Class A Common Stock Issuances:

Debt Conversions into Class A Common Stock – Related Parties

On April 2, 2014, the Company issued 250,000,000 shares of Class A Common Stock pursuant to the conversion of $25,000 of convertible debt held by Vivienne Passley, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 7, 2014, the Company issued 125,000,000 shares of Class A Common Stock pursuant to the conversion of $18,750 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 3, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 22, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On June 17, 2014, the Company issued 334,333,745 shares of Class A Common Stock pursuant to the conversion of $33,433 of convertible debt held by Vivienne Passley, a related party, which consisted of $26,000 of principal, $4,933 of interest and $2,500 of liquidated damages. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

Equity Based Debt Settlement Financing, Conversions into Class A Common Stock – IBC Funds, LLC

On February 14, 2014, IBC Funds, LLC (“IBC”) filed a Joint Motion for Approval of Settlement Agreement and Stipulation, and Request for Fairness Hearing in the Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County, Florida, Case No. 2014-CA-000899. IBC has contracted with various note holders of the Company to acquire approximately $314,021 of Company debt and subsequently converted the debt to common stock of the Company at 50% of the lowest trading price over the 15 days prior to, and including the conversion request date pursuant to Section 3(a)(10) of the Securities Act of 1933, which allows the exchange of claims, securities, or property for stock when the arrangement is approved for fairness by a court proceeding. In addition, the Company agreed to issue 75,000,000 settlement shares to IBC. The Company has agreed to these terms as the acquisition of these debts and subsequent conversion would alleviate a significant portion of the Company’s liabilities. A fairness hearing was held on February 14, 2014 and the arrangement was approved. A total of 3,040,823,600 shares of Class A Common Stock was issued, in addition to the 75,000,000 settlement shares, in complete satisfaction of the debt, as disclosed in detail below.

On February 14, 2014, the Company issued 75,000,000 settlement shares of Class A Common Stock pursuant to the February 12, 2014 settlement agreement entered into with IBC Funds, LLC. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized. The total fair value of the common stock was $37,500 based on the closing price of the Company’s common stock on the date of grant.

On February 14, 2014, the Company issued 25,000,000 shares of Class A Common Stock pursuant to the conversion of $3,750 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 24, 2014, the Company issued 100,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 25, 2014, the Company issued 100,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 25, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 28, 2014, the Company issued 142,900,000 shares of Class A Common Stock pursuant to the conversion of $21,435 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 7, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 11, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 14, 2014, the Company issued 101,900,000 shares of Class A Common Stock pursuant to the conversion of $10,190 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 25, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 27, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 2, 2014, the Company issued 151,900,000 shares of Class A Common Stock pursuant to the conversion of $15,190 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 7, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $30,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 10, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 16, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 22, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 28, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 1, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 6, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $10,000 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 6, 2014, the Company issued 169,123,600 shares of Class A Common Stock pursuant to the conversion of $8,456 of convertible debt held by IBC Funds, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

Debt Conversions into Class A Common Stock – Magna Group, LLC

On January 7, 2014, the Company issued 25,140,000 shares of Class A Common Stock pursuant to the conversion of $5,028 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On January 22, 2014, the Company issued 25,000,000 shares of Class A Common Stock pursuant to the conversion of $5,000 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On January 31, 2014, the Company issued 66,666,667 shares of Class A Common Stock pursuant to the conversion of $10,000 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 6, 2014, the Company issued 100,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 13, 2014, the Company issued 103,273,067 shares of Class A Common Stock pursuant to the conversion of $15,491 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On February 27, 2014, the Company issued 133,333,333 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 10, 2014, the Company issued 180,000,000 shares of Class A Common Stock pursuant to the conversion of $18,000 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 19, 2014, the Company issued 197,000,000 shares of Class A Common Stock pursuant to the conversion of $19,700 of convertible debt held by Magna Group, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

Debt Conversions into Class A Common Stock – Asher Enterprises

On March 3, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $27,000 of convertible debt held by Asher Enterprises, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 5, 2014, the Company issued 200,857,143 shares of Class A Common Stock pursuant to the conversion of $28,120 of convertible debt held by Asher Enterprises, which consisted of $26,000 of principal and $2,120 of interest. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On March 25, 2014, the Company issued 341,666,667 shares of Class A Common Stock pursuant to the conversion of $41,000 of convertible debt held by Asher Enterprises, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

Debt Conversions into Class A Common Stock – St. George Investments, LLC

On March 7, 2014, the Company issued 125,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by St. George Investments, LLC, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

Subscriptions Payable Issued for Shares of Class A Common Stock Granted for Services

On April 23, 2014, the Company granted 3,500,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $35,000 short term promissory note. The total fair value of the common stock was $1,050 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On April 24, 2014, the Company granted 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $150,000 short term promissory note. The total fair value of the common stock was $3,000 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On May 7, 2014, the Company granted 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $125,000 short term promissory note. The total fair value of the common stock was $2,000 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On May 28, 2014, the Company granted 3,250,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $32,500 short term promissory note. The total fair value of the common stock was $650 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On June 12, 2014, the Company granted 2,125,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $5,000 short term promissory note. The total fair value of the common stock was $213 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

Convertible Common Stock, Class B

The Company has 60,000,000 authorized shares of $0.0001 par value Convertible Class B Common Stock, convertible at the option of the holder into shares of the Company’s Class A Common Stock on a 1:1 basis. Effective January 14, 2014, the preferential voting rights of the Convertible Class B Common Stock were changed from preferential voting rights of 2,000 votes to each Class A Common Stock vote (2,000:1) to 10,000 votes to each Class A Common Stock vote (10,000:1). The Company shall reserve and keep available out of its authorized but unissued shares of Class A Common Stock such number of shares sufficient to effect the conversions.

Convertible Class B Common Stock Issuance for Services

On March 22, 2014, the Company issued 12,500,000 shares of Convertible Class B Common Stock to the Company’s CEO in consideration for providing services. The total fair value of the common stock was $44,737 based on the closing price of the Company’s common stock on the date of grant.

Dividends Payable

On January 1, 2013, the Company declared and accrued dividends quarterly on its Convertible Series B Preferred Stock pursuant to the recognition of revenues in excess of $1 million during the year ended December 31, 2012. Dividends equal to 1.5% of the Company’s revenues per quarter during the year ending December 31, 2013 accrue quarterly, resulting in a dividend payable of $11,000, which was subsequently paid on September 11, 2014, with the issuance of 110,000,000 shares of Class A Common Stock in lieu of cash.

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15. Long Term Debt (Tables)

6 Months Ended

Jun. 30, 2014

Long-term Debt, Current and Noncurrent [Abstract]

Schedule of Long-Term Debt

	June 30,		December 31,
	2014		2013
On June 6, 2014, the Company received a loan of $42,000 from Global Merchant Cash, Inc. (“GMC Loan”). The loan bears interest at an effective rate of 187%, consisting of 100 daily weekday payments of $599, maturing on November 3, 2014. The loan is collateralized with the accounts receivable of Epazz, Inc. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.	$	39,021	$	–
On May 9, 2014, the Company issued an unsecured $210,000 seller financed note payable as partial payment on an asset purchase (“Jadian Note”), which bears interest at 6% per annum until the maturity date of May 9, 2017, and provides for equal monthly principal and interest payments of $6,389 commencing on June 1, 2014. The Jadian Note includes a balloon payment, consisting of the remaining outstanding balance of principal and interest upon maturity at May 9, 2017. The interest rate shall be 8% per annum with an additional 5% late payment fee upon default.		208,462		–
On April 30, 2014, the Company purchased furniture and fixtures and computer equipment in the total amount of $41,300 from IKEA, which was partially financed with proceeds of $37,788 pursuant to an equipment financing agreement with Financial Pacific Leasing bearing an effective interest rate of 26.78%, consisting of 36 monthly payments of $1,488; maturing on March 15, 2017. The loan is collateralized with the furniture and fixtures and computer equipment, along with a personal guarantee by Shaun Passley, Ph.D., our Chief Executive Officer.		34,493		–
On Deck Capital Loan – Telecorp: On April 4, 2013, the Company received a loan of $65,000 from On Deck Capital, Inc., (“On Deck”), bearing an effective interest rate of 42.74%, consisting of 377 daily weekday payments of $234, maturing on September 11, 2015. The loan is collateralized with Telecorp’s receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		57,119		–
On April 2, 2014, the Company received a loan of $25,000 from BSB Leasing, Inc. (“BSB Loan”) as a partial financing to purchase certain assets of Cynergy, Inc. for a total of $75,000. The loan bears interest at an effective rate of 25%, consisting of monthly payments of $944, maturing on February 25, 2017. The loan is collateralized with Cynergy’s assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		22,463		–
On March 20, 2014, the Company received a loan of $25,000 from BMT Leasing, Inc. (“BMT Loan”) as a partial financing to purchase certain assets of Cynergy, Inc. for a total of $75,000. The loan bears interest at an effective rate of 21%, consisting of monthly payments of $910, maturing on March 20, 2017. The loan is collateralized with Cynergy’s assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		22,163		–
On March 25, 2014, the Company received a loan of $25,000 from Navitas Leasing, Inc. (“Navitas Loan”) as a partial financing to purchase certain assets of Cynergy, Inc. for a total of $75,000. The loan bears interest at an effective rate of 21%, consisting of monthly payments of $907, maturing on April 1, 2017. The loan is collateralized with Cynergy’s assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		21,639		–
On February 28, 2014, the Company provided Troy Holdings with a Promissory Note in the amount of $120,000 (the “Telecorp Note”), which was adjusted down to $102,000 for excess liabilities acquired during the acquisition of Telecorp Products, Inc. The Note provides for six (6) equal monthly payments of $20,000 commencing thirty (30) days after the Closing. The Telecorp Note is non-interest bearing except upon default, in which case the interest rate shall be 10% per annum.		67,616		–

On June 11, 2014, DeskFlex refinanced the Accion #2 promissory note and entered into a $15,207 promissory note, bearing interest at 10.25% (“Accion #3”). The promissory note is payable in monthly principal and interest installments of $1,339 per month, maturing on June 20, 2015 (the “Maturity Date”).	14,153	–
Can Capital Loan – Epazz: On November 4, 2013, the Company received net proceeds of $75,381, and a direct payoff of $36,619 on the Rapid Advance Loan listed below, on a loan of $112,000 from CAN Capital Assets Servicing, Inc., (“CAN Capital #4”) bearing an effective interest rate of 53.1%, consisting of 370 daily weekday payments of $552, maturing on November 13, 2014. The loan is collateralized with Epazz’s receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer. On April 23, 2014, we amended this loan agreement to increase the loan balance to $150,000, consisting of additional proceeds of $71,685, and a rolled over loan balance of $78,315, to be paid over the restarted term of the loan via 432 daily weekday payments of $648, maturing on July 7, 2015.	133,425	98,984
On November 20, 2013, DeskFlex entered into a $10,550 demand promissory note bearing interest at 10.25% (“Accion #2”). The promissory note is payable in monthly installments of $1,223 per month, maturing on August 20, 2014 (the “Maturity Date”).	–	9,417
On October 24, 2013, the Company purchased licenses to develop content management software in the total amount of $51,250 from Igenti, Inc., of which $51,250 was financed pursuant to an equipment financing agreement with Baytree National Bank & Trust Company bearing an effective interest rate of 13.235%, consisting of 36 monthly payments of $1,719; maturing on October 23, 2016. The loan is collateralized with the data management software. Igenti subsequently paid a total of $53,500, including $2,250 of penalties, to the Company for future payment for the development of the content management software. Given the nature and status of the software development, no equipment costs have been capitalized.	38,662	47,321
On October 10, 2013, the Company purchased licenses to develop content management software in the total amount of $34,800 from Igenti, Inc., of which $34,800 was financed pursuant to an equipment financing agreement with Financial Pacific Leasing bearing an effective interest rate of 31.625%, consisting of 36 monthly payments of $1,438; maturing on October 9, 2016. The loan is collateralized with the content management software. Igenti retained a total of $1,300 of financing fees and paid the remaining proceeds of $33,500 to the Company for future payment for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	28,220	32,025
Can Capital Loan – MS Health: On June 24, 2013, the Company received a loan of $15,000 from WebBank, c/o NewLogic Business Loans, Inc., (“NewLogic”), which has been renamed to CAN Capital Assets Servicing, Inc (“CAN Capital”) bearing an effective interest rate of 63.9%, consisting of 176 daily weekday payments of $106, maturing on February 19, 2014. The loan is collateralized with MS Health’s receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer. On January 7, 2014, we amended this loan agreement to increase the loan balance to $22,025, consisting of additional proceeds of $18,323, a rolled over loan balance of $3,702 to be paid over the restarted one year term of the loan via daily payments of $113.	13,261	4,202
Can Capital Loan – K9 Bytes: On February 20, 2014, the Company received a loan of $22,283 from WebBank, c/o CAN Capital Assets Servicing, Inc (“CAN Capital”) bearing an effective interest rate of 58.7%, consisting of 308 daily weekday payments of $130, maturing on December 25, 2014. The loan is collateralized with K9 Bytes’ receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.	14,181	–

On May 1, 2013, the Company purchased licenses to develop data management software in the total amount of $51,250 from Igenti, Inc., bearing an effective interest rate of 11%, consisting of 36 monthly payments of $1,674, maturing on April 30, 2016. The loan is collateralized with the data management software. Igenti retained a total of $4,615 of financing fees and paid the remaining proceeds of $46,615 to the Company for future payment to Sveltoz Solutions for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	33,210	41,167
On February 22, 2013, the Company purchased licenses to develop data management software in the total amount of $102,500 from Igenti, Inc., of which $51,250 was financed pursuant to an equipment financing agreement with Baytree National Bank & Trust Company on March 7, 2013 bearing an effective interest rate of 11.48%, consisting of 36 monthly payments of $1,674; maturing on March 6, 2016. The loan is collateralized with the data management software. Igenti retained a total of $3,000 of financing fees and paid the remaining proceeds of $99,500 to the Company for future payment to Sveltoz Solutions for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	28,948	38,361
On February 22, 2013, the Company purchased licenses to develop data management software in the total amount of $102,500 from Igenti, Inc., of which $51,250 was financed with an equipment finance loan from Summit Funding Group, Inc. equipment with a three year loan term consisting of monthly loan payments of $1,828, with $2,078 paid at signing, maturing on February 21, 2016. The loan is collateralized with the data management software. Igenti retained a total of $3,000 of financing fees and paid the remaining proceeds of $99,500 to the Company for future payment to Sveltoz Solutions for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	32,010	40,108
On August 10, 2012, the Company purchased $13,870 of equipment with a three year equipment finance loan. The loan bears interest at an effective interest rate of 31.55%, along with monthly principal and interest payments of $585. The loan is collateralized with the purchased equipment. Matures on August 9, 2015.	8,200	10,228
On April 1, 2012, the Company purchased $129,747 of equipment with a three year equipment finance loan. The loan bears interest at an effective interest rate of 8.3%, along with monthly principal and interest payments of $4,078. The loan is collateralized with the purchased equipment. Matures on April 1, 2015.	57,170	78,603
Consideration for the MS Health acquisition included partial proceeds obtained from a $360,800 Small Business Association (“SBA”) loan, bearing interest at fixed and variable rates, maturing on March 27, 2022. The initial interest rate is 5.5% per year for three (3) years, consisting of the Prime Rate in effect on the first business day of the month in which the SBA loan application was received, plus 2.25%. The loan terms then transition to a variable interest rate over the remaining seven (7) years of the ten (10) year maturity term, calculated at 2.25% above the Prime Rate, as adjusted quarterly. The Company must pay principal and interest payments of $3,916 monthly. The SBA Loan is guaranteed by PRMI, K9 Bytes, Desk Flex, Inc., MS Health and the Company, and secured by the assets of MS Health and the Company.	298,043	312,095
Consideration for the MS Health acquisition included an unsecured $100,000 seller financed note payable (“MSHSC Note”), bearing interest at 6% per annum, a ten (10) year amortization, a right of offset, no payments of either principal or interest for two (2) years and equal payments of principal and interest commencing in year three (3), no prepayment penalty, and full payment of all amounts due after five (5) years, maturing March 27, 2022. Pursuant to an amendment to a consulting agreement with the seller on March 23, 2012, the Company agreed to begin to repay principal of $1,000 per month, and had repaid a total of $6,000 during the year ended December 31, 2012. The MSHSC Note is secured by a security interest over the assets of MS Health. We did not purchase and MSHSC agreed to retain and be responsible for any and all liabilities of MSHSC.	103,228	94,000

Pursuant to an asset purchase agreement entered into on October 26, 2011, the Company granted K9 Bytes, Inc., a Florida corporation, a subordinated secured $30,750 promissory note carrying a 6% interest rate, 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 promissory note ($23,017, assuming no additional payments other than those scheduled) is due. The promissory note is secured by a secondary lien on all of the assets of Epazz’s subsidiary, K9 Bytes, Inc., an Illinois corporation formed to house the purchased assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		1,544			2,510
Unsecured $50,000 promissory note originated on September 15, 2010 between IntelliSys and Paul Prahl, payable in monthly installments of $970 carries a 6% interest rate, maturing on September 18, 2015. The Company also agreed to provide Mr. Prahl earn-out rights, which provide that he will receive up to a maximum of $13,350 per year for the three calendar years following the Closing (with the first such calendar year beginning on January 1, 2011), based on the revenues generated by IntelliSys during such applicable year, whereas $6,675 is earned if revenues are between $350,000 and $380,000, $10,012 is earned if revenues are between $380,000 and $395,000, or $13,350 is earned if revenues are greater than $395,000 during each relevant year.		8,454			8,186
Unsecured term loan between Epazz and Bank of America, originating on June 15, 2011 bearing interest at 9.5% matures on June 17, 2016. Payments of $1,559 are due monthly.		50,954			60,573
Unsecured promissory note between Epazz and Newtek Finance for $185,000 originating on September 30, 2010 bearing interest at 6% matures on September 30, 2020. Payments of $2,054 are due monthly.		128,699			137,087
The Company raised funds paid pursuant to an asset purchase agreement with K9 Bytes, Inc., a Florida corporation, on October 26, 2011, through a $235,000 Small Business Association (“SBA”) loan from a third party lender (the “Third Party Lender” and the “SBA Loan”). The SBA Loan has a term of ten (10) years; maturing on October 26, 2021, bearing interest at the prime rate plus 2.75% per annum, 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, Ph.D., 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 Dr. 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 Bytes 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 the wholly-owned subsidiary, K9 Bytes, Inc.		187,032			197,062
Total long term debt		1,652,370			1,211,929
Less: current portion		(612,898	)		(354,786	)
Long term debt, less current portion	$	1,039,472		$	857,143

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1. Basis of Presentation and Consolidation (Policies)

6 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the following entities, all of which are under common control and ownership:

	State of		Abbreviated
Name of Entity(2)	Incorporation	Relationship(1)	Reference
Epazz, Inc.	Illinois	Parent	Epazz
IntelliSys, Inc.	Wisconsin	Subsidiary	IntelliSys
Professional Resource Management, Inc.	Illinois	Subsidiary	PRMI
Desk Flex, Inc.	Illinois	Subsidiary	DFI
K9 Bytes, Inc.	Illinois	Subsidiary	K9 Bytes
MS Health, Inc.	Illinois	Subsidiary	MS Health
Terran Power, Inc.(5)	Illinois	Subsidiary	Terran
Telecorp Products, Inc.	Michigan	Subsidiary	Telecorp
Jadian, Inc.	Illinois	Subsidiary	Jadian
FlexFridge, Inc.(3)	Illinois	Subsidiary(4)	FlexFridge

______________

⁽¹⁾All subsidiaries, with the exception of FlexFridge, are wholly-owned subsidiaries.

⁽²⁾All entities are in the form of Corporations.

⁽³⁾Formerly Z Fridge, Inc. and Cooling Technology Solutions, Inc.

⁽⁴⁾FlexFridge, Inc. was spun-off on November 21, 2013, and distributed on a 1:10 basis to shareholders of record on September 15, 2013. Epazz has a controlling financial interest in FlexFridge. As such, FlexFridge is consolidated within these financial statements pursuant to Accounting Standards Codification (“ASC”) 810-10. There has been no material activity within FlexFridge to date.

⁽⁵⁾Entity formed for prospective purposes, but has not incurred any income or expenses to date.

The condensed consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. All significant inter-company transactions have been eliminated in the preparation of these financial statements. The parent company, Epazz and subsidiaries, IntelliSys, PRMI, DFI, K9 Bytes, MS Health, Terran, Telecorp, Jadian and FlexFridge will be collectively referred to herein as the “Company”, or “Epazz”. The Company's headquarters are located in Chicago, Illinois and substantially all of its customers are within the United States.

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.

Segment Reporting

FASB ASC 280-10-50 requires annual and interim reporting for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. All of the Company’s software products are considered operating segments, and will be aggregated into one reportable segment given the similarities in economic characteristics among the operations represented by the common nature of the products, customers and methods of distribution.

Reclassifications

Certain amounts in the financial statements of the prior year have been reclassified to conform to the presentation of the current year for comparative purposes.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company had debt instruments that required fair value measurement on a recurring basis.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit of five to fifteen years. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No material impairments of intangible assets have been identified during any of the periods presented. Amortization expense on intangible assets totaled $71,606 and $87,324 for the six months ended June 30, 2014 and 2013, respectively.

Goodwill

The Company evaluates the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to the reporting unit's carrying amount, including goodwill. The fair value of the reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies' data. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting unit goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. The Company's evaluation of goodwill completed during the year ended December 31, 2013 resulted in no impairment losses.

Beneficial Conversion Features

From time to time, the Company may issue convertible notes that may contain an imbedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.

Derivative Liability

The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. We analyzed the derivative financial instruments (the Convertible Note and tainted Warrant), in accordance with ASC 815. The objective is to provide guidance for determining whether an equity-linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non-derivative instrument that falls within the scope of ASC 815-40-05 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non-derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. There is a two-step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions. The Company utilized multinomial lattice models that value the derivative liability within the notes based on a probability weighted discounted cash flow model. The Company utilized the fair value standard set forth by the Financial Accounting Standards Board, defined as the amount at which the assets (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

Basic and Diluted Net Earnings per Share

Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. There were no outstanding potential common stock equivalents for the periods presented. As such, basic and diluted earnings per share resulted in the same figure for the six months ending June 30, 2014 and 2013.

Stock-Based Compensation

Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, are to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Common stock issued for services and compensation was $2,280,902 and $1,522,000 for the six months ended June 30, 2014 and 2013, respectively.

Revenue Recognition

The Company designs and sells various software programs to business enterprises including, among others, hospitals, pet stores, and Government and post-secondary institutions. Prior to shipment, each software product is tested extensively to meet Company specifications. The software is shipped fully functional via electronic delivery, but some installation and setup is required. No other entities sell the same or largely interchangeable software.

Installation is a standard process, outlined in the owner's manual, consisting principally of setup, calibrating, and testing the software. A purchaser of the software could complete the process using the information in the owner's manual, although it would probably take significantly longer than it would take the Company’s technicians to perform the tasks. Although other vendors do not install the Company’s software, they do provide largely interchangeable installation services for a fee. Historically, the Company has never sold the software without installation. Most installations are performed by the Company within 7 to 24 days of shipment and are included in the overall sales price of the software. In addition, the customer must pay for support contracts and training packages, depending on their desired level of service. The Company is the only manufacturer of the software and it only sells software on a standalone basis directly to the end user.

The sales price of the arrangement consists of the software, installation, and training and support services, which the customer is obligated to pay in full upon delivery of the software. In addition, there are no general rights of return involved in these arrangements. Therefore, the software is accounted for as a separate unit of accounting.

The Company does not have vendor-specific objective evidence of selling price for the software because it does not sell the software separately (without installation services and support contracts). In addition, third-party evidence of selling price does not exist as no vendor separately sells the same or largely interchangeable software. Therefore, the Company uses its best estimate of selling price when allocating such arrangement consideration.

In estimating its selling price for the software, the Company considers the cost to produce the software, profit margin for similar arrangements, customer demand, effect of competitors on the Company’s software, and other market constraints. When applying the relative selling price method, the Company uses its best estimate of selling price for the software, and third-party evidence of selling price for the installation. Accordingly, without considering whether any portion of the amount allocable to the software is contingent upon delivery of the other items, the Company allocates the selling price to the software, support, and installation.

The Company doesn’t currently provide product warranties, but if it does in the future it will provide for specific product lines and accrue for estimated future warranty costs in the period in which the revenue is recognized.

Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.

In June 2014, the FASB issued ASU No. 2014-10: Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-10 is not expected to have a material impact on our financial position or results of operations.

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2. Going Concern

6 Months Ended

Jun. 30, 2014

Uncertainties [Abstract]

Going Concern

As shown in the accompanying condensed consolidated financial statements, the Company has incurred recurring losses from operations resulting in an accumulated deficit of $11,997,598, and as of June 30, 2014, the Company’s current liabilities exceeded its current assets by $2,469,820 and its total liabilities exceeded its total assets by $1,756,034. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Discounts on convertible debt - current	$ 1,112	$ 105,300
Discounts on convertible debt - noncurrent	$ 0	$ 4,283
Class B [Member]
Common stock, par value per share	$ 0.0001	$ 0.0001
Common stock, shares authorized	60,000,000	60,000,000
Common stock, shares issued	23,000,000	10,500,000
Common stock, shares outstanding	23,000,000	10,500,000
Series B Preferred Stock [Member]
Preferred stock, par value per shares	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	1,000	1,000
Preferred stock, shares issued	1,000	1,000
Preferred stock, shares outstanding	1,000	1,000
Series A Preferred Stock [Member]
Preferred stock, par value per shares	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	1,000	1,000
Preferred stock, shares issued	1,000	1,000
Preferred stock, shares outstanding	1,000	1,000
Class A [Member]
Common stock, par value per share	$ 0.0001	$ 0.0001
Common stock, shares authorized	6,000,000,000	6,000,000,000
Common stock, shares issued	6,796,730,730	3,468,358,708
Common stock, shares outstanding	6,796,730,730	3,468,358,708
Series C Preferred Stock [Member]
Preferred stock, par value per shares	$ 0.0001
Preferred stock, shares authorized	3,000,000,000
Preferred stock, shares issued	2,924,722,200
Preferred stock, shares outstanding	2,924,722,200

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12. Capital Lease Obligations Payable

6 Months Ended

Jun. 30, 2014

Leases, Capital [Abstract]

Capital Lease Obligations Payable

The Company leases certain equipment under agreements that are classified as capital leases as follows:

Lease #1 - Commenced on March 12, 2010 with monthly lease payments of $2,455 and two months paid in advance, and the remaining payments paid over the following 46 months.

Lease #2 – Commenced on January 12, 2012 with monthly lease payments of $480 over the next 48 months, and a bargain purchase price of $1 at the end of the lease.

The cost of equipment under capital leases is included in the Balance Sheets as property and equipment and was $17,855 and $134,800 at June 30, 2014 and December 31, 2013, respectively. Accumulated amortization of the leased equipment was $8,928 and $116,292 at June 30, 2014 and 2013, respectively. Amortization of assets under capital leases is included in depreciation and amortization expense.

The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of June 30, 2014, are as follows:

Twelve Months
Ending
June 30,	Amount
2015	$	5,757
2016		3,311
Total minimum payments	$	9,068
Less: amount representing interest		(907	)
Present value of net minimum lease payments		8,161
Less: Current maturities of capital lease obligations		(4,987	)
Long-term capital lease obligations	$	3,174

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Sep. 29, 2014
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2014
Entity Registrant Name	Epazz Inc
Entity Central Index Key	0001335239
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		7,213,383,508

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13. Notes Payable, Related Parties

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

Notes Payable, Related Parties

Originated August 2, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 17, 2014. In addition, a loan origination fee of $5,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 3,000,000 shares of Series A Common Stock with a fair market value of $5,100 was issued as consideration for the loan on August 2, 2013. Currently in default.		32,000			32,000
Originated July 31, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 15, 2014. In addition, a loan origination fee of $5,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 3,000,000 shares of Series A Common Stock with a fair market value of $4,200 was issued as consideration for the loan on July 31, 2013. The note, consisting of $32,000 of principal and $5,000 of accrued interest, was subsequently sold and assigned to a third party and exchanged for a convertible note on February 19, 2014.		–			32,000
Originated June 12, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 10% interest rate, matures on June 12, 2015. In addition, a loan origination fee of $2,000 was issued as consideration for the loan on June 12, 2013, and is being amortized on a straight line basis over the life of the loan. The note, consisting of $10,000 of principal and $338 of accrued interest, was subsequently sold and assigned to a third party and exchanged for a convertible note on February 4, 2014.		–			10,000
Originated April 12, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 10% interest rate, matures on April 12, 2015. In addition, a loan origination fee of $7,000 was issued as consideration for the loan on April 12, 2013, and is being amortized on a straight line basis over the life of the loan. As disclosed in Note 10, pursuant to a settlement agreement, dated February 12, 2014, the $57,000 note, along with $9,261 of accrued interest, was sold and assigned to IBC Funds, LLC and was subsequently converted to stock as part of a court order on February 14, 2014 under Section 3(a)(10) of the Securities Act of 1933.		–			57,000
Originated October 9, 2012, unsecured promissory note payable owed to a Company owned by an immediate family member of the Company’s CEO carries a 15% interest rate, matures on July 15, 2013. In addition, a loan origination fee, consisting of 144,928 shares of Series A Common Stock with a fair market value of $884 was issued as consideration for the loan on October 9, 2012. Currently in default.		2,000			2,000
Unsecured promissory note payable owed to a Company owned by an immediate family member of the Company’s CEO carries a 15% interest rate, matured on July 31, 2007. Principal of $5,000 was repaid during the first quarter of 2014. Currently in default.		868			5,868
Total notes payable, related parties		930,868			482,368
Less: current portion		(930,868	)		(397,368	)
Notes payable, related parties, less current portion	$	–		$	85,000

The Company recorded interest expense on notes payable to related parties in the amounts of $54,002 and $3,320 during the six months ended June 30, 2014 and 2013, respectively.

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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Income Statement [Abstract]
Revenue	$ 327,525	$ 279,119	$ 580,077	$ 487,129
Expenses:
General and administrative	278,446	166,403	570,139	287,634
Salaries and wages	108,502	1,555,081	2,444,999	1,771,234
Depreciation and amortization	51,398	67,385	97,555	144,160
Bad debts (recoveries)	(5,250)	45	(5,262)	(8,740)
Total operating expenses	433,096	1,788,914	3,107,431	2,194,288
Net operating loss	(105,571)	(1,509,795)	(2,527,354)	(1,707,159)
Other income (expense):
Interest income	1	0	55	0
Interest expense	(501,712)	(143,543)	(1,017,777)	(262,958)
Loss on convertible debt modification, related party	(172,864)	(14,240)	(172,864)	(96,032)
Change in derivative liabilities	15,915	0	(777,664)	0
Total other income (expense)	(658,660)	(157,783)	(1,968,250)	(358,990)
Net loss	$ (764,231)	$ (1,667,578)	$ (4,495,604)	$ (2,066,149)
Weighted average number of common shares outstanding - basic and fully diluted	5,939,090,272	2,045,979,796	4,783,826,881	1,666,897,778
Net loss per share - basic and fully diluted	$ 0.00	$ 0.00	$ 0.00	$ 0.00

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7. Other Current Assets

6 Months Ended

Jun. 30, 2014

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

7. Other Current Assets

As of June 30, 2014 and December 31, 2013, other current assets included the following:

	June 30,		December 31,
	2014		2013
Deferred financing costs	$	47,980	$	44,986
Other receivable		38		51,250
Security deposits		17,378		9,878
	$	65,396	$	106,114

The Company recognized $233,277 and $19,905 of amortization expense related to the deferred financing costs during the six months ended June 30, 2014 and 2013, respectively.

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6. Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.

The Company does not have any financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

The following schedule summarizes the valuation of financial instruments at fair value on a non-recurring basis in the balance sheets as of June 30, 2014 and December 31, 2013:

	Fair Value Measurements at June 30, 2014
	Level 1		Level 2			Level 3
Assets
Cash	$	101,871	$	–		$	–
Intangible assets		–		–			476,418
Goodwill		–		–			1,149,041
Total assets		101,871		–			1,625,459
Liabilities
Lines of credit		–		86,544			–
Capital leases		–		8,161			–
Notes payable, related parties		–		930,868			–
Convertible debts, net of discount of $1,112		–		151,163			–
Long term debts, including current maturities		–		1,652,370			–
Total Liabilities		–		2,829,106			–
	$	101,871	$	(2,829,106	)	$	1,625,459

	Fair Value Measurements at December 31, 2013
	Level 1		Level 2			Level 3
Assets
Cash	$	208,567	$	–		$	–
Intangible assets		–		–			374,162
Goodwill		–		–			255,460
Total assets		208,567		–			629,622
Liabilities
Lines of credit		–		73,232			–
Capital leases		–		17,421			–
Long term debts		–		1,211,929			–
Notes payable, related parties		–		482,368			–
Convertible debts, net of discount of $109,583		–		157,294			–
Total Liabilities		–		1,942,244			–
	$	208,567	$	(1,942,244	)	$	629,622

There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the six months ended June 30, 2014 and the year ended December 31, 2013.

Level 2 liabilities consist of various debt arrangements, and Level 3 assets consist of intangible assets and goodwill. Fair value adjustments related to the measurement of intangible assets of $-0- and $276,282 were necessary during the six months ended June 30, 2014 and December 31, 2013, respectively.

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18. Subsequent Events

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

Subsequent Events

Strand, Inc., Asset Purchase Agreement

On July 31, 2014, one of the Company’s subsidiaries, Telecorp Products, Inc., through a newly-formed wholly-owned Illinois subsidiary, Stratin, Inc. (“Stratin”), closed on an Asset Purchase Agreement (“APA”) with Strand, Inc., an Illinois corporation (“Strand”). Pursuant to the APA, we purchased substantially all of the seller’s assets, including intangible assets and certain tangible assets used in connection with Strand’s software business, including all of its intellectual property, its business trademarks and copyrights, equipment, computers, software, machinery and accounts receivable in consideration for an aggregate of $185,000, of which $100,000 was paid at the closing, and $85,000 was financed by way of a Convertible Promissory Note (the “Strand Note”). The terms of the Strand Note include interest at 6% per annum, no payments of either principal or interest for thirty (30) days after Closing and monthly principal and interest payments of $2,586 commencing thereafter, no prepayment penalty, and a balloon payment consisting of full payment of all amounts due after one (1) year. In the event we default on the July 31, 2015 balloon payment, the seller, may at his option, convert the then outstanding principal and interest into the Class A Common stock of the parent company of Telecorp Products, Inc. (Epazz, Inc.) based on a twenty-five percent (25%) discount to the average closing bid price of Epazz’ common stock over the five (5) trading days prior to the date of default, or $0.00075 per share, whichever is greater. The Strand Note is secured by a lien on the assets of Strand. We did not purchase and Strand agreed to retain and be responsible for any and all liabilities of Strand. We did not purchase and Strand agreed to retain and be responsible for any and all liabilities of Strand.

The unaudited supplemental pro forma results of operations of the combined entities had the dates of the acquisitions been January 1, 2014 or January 1, 2013 are as follows:

	Combined Pro Forma:
	For the six months ended June 30,
	2014			2013
Revenue:	$	744,770		$	637,732
Expenses:
Operating expenses		3,193,363			2,334,314
Net operating loss		(2,448,593	)		(1,696,582	)
Other income (expense)		(1,968,949	)		(360,762	)
Net loss	$	(4,417,542	)	$	(2,057,344	)
Weighted average number of common shares
Outstanding – basic and fully diluted		4,783,826,881			1,666,897,778
Net loss per share – basic and fully diluted	$	(0.00	)	$	(0.00	)

Debt Financing, Related Parties, GG Mars Capital, Inc.

Originated August 1, 2014, a $36,000 unsecured promissory note payable, including a $8,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on December 3, 2014. The note also carried a liquidated damages fee of $1,000 upon default, which was amended and removed on September 19, 2014.

Debt Financing, Related Parties, L&F Lawn Service, Inc.

Originated August 21, 2014, an unsecured $12,500 promissory note payable, including a $2,500 loan origination fee, owed to L&F Lawn Service, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on December 21, 2014. The note also carried a liquidated damages fee of $1,000 upon default, which was amended and removed on September 19, 2014.

Issuances of Series C Preferred Stock Granted for Services to Related Parties on Subscriptions Payable

On July 7, 2014 the Company issued 5,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on January 15, 2014 in consideration for a $43,000 short term promissory note. The total fair value of the common stock was $6,465 based on an independent valuation on the date of grant.

On July 7, 2014 the Company issued 1,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on February 8, 2014 in consideration for a $13,000 short term promissory note. The total fair value of the common stock was $1,193 based on an independent valuation on the date of grant.

On July 7, 2014 the Company issued 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost that was previously granted on March 7, 2014 in consideration for a $22,000 short term promissory note. The total fair value of the common stock was $1,942 based on an independent valuation on the date of grant.

On July 7, 2014 the Company issued 3,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost that was previously granted on March 26, 2014 in consideration for a $37,500 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant.

On July 7, 2014 the Company issued 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on March 26, 2014 in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant.

On July 7, 2014 the Company issued 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost that was previously granted on March 28, 2014 in consideration for a $18,750 short term promissory note. The total fair value of the common stock was $1,594 based on an independent valuation on the date of grant.

On July 7, 2014 the Company issued 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on March 28, 2014 in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant.

Issuances of Class A Common Stock Granted for Services

On July 30, 2014 the Company issued 277,777,778 shares of Class A Common Stock to Wellington Shields Holdings, LLC, as a fee for closing on an acquisition. The total fair value of the common stock was $55,556 based on the closing price of the Company’s common stock on the date of grant.

Issuances of Class A Common Stock Granted for Services to Related Parties on Subscriptions Payable

On August 29, 2014 the Company issued 3,500,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on April 23, 2014 in consideration for a $35,000 short term promissory note. The total fair value of the common stock was $1,050 based on the closing price of the Company’s common stock on the date of grant.

On August 29, 2014 the Company issued 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost that was previously granted on April 24, 2014 in consideration for a $150,000 short term promissory note. The total fair value of the common stock was $3,000 based on the closing price of the Company’s common stock on the date of grant.

On August 29, 2014 the Company issued 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost that was previously granted on May 7, 2014 in consideration for a $125,000 short term promissory note. The total fair value of the common stock was $2,000 based on the closing price of the Company’s common stock on the date of grant.

On August 29, 2014 the Company issued 3,250,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on May 28, 2014 in consideration for a $32,500 short term promissory note. The total fair value of the common stock was $650 based on the closing price of the Company’s common stock on the date of grant.

On August 29, 2014 the Company issued 2,125,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost that was previously granted on June 12, 2014 in consideration for a $5,000 short term promissory note. The total fair value of the common stock was $213 based on the closing price of the Company’s common stock on the date of grant.

Issuance of Dividends Paid via Class A Common Stock in Lieu of Cash

On September 11, 2014 the Company issued a total of 110,000,000 shares of Class A Common Stock amongst three related party Convertible Series B Preferred Stockholders pursuant to a dividend payable of $11,000 that was earned at a rate of 1.5% of the Company’s revenues for the 2013 calendar year. The total fair value of the common stock was $55,556 based on the closing price of the Company’s common stock on the date of grant.

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14. Convertible Debts

6 Months Ended

Jun. 30, 2014

Convertible Debt [Abstract]

Convertible Debts

Convertible debts consist of the following at June 30, 2014 and December 31, 2013, respectively:

	June 30,		December 31,
	2014		2013
Originated April 2, 2014, an unsecured $51,000 convertible promissory note, carried a 15% interest rate, matured on August 1, 2014, (“First Vivienne Passley Note”) owed to Vivienne Passley, a related party. The convertible promissory note was issued in exchange for a promissory note originally issued on August 12, 2013 to the same debt holder, which did not carry conversion terms. The principal and accrued interest was convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.0001 per share. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The debt modification resulted in a loss on debt modifications, related party of $172,864. The assigned principal of $51,000, interest of $4,933 and liquidated damages incurred prior to assignment of $2,500 was subsequently converted to a total of 584,333,745 shares of common stock over various dates from April 2, 2014 to June 17, 2014 in complete satisfaction of the debt.	$	–	$	–
Originated February 19, 2014, an unsecured $37,700 convertible promissory note, carries a 12% interest rate, matures on February 17, 2015, (“Third Magna Group Note”) owed to Magna Group, LLC, consisting of a promissory note acquired and assigned from Star Financial Corporation, a related party, consisting of $32,000 of principal and $5,700 of accrued interest. The acquired promissory note did not carry conversion terms, and were subsequently exchanged for the convertible note. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty percent (50%) of the lowest trading price of the Company’s common stock for the five (5) days prior to the conversion date, or $0.00004 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The assigned principal and interest of $35,491 was subsequently converted to a total of 377,000,000 shares of common stock over various dates from March 10, 2014 to March 19, 2014 in complete satisfaction of the debt.		–		–
Originated February 4, 2014, an unsecured $35,491 convertible promissory note, carries a 12% interest rate, matures on February 4, 2015, (“Second Magna Group Note”) owed to Magna Group, LLC, consisting of two notes acquired and assigned from Star Financial Corporation, a related party, consisting of a total of $33,000 of principal and $2,491 of accrued interest. The acquired promissory notes did not carry conversion terms, and were subsequently exchanged for the convertible note. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty percent (50%) of the lowest trading price of the Company’s common stock for the five (5) days prior to the conversion date, or $0.00004 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The assigned principal and interest of $35,491 was subsequently converted to a total of 236,606,400 shares of common stock over various dates from February 13, 2014 to February 27, 2014 in complete satisfaction of the debt.		–		–
Unsecured $33,000 convertible promissory note originated on November 13, 2013, including an Original Issue Discount (“OID”) of $3,000, carries a 12% interest rate (“Second JMJ Note”), matures on November 12, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the lowest trading price of the Company’s common stock for the twenty five (25) trading days prior to the conversion date, or $0.00009 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The unamortized OID is $2,604 at December 31, 2013. On July 11, 2014, the Company and JMJ Financial amended this note. The amendment specifies that due to the previously delinquent SEC filings, any future borrowings shall only be made by mutual agreement of both the borrower and lender.		33,000		33,000

Unsecured $35,028 convertible promissory note originated on December 31, 2013, carries an 12% interest rate (“First Magna Group Note”) owed to Magna Group, LLC. Two notes totaling $33,000 of principal and $1,028 of accrued interest were acquired from and assigned by Star Financial on December 31, 2013 prior to being exchanged for the convertible note, including $1,000 of loan origination costs. The principal and accrued interest is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty percent (50%) of the lowest trading price of the Company’s common stock for the five (5) days prior to the conversion date, or $0.00004 per share, whichever is greater. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The assigned principal and interest of $35,028 was subsequently converted to a total of 216,806,667 shares of common stock over various dates from January 7, 2014 to February 6, 2014 in complete satisfaction of the debt.	–	35,028
Unsecured $56,900 convertible promissory note, including an Original Issue Discount (“OID”) of $6,900, carries an 8% interest rate (“First St. George Note”), matures on May 30, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to sixty percent (60%) of the average of the two lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The note holder converted $15,000 of outstanding principal into 125,000,000 shares pursuant to debt conversion on March 7, 2014.The unamortized OID is $3,791 at December 31, 2013. During the 2nd quarter of 2014, a total of $77,375 of principal and another $7,512 of accrued interest was added to the debt due to default provisions, including $25,000 of principal due to a Late Clearing Adjustment penalty. Currently in default.	119,275	56,900
Unsecured $42,500 convertible promissory note carries an 8% interest rate (“Eighth Asher Note”), matures on June 20, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-nine percent (59%) of the average of the three lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The note holder converted $41,000 of outstanding principal into 341,666,667 shares pursuant to debt conversion on March 25, 2014, and $2,750, consisting of $1,500 of principal and $1,250 of interest was repaid in cash during the second quarter of 2014.	–	42,500
Unsecured $53,000 convertible promissory note carries an 8% interest rate (“Seventh Asher Note”), matures on May 21, 2014. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-nine percent (59%) of the average of the three lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00005 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The note holder converted $27,000 of outstanding principal into 150,000,000 shares pursuant to debt conversion on March 3, 2014, and $28,120, consisting of $26,000 of principal and $2,120 of accrued interest into 200,857,143 shares pursuant to debt conversion on March 5, 2014 in complete satisfaction of the debt.	–	53,000

Unsecured $440,849 convertible promissory note due to a related party, carries a 10% interest rate (“Star Convertible Note”), matures on July 2, 2017. The principal and unpaid interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 75% of the average closing price of the Company’s common stock over the five (5) consecutive trading days immediately preceding the date of conversion, or the fixed price of $0.005 per share, whichever is greater. The note carries a fourteen percent (14%) interest rate in the event of default, and the debt holder is limited to owning 9.99% of the Company’s issued and outstanding shares. This note was subsequently amended on March 5, 2013 to change the conversion price to, "equal to the greater of, (a) 50% of the Market Price, or (b) the fixed conversion price of $0.00075 per share". The modification resulted in a loss on debt modification of $81,792. The note holder converted $250,000 of outstanding principal into 50,000,000 shares pursuant to debt conversion on September 15, 2012, $46,000 into 50,000,000 shares pursuant to debt conversion on March 14, 2013, $40,000 into 50,000,000 shares pursuant to debt conversion on April 10, 2013, $26,400 into 80,000,000 shares pursuant to debt conversion on July 9, 2013 and $32,000 into 40,000,000 shares pursuant to debt conversion on August 7, 2013, $18,750 into 125,000,000 shares pursuant to debt conversion on April 7, 2014, $20,000 into 200,000,000 shares pursuant to debt conversion on May 3, 2014, and $15,000, consisting of $7,699 of principal and $7,301 of interest into 150,000,000 shares pursuant to the final debt conversion on May 22, 2014.		–			46,449
Total convertible debts		152,275			266,877
Less: unamortized discount on beneficial conversion feature		–			(103,188	)
Less: unamortized OID		(1,112	)		(6,395	)
Convertible debts		151,163			157,294
Less: current maturities of convertible debts		(151,163	)		(115,128	)
Long term convertible debts	$	–		$	42,166

The Company recognized interest expense in the amount of $97,918 and $30,867 for the six months ended June 30, 2014 and 2013, respectively related to convertible debts.

In addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible debts by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the convertible debt. This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt.

The aforementioned accounting treatment resulted in a total debt discount equal to $-0- and $195,652 during the six months ended June 30, 2014 and the year ended December 31, 2013, respectively. The discount is amortized on a straight line basis from the dates of issuance until the stated redemption date of the debts, as noted above.

The convertible notes, consisting of total original face values of $440,849 from Star Financial, $95,500 from Asher Enterprises, $33,000 from JMJ Financial, Inc., and $56,900 from St. George Investments that created the beneficial conversion feature carry default provisions that place a “maximum share amount” on the note holders that can be owned as a result of the conversions to common stock by the note holders of 9.99% of the issued and outstanding shares of Epazz.

During the six months ended June 30, 2014 and 2013, the Company recorded debt amortization expense in the amount of $73,443 and $128,612, respectively, attributed to the aforementioned debt discount, including $5,283 and $3,411 of amortization on Original Issue Discounts during the six months ended June 30, 2014 and 2013, respectively.

During the six months ended June 30, 2014, the Company issued a total of 4,688,760,477 shares pursuant to debt conversions in settlement of $533,360, consisting of $531,240 of outstanding principal and $2,120 of unpaid interest. In addition, the Company issued a total of 1,059,333,745 shares pursuant to related party debt conversions in settlement of $112,183, consisting of $97,449 of outstanding principal, $12,234 of unpaid interest and $2,500 of liquidated damages during the six months ended June 30, 2014. The principal and interest was converted in accordance with the conversion terms, therefore no gain or loss has been recognized.

During year ended December 31, 2013, the Company issued a total of 462,766,951 shares pursuant to debt conversions in settlement of $343,540, consisting of $336,094 of outstanding principal and $7,446 of unpaid interest, including 220,000,000 shares pursuant to debt conversion in settlement of $144,400 of outstanding principal owed to a related party (“Star Convertible Note”) and 46,856,526 shares pursuant to debt conversion in settlement of $14,838 of outstanding principal owed to a related party (“GG Mars Capital Convertible Note”). The principal and interest was converted in accordance with the conversion terms, therefore no gain or loss has been recognized. In addition, on May 27, 2013, the Company modified a related party debt and issued 14,239,500 shares of Class A Common Stock in settlement of $14,239 of related party debt owed to Vivienne Passley, which consisted of $13,000 of principal and $1,239 of accrued and unpaid interest. The total fair value of the common stock was $28,479 based on the closing price of the Company’s common stock on the date of grant, resulting in the recognition of a $14,240 loss on debt settlement.

Asher Enterprises, Inc. Convertible Notes

On July 2, 2012, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $42,500. The Third Asher Note had a maturity date of March 29, 2013, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 59% multiplied by the Market Price (representing a discount rate of 41%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009 per share. The shares of common stock issuable upon conversion of the Third Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Third Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Third Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00551 below the market price on July 2, 2012 of $0.012 provided a value of $36,082, of which $-0- and $11,760 was amortized during the six months ended June 30, 2014 and 2013, respectively.

On July 24, 2012, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $32,500. The Fourth Asher Note had a maturity date of April 26, 2013, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 59% multiplied by the Market Price (representing a discount rate of 41%). “Market Price” means the average of the lowest five (5) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009 per share. The shares of common stock issuable upon conversion of the Fourth Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Fourth Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Fourth Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00583 below the market price on July 24, 2012 of $0.0126 provided a value of $27,959, of which $-0- and $11,751 was amortized during the six months ended June 30, 2014 and 2013, respectively.

On October 16, 2012, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $27,500. The Fifth Asher Note had a maturity date of July 18, 2013, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 41% multiplied by the Market Price (representing a discount rate of 59%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ninety (90) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the Fifth Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Fifth Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Fifth Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00603 below the market price on October 16, 2012 of $0.008 provided a value of $27,500, , of which $-0- and $19,900 was amortized during the six months ended June 30, 2014 and 2013, respectively.

On December 12, 2012, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $16,500. The Sixth Asher Note had a maturity date of September 14, 2013, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 41% multiplied by the Market Price (representing a discount rate of 59%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ninety (90) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the Sixth Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Sixth Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Sixth Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00518 below the market price on December 12, 2012 of $0.0064 provided a value of $16,500, of which $-0- and $15,364 was amortized during the six months ended June 30, 2014 and 2013, respectively.

On August 19, 2013, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $53,000. The Seventh Asher Note had a maturity date of May 21, 2014, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 59% multiplied by the Market Price (representing a discount rate of 41%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the Seventh Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Seventh Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Seventh Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0006 below the market price on August 19, 2013 of $0.0014 provided a value of $39,021, of which $20,007 and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

On September 18, 2013, we entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which we sold to Asher an 8% Convertible Promissory Note in the original principal amount of $42,500. The Eighth Asher Note had a maturity date of June 20, 2014, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 59% multiplied by the Market Price (representing a discount rate of 41%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the Eighth Asher Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Eighth Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Eighth Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0004 below the market price on September 18, 2013 of $0.0010 provided a value of $27,210, of which $16,920 and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

GG Mars Capital, Inc. Convertible Note, Related Party

On August 20, 2013, we entered into a Convertible Promissory Note Agreement with GG Mars Capital, Inc. (“GG Mars”), a company owned by our CEO’s family member, pursuant to which we sold to GG Mars an 11% Convertible Promissory Note in the original principal amount of $14,838. The note was acquired from and assigned by another independent lender on August 15, 2013 prior to being exchanged for the convertible note. The First GG Mars Note was convertible into shares of common stock at the discretion of the note holder at a price equal to fifty percent (50%) of the average of the three lowest closing prices of the Company’s common stock for the one hundred and twenty (120) days prior to the conversion date, or $0.0001 per share, whichever is greater. The shares of common stock issuable upon conversion of the First GG Mars Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First GG Mars Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the First GG Mars Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.001 below the market price on August 20, 2013 of $0.0013 provided a value of $14,838, of which $-0- and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

Star Financial, Inc. Convertible Note, Related Party

On July 2, 2012, we modified a previously outstanding non-convertible debt of $342,321, consisting of $296,103 of principal and $46,218 of accrued interest in exchange for a Convertible Promissory Note with Star Financial Corporation (“Star”), a company owned by our CEO’s family member, pursuant to which we issued to Star a 10% Convertible Promissory Note in the original principal amount of $440,849. The modification resulted in a loss on debt modification of $98,528. The note was again modified on March 5, 2013, resulting in a loss on debt modification of $81,792. The Star Convertible Note has a maturity date of July 2, 2017, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the average of the five (5) Closing Prices for the Common Stock during the five (5) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00075 per share. The shares of common stock issuable upon conversion of the Star Convertible Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Star Convertible Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Star Convertible Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00141 below the market price on July 2, 2012 of $0.012 provided a value of $112,382, of which $5,653 and $24,176 was amortized during the six months ended June 30, 2014 and 2013, respectively.

Tonaquint, Inc. Convertible Note

On September 10, 2012, we entered into a Securities Purchase Agreement with Tonaquint, Inc., pursuant to which we sold to Tonaquint an 8% Convertible Promissory Note in the original principal amount of $56,900. The First Tonaquint Note has a maturity date of May 31, 2013, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (representing a discount rate of 40%). “Market Price” means the average of the lowest two (2) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009 per share. The shares of common stock issuable upon conversion of the First Tonaquint Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First Tonaquint Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the First Tonaquint Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0047 below the market price on September 10, 2012 of $0.0033 provided a value of $56,900, of which $-0- and $32,669 was amortized during the six months ended June 30, 2014 and 2013, respectively.

JMJ Financial, Inc. Convertible Note

On June 12, 2013, we entered into a Securities Purchase Agreement with JMJ Financial, Inc., (“JMJ”) pursuant to which we sold to JMJ a 12% Convertible Promissory Note in the original principal amount of $33,000. The First JMJ Note had a maturity date of June 11, 2014, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price, not less than $0.00009 per share. The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (representing a discount rate of 40%). “Market Price” means the lowest Trading Price for the Common Stock during the twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009 per share. The shares of common stock issuable upon conversion of the First JMJ Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First JMJ Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the First JMJ Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00518 below the market price on June 12, 2013 of $0.0017 provided a value of $33,000, of which $-0- and $9,581 was amortized during the six months ended June 30, 2014 and 2013, respectively.

On November 13, 2013, we drew additional funds on the June 12, 2013 Securities Purchase Agreement with JMJ Financial, Inc., (“JMJ”) pursuant to which we sold to JMJ another 12% Convertible Promissory Note in the original principal amount of $33,000. The Second JMJ Note has a maturity date of November 12, 2014, and was convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price, not less than $0.00009 per share. The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (representing a discount rate of 40%). “Market Price” means the lowest Trading Price for the Common Stock during the twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009 per share. The shares of common stock issuable upon conversion of the Second JMJ Note were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Second JMJ Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

The Company evaluated the Second JMJ Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.00024 was above the market price on November 13, 2013 and did not result in a beneficial conversion feature.

St. George Investments, Inc. Convertible Note

On September 5, 2013, we entered into a Securities Purchase Agreement with St. George Investments, Inc., (“First St. George Note”) pursuant to which we sold to St. George an 8% Convertible Promissory Note in the original principal amount of $56,900. The First St. George Note has a maturity date of May 30, 2014, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (representing a discount rate of 40%). “Market Price” means the average of the two lowest Closing Bid Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00005 per share. The shares of common stock issuable upon conversion of the First St. George Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First St. George Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

On September 24, 2014, St. George Investments, LLC (“note holder”) presented the Company with a notice of default. In accordance with the default provisions, the note began to accrue interest at twenty two percent (22%) per annum effective March 31, 2014. The unsecured convertible promissory note with $41,900 of principal outstanding (“First St. George Note”) matured on June 5, 2014 and was in default effective April 1, 2014 pursuant to Section 3.2 of the Note. In accordance with the default provisions, the outstanding balance prior to the occurrence of default shall increase to 150% of the outstanding balance of principal and interest a maximum of two times. In addition, the note holder was precluded from clearing the conversion of 125,000,000 shares of common stock received pursuant to a March 7, 2014 conversion of $15,000 of outstanding principal until September 10, 2014 (“Late Clearing Adjustment Amount”). Pursuant to Section 1.6(g) of the Note, the note holder was entitled to increase the outstanding balance of the Note by the Late Clearing Adjustment Amount of $25,000. As a result of the Late Clearing Adjustment Amount and Note defaults on April 1, 2014 and June 5, 2014, the principal and interest on the First St. George Note has increased to $136,738 as of September 24, 2014.

The Company evaluated the First St. George Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0005 below the market price on September 5, 2013 of $0.0012 provided a value of $46,555, of which $25,580 and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

Derivative Liabilities

In accordance with ASC 815-15, the Company determined that the variable conversion feature and shares to be issued with respect to the Magna Group, LLC convertible notes and the convertible debt with IBC Funds, LLC represented embedded derivative features, and these are shown as derivative liabilities on the balance sheet. The Company calculated the fair value of the compound embedded derivatives associated with the convertible debentures utilizing a lattice model.

The aforementioned accounting treatment resulted in a total debt discount equal to $422,240 and $-0- during the six months ended June 30, 2014 and the year ended December 31, 2013, respectively. The discount was amortized using the effective interest method from the dates of issuance until the stated redemption date of the debts, or the accelerated dates of conversion. A total of $422,240 and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

Magna Group, LLC Convertible Note

On December 31, 2013, we issued to Magna Group, LLC (“First Magna Group Note”) a 12% Convertible Promissory Note in the original principal amount of $35,028. The note was issued in exchange for two notes totaling $33,000 of principal and $1,028 of accrued interest, along with a $1,000 origination fee, that were acquired from, and assigned by, Star Financial on December 31, 2013. The First Magna Group Note has a maturity date of December 31, 2014, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the lowest Trading Price for the Common Stock during the five (5) day period prior to delivery of the conversion notice. “Fixed Conversion Price” shall mean $0.00004 per share. The shares of common stock issuable upon conversion of the First Magna Group Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First Magna Group Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation. The Company evaluated the First Magna Group Note and determined that the shares issuable pursuant to the conversion option were indeterminate and constituted a derivative liability.

On February 4, 2014, we issued to Magna Group, LLC (“Second Magna Group Note”) a 12% Convertible Promissory Note in the original principal amount of $35,491. The note was issued in exchange for two notes totaling $33,000 of principal and $1,491 of accrued interest, along with a $1,000 origination fee, that were acquired from, and assigned by, Star Financial and Vivienne Passley on February 4, 2014. The Second Magna Group Note has a maturity date of February 4, 2015, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the lowest Trading Price for the Common Stock during the five (5) day period prior to delivery of the conversion notice. “Fixed Conversion Price” shall mean $0.00004 per share. The shares of common stock issuable upon conversion of the Second Magna Group Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First Magna Group Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation. The Company evaluated the Second Magna Group Note and determined that the shares issuable pursuant to the conversion option were indeterminate and constituted a derivative liability.

On February 19, 2014, we issued to Magna Group, LLC (“Third Magna Group Note”) a 12% Convertible Promissory Note in the original principal amount of $37,700. The note was issued in exchange for a note totaling $32,000 of principal and $5,000 of accrued interest, along with a $700 origination fee, that were acquired from, and assigned by, Star Financial on February 19, 2014. The Third Magna Group Note has a maturity date of February 19, 2015, and is convertible into our common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the lowest Trading Price for the Common Stock during the five (5) day period prior to delivery of the conversion notice. “Fixed Conversion Price” shall mean $0.00004 per share. The shares of common stock issuable upon conversion of the Third Magna Group Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Third Magna Group Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation. The Company evaluated the Third Magna Group Note and determined that the shares issuable pursuant to the conversion option were indeterminate and constituted a derivative liability.

IBC Funds, LLC Convertible Debt

On February 14, 2014, we issued to IBC Funds, LLC (“First IBC Funds Settlement”) a Settlement Agreement in the original principal amount of $314,021. The Settlement was issued in exchange for five claims totaling $314,021, including $259,500 of principal and $28,571 of accrued interest owed to related parties, along with a $25,950 of additional liabilities. The First IBC Funds Settlement had a maturity date of December 31, 2014, and was convertible into our common stock at the Variable Conversion Price of 50% multiplied by the Market Price (representing a discount rate of 50%). “Market Price” means the lowest Trading Price for the Common Stock during the five (5) day period prior to delivery of the conversion notice. The shares of common stock issuable upon conversion of the First IBC Funds Settlement were restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First IBC Funds Settlement was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser is an accredited and sophisticated investor, familiar with our operations, and there was no solicitation. The Company evaluated the First IBC Funds Settlement and determined that the shares issuable pursuant to the conversion option were indeterminate and constituted a derivative liability.

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10. Convertible Settlement

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

10. Convertible Settlement

On February 14, 2014, the Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County, Florida approved the February 12, 2014, Settlement Agreement, entered into between the Company and IBC Funds, LLC (“IBC”) whereby a total of $314,021 of outstanding debts that were acquired by IBC from various creditors, including $288,071 of outstanding debts previously owed to related parties was sold and assigned to IBC. In satisfaction of the outstanding debts acquired by IBC, we agreed to issue IBC shares of our common stock at a 50% discount to the lowest trading price during the fifteen (15) trading days preceding the share request (“Settlement Shares”) in various tranches in an aggregate amount equal to the claim amount of $314,021 until such time as the debts were satisfied. A total of 3,040,823,600 Settlement Shares were subsequently issued pursuant to the Settlement Agreement, in addition to 75,000,000 shares that were issued in consideration pursuant to the settlement agreement. IBC is precluded from owning more than 9.99% of the Company’s common stock in aggregate at any given time. The net proceeds, less the 50% discount retained by IBC, received from the sale of the Settlement Shares in the market were used to satisfy the Company’s outstanding obligations that were acquired by IBC. The convertible settlements liability was fully converted as of June 30, 2014.

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8. Property and Equipment

6 Months Ended

Jun. 30, 2014

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment consists of the following at June 30, 2014 and December 31, 2013, respectively:

	June 30,			December 31,
	2014			2013
Furniture and fixtures	$	23,279		$	2,187
Computers and equipment		182,074			325,105
Software		15,660			67,986
Assets held under capital leases		17,855			134,800
		238,868			530,078
Less accumulated depreciation and amortization		(107,895	)		(416,668	)
	$	130,973		$	113,410

Depreciation and amortization expense totaled $25,949 and $56,837 for the six months ended June 30, 2014 and 2013, respectively.

A total of $334,722 of fully depreciated assets no longer in service was disposed of on March 31, 2014. No proceeds were received on disposal, resulting in no gain or loss on disposal during the six months ending June 30, 2014.

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9. Intangible Assets

6 Months Ended

Jun. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible assets consisted of the following at June 30, 2014 and December 31, 2013, respectively:

	Useful		June 30,			December 31,
Description	Life		2014			2013
Technology-based intangible assets - IntelliSys		5 Years	$	200,000		$	200,000
Technology-based intangible assets - K9 Bytes		5 Years		42,000			42,000
Technology-based intangible assets – MS Health		5 Years		124,000			124,000
Technology-based intangible assets – Telecorp		5 Years		72,490			–
Technology-based intangible assets – Cynergy		5 Years		8,035			–
Technology-based intangible assets – Jadian		5 Years		37,180			–
Contracts – MS Health		6 Years		258,000			258,000
Trade name - K9 Bytes		5 Years		22,000			22,000
Trade name - Telecorp		5 Years		29,390			–
Trade name - Cynergy		5 Years		1,826			–
Trade name - Jadian		5 Years		24,941			–
Other intangible assets – MS Health		2 Years		18,000			18,000
Other intangible assets - K9 Bytes		2 Years		26,000			26,000
Total intangible assets				863,862			690,000
Less: accumulated amortization				(387,444	)		(315,838	)
Intangible assets, net			$	476,418		$	374,162

Amortization expense on intangible assets totaled $71,606 and $87,324 for the six months ended June 30, 2014 and 2013, respectively.

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11. Lines of Credit

6 Months Ended

Jun. 30, 2014

Line of Credit Facility [Abstract]

Line of Credit

Lines of credit consisted of the following at June 30, 2014 and December 31, 2013, respectively:

	June 30,			December 31,
	2014			2013
Line of credit of $50,000 from PNC bank, originating on February 16, 2012. The outstanding balance on the line of credit bears interest at an introductory rate of 4.25% for the first year, subject to renewal thereafter. Payments of $739 are due monthly.	$	49,908		$	49,508
Line of credit of $20,000 from US Bank, originating on June 8, 2012. The outstanding balance on the line of credit bears interest at 9.75%, maturing on June 5, 2019. Payments of $500 are due monthly.		16,351			18,087
Line of credit of $40,000 from Dell Business Credit available for the purchase of Dell products, such as computer and software equipment. The outstanding balance on the line of credit bears interest at a rate of 26.99%. Variable payments are due monthly.		–			5,637
Line of credit of $25,000 from Bank of America. The outstanding balance on the line of credit bears interest at a rate of 4.25%. Variable payments are due monthly. A total of $24,500 was acquired with the acquisition of Telecorp.		20,285			–
Total line of credit		86,544			73,232
Less: current portion		(86,544	)		(73,232	)
Line of credit, less current portion	$	–		$	–

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13. Notes Payable, Related Parties (Tables)

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

Schedule of Notes Payable, Related Parties

	June 30,		December 31,
	2014		2013
On various dates, the Company’s CEO advanced and repaid short term loans to the Company. A total of $77,879 and $209,380 was advanced and repaid during the six months ending June 30, 2014 and the year ending December 31, 2013, respectively.	$	–	$	–
Originated June 30, 2014, an unsecured $20,000 promissory note payable, including a $3,500 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on December 30, 2014. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.		20,000		–
Originated June 12, 2014, an unsecured $21,250 promissory note payable, including a $4,250 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on October 12, 2014. In addition, a loan origination fee consisting of 2,125,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.		21,250		–
Originated June 3, 2014, an unsecured $5,000 promissory note payable, including a $1,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carried a 15% interest rate, matures on December 3, 2014. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.		5,000		–
Originated June 3, 2014, a $25,000 unsecured promissory note payable, including a $4,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carried a 15% interest rate, matures on December 3, 2014. The note also carries a liquidated damages fee of $1,000 upon default, which was amended and removed on September 19, 2014.		25,000		–
Originated May 28, 2014, an unsecured $32,500 promissory note payable, including a $7,500 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on September 28, 2014. In addition, a loan origination fee consisting of 3,250,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.		32,500		–
Originated May 7, 2014, a $125,000 unsecured promissory note payable, including a $25,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on August 7, 2014. In addition, a loan origination fee consisting of 10,000,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $12,500 upon default, which was amended and removed on September 19, 2014.		125,000		–
Originated April 24, 2014, a $150,000 unsecured promissory note payable, including a $30,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on June 26, 2014. In addition, a loan origination fee consisting of 10,000,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $10,000 upon default, which was amended and removed on September 19, 2014.		150,000		–

Originated April 23, 2014, an unsecured $35,000 promissory note payable, including a $7,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on August 23, 2014. In addition, a loan origination fee consisting of 3,500,000 shares of Class A Common Stock was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.	35,000	–
Originated March 28, 2014, an unsecured $25,000 promissory note payable, including a $5,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 28, 2014. In addition, a loan origination fee consisting of 3,000,000 shares of Convertible Series C Preferred Stock valued at $2,390 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.	25,000	–
Originated March 28, 2014, an $18,750 unsecured promissory note payable, including a $3,750 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 28, 2014. In addition, a loan origination fee consisting of 2,000,000 shares of Convertible Series C Preferred Stock valued at $1,594 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $7,000 upon default, which was amended and removed on September 19, 2014.	18,750	–
Originated March 26, 2014, a $37,500 unsecured promissory note payable, including a $7,500 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 26, 2014. In addition, a loan origination fee consisting of 3,000,000 shares of Convertible Series C Preferred Stock valued at $2,928 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $1,500 upon default, which was amended and removed on September 19, 2014.	37,500	–
Originated March 26, 2014, an unsecured $25,000 promissory note payable, including a $5,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 26, 2014. In addition, a loan origination fee consisting of 3,000,000 shares of Convertible Series C Preferred Stock valued at $2,928 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $2,500 upon default, which was amended and removed on September 19, 2014.	25,000	–
Originated March 7, 2014, an unsecured $30,000 promissory note payable, including a $6,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 7, 2014. In addition, a loan origination fee consisting of 3,000,000 shares of Convertible Series C Preferred Stock valued at $2,912 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $1,500 upon default, which was amended and removed on September 19, 2014.	30,000	–
Originated March 7, 2014, a $22,000 unsecured promissory note payable, including a $7,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on May 7, 2014. In addition, a loan origination fee consisting of 2,000,000 shares of Convertible Series C Preferred Stock valued at $1,942 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $7,000 upon default, which was amended and removed on September 19, 2014.	22,000	–

Originated February 22, 2014, a $100,000 unsecured promissory note payable, including a $25,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on April 30, 2014. In addition, a loan origination fee consisting of 15,000,000 shares of Convertible Series C Preferred Stock valued at $14,266 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $35,000 upon default, which was amended and removed on September 19, 2014.	100,000	–
Originated February 21, 2014, an unsecured $75,000 promissory note payable, including a $15,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on April 30, 2014. In addition, a loan origination fee consisting of 10,000,000 shares of Convertible Series C Preferred Stock valued at $9,562 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $25,000 upon default, which was amended and removed on September 19, 2014.	75,000	–
Originated February 8, 2014, an unsecured $13,000 promissory note payable, including a $3,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on March 30, 2014. In addition, a loan origination fee consisting of 1,000,000 shares of Convertible Series C Preferred Stock valued at $1,193 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.	13,000	–
Originated February 7, 2014, a $26,000 unsecured promissory note payable, including a $6,000 loan origination fee, owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on March 30, 2014. In addition, a loan origination fee consisting of 2,000,000 shares of Convertible Series C Preferred Stock valued at $2,385 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.	26,000	–
Originated January 15, 2014, an unsecured $43,000 promissory note payable, including a $10,000 loan origination fee, owed to Star Financial, a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matured on March 20, 2014. In addition, a loan origination fee consisting of 5,000,000 shares of Convertible Series C Preferred Stock valued at $6,465 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.	43,000	–
Originated November 1, 2013, unsecured promissory note payable owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on March 7, 2014. In addition, a loan origination fee of $25,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carries a liquidated damages fee of $2,500 upon default. As disclosed in Note 10, pursuant to a settlement agreement, dated February 12, 2014, the $125,000 note, along with $8,264 of accrued interest, was sold and assigned to IBC Funds, LLC and was subsequently converted to stock as part of a court order on February 14, 2014 under Section 3(a)(10) of the Securities Act of 1933.	–	125,000
Originated October 15, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on June 12, 2015. In addition, a loan origination fee of $3,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan. The note also carried a liquidated damages fee of $500 upon default, which was amended and removed on September 19, 2014.	18,000	18,000

Originated September 7, 2013, unsecured promissory note payable owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on February 7, 2014. In addition, a loan origination fee of $10,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 6,000,000 shares of Series A Common Stock with a fair market value of $6,600 was granted as consideration for the loan on September 7, 2013 and the shares were subsequently issued on November 13, 2013. As disclosed in Note 10, pursuant to a settlement agreement, dated February 12, 2014, the $65,000 balance of this note, along with $7,528 of accrued interest, was sold and assigned to IBC Funds, LLC and was subsequently converted to stock as part of a court order on February 14, 2014 under Section 3(a)(10) of the Securities Act of 1933.	–	65,000
Originated August 20, 2013, unsecured promissory note payable owed to GG Mars Capital, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 20, 2014. In addition, a loan origination fee of $5,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 2,500,000 shares of Series A Common Stock with a fair market value of $3,250 was granted as consideration for the loan on August 20, 2013 and the shares were subsequently issued on November 13, 2013. Currently in default.	25,000	25,000
Originated August 12, 2013, unsecured promissory note payable owed to an immediate family member of the Company’s CEO carries a 15% interest rate, matures on February 15, 2014. In addition, a loan origination fee of $6,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 5,000,000 shares of Series A Common Stock with a fair market value of $7,000 was issued as consideration for the loan on August 12, 2013. The note, consisting of $51,000 of principal, $4,933 of accrued interest and $2,500 of liquidated damages, was subsequently sold and assigned to a third party and exchanged for a convertible note on April 2, 2014 and the $58,433 was converted in exchange for 584,333,745 shares of common stock in complete satisfaction of the debt.	–	51,000
Originated July 19, 2013, unsecured promissory note payable owed to an immediate family member of the Company’s CEO carries a 15% interest rate, matures on January 15, 2014. In addition, a loan origination fee of $3,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 2,500,000 shares of Series A Common Stock with a fair market value of $4,250 was issued as consideration for the loan on July 19, 2013. The note, consisting of $23,000 of principal and $1,153 of accrued interest, was subsequently sold and assigned to a third party and exchanged for a convertible note on February 4, 2014.	–	23,000
Originated August 27, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 27, 2014. In addition, a loan origination fee of $2,500 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 1,250,000 shares of Series A Common Stock with a fair market value of $1,500 was granted as consideration for the loan on August 27, 2013 and the shares were subsequently issued on November 13, 2013. As disclosed in Note 10, pursuant to a settlement agreement, dated February 12, 2014, the $12,500 note, along with $3,519 of accrued interest, was sold and assigned to IBC Funds, LLC and was subsequently converted to stock as part of a court order on February 14, 2014 under Section 3(a)(10) of the Securities Act of 1933.	–	12,500
Originated August 7, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 20, 2014. In addition, a loan origination fee of $4,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 2,500,000 shares of Series A Common Stock with a fair market value of $4,250 was granted as consideration for the loan on August 7, 2013 and the shares were subsequently issued on November 13, 2013. Currently in default.	24,000	24,000

Originated August 2, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 17, 2014. In addition, a loan origination fee of $5,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 3,000,000 shares of Series A Common Stock with a fair market value of $5,100 was issued as consideration for the loan on August 2, 2013. Currently in default.		32,000			32,000
Originated July 31, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 15% interest rate, matures on January 15, 2014. In addition, a loan origination fee of $5,000 was issued as consideration for the loan, and is being amortized on a straight line basis over the life of the loan, as well as, a loan origination fee, consisting of 3,000,000 shares of Series A Common Stock with a fair market value of $4,200 was issued as consideration for the loan on July 31, 2013. The note, consisting of $32,000 of principal and $5,000 of accrued interest, was subsequently sold and assigned to a third party and exchanged for a convertible note on February 19, 2014.		–			32,000
Originated June 12, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 10% interest rate, matures on June 12, 2015. In addition, a loan origination fee of $2,000 was issued as consideration for the loan on June 12, 2013, and is being amortized on a straight line basis over the life of the loan. The note, consisting of $10,000 of principal and $338 of accrued interest, was subsequently sold and assigned to a third party and exchanged for a convertible note on February 4, 2014.		–			10,000
Originated April 12, 2013, unsecured promissory note payable owed to Star Financial Corporation, Inc., a corporation owned by an immediate family member of the Company’s CEO. The note carries a 10% interest rate, matures on April 12, 2015. In addition, a loan origination fee of $7,000 was issued as consideration for the loan on April 12, 2013, and is being amortized on a straight line basis over the life of the loan. As disclosed in Note 10, pursuant to a settlement agreement, dated February 12, 2014, the $57,000 note, along with $9,261 of accrued interest, was sold and assigned to IBC Funds, LLC and was subsequently converted to stock as part of a court order on February 14, 2014 under Section 3(a)(10) of the Securities Act of 1933.		–			57,000
Originated October 9, 2012, unsecured promissory note payable owed to a Company owned by an immediate family member of the Company’s CEO carries a 15% interest rate, matures on July 15, 2013. In addition, a loan origination fee, consisting of 144,928 shares of Series A Common Stock with a fair market value of $884 was issued as consideration for the loan on October 9, 2012. Currently in default.		2,000			2,000
Unsecured promissory note payable owed to a Company owned by an immediate family member of the Company’s CEO carries a 15% interest rate, matured on July 31, 2007. Principal of $5,000 was repaid during the first quarter of 2014. Currently in default.		868			5,868
Total notes payable, related parties		930,868			482,368
Less: current portion		(930,868	)		(397,368	)
Notes payable, related parties, less current portion	$	–		$	85,000

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10. Convertible Settlement (Details Narrative) (IBC Funds, USD $)	6 Months Ended
	Jun. 30, 2014
IBC Funds
Stock issued in settlement of debt, shares issued	3,040,823,600
Stock issued in settlement of debt, value	$ 314,021
Settlement shares issued	75,000,000

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16. Derivative Liabilities

6 Months Ended

Jun. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

16. Derivative Liabilities

As discussed in Note 14 under Convertible Debts, the Company issued convertible debts with variable conversion provisions. The conversion terms of the convertible debts are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. As such, the number of shares of common stock issuable upon conversion of the debts is indeterminate. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion debts and shares to be issued were recorded as derivative liabilities on the issuance date.

The fair values of the Company’s derivative liabilities were estimated at the issuance date and are revalued at each subsequent reporting date, using a lattice model. The Company recorded current derivative liabilities of $-0- and $-0- at June 30, 2014 and December 31, 2013, respectively. The change in fair value of the derivative liabilities resulted in a net loss of $777,664 and $-0- for the six months ended June 30, 2014 and 2013, respectively, which has been reported as other income (expense) in the statements of operations. The net loss of $777,664 for the six months ended June 30, 2014 consisted of a loss of $837,010 due to the value in excess of the face value of the convertible notes, as offset by a net gain in market value of $59,346 on the convertible debts.

The aforementioned accounting treatment resulted in a total debt discount equal to $422,240 and $-0- during the six months ended June 30, 2014 and the year ended December 31, 2013, respectively. The discount was amortized using the effective interest method from the dates of issuance until the stated redemption date of the debts, or the accelerated dates of conversion. A total of $422,240 and $-0- was amortized during the six months ended June 30, 2014 and 2013, respectively.

The following presents the derivative liability value by instrument type at June 30, 2014 and December 31, 2013, respectively:

	June 30, 2014		December 31, 2013
Convertible notes, Magna Group	$	–	$	–
Convertible debt, IBC Funds, LLC		–		–
	$	–	$	–

The following is a summary of changes in the fair market value of the derivative liability during the six months ended June 30, 2014 and the years ended December 31, 2013, respectively:

	Derivative Liability Total
Balance, December 31, 2012	$	–
Increase in derivative value due to issuances of convertible promissory notes, Magna Group		–
Increase in derivative value due to issuances of debt, IBC Funds, LLC		–
Change in fair market value of derivative liabilities due to the mark to market adjustment		–
Debt conversions		–
Balance, December 31, 2013	$	–
Increase in derivative value due to issuances of convertible promissory notes, Magna Group		124,323
Increase in derivative value due to issuances of debt, IBC Funds, LLC		1,134,927
Change in fair market value of derivative liabilities due to the mark to market adjustment		(59,346	)
Debt conversions		(1,199,904	)
Balance, June 30, 2014	$	–

Key inputs and assumptions used to value the convertible debentures and warrants issued during the six months ended June 30, 2014:

· Stock prices on all measurement dates were based on the fair market value and would fluctuate with projected volatility.

· The holders of the securities would convert monthly to the ownership limit starting at 4.99% increasing by 10% per month.

· The holders would automatically convert the note at the maximum of 3 times the conversion price if the Company was not in default.

· The monthly trading volume would reflect historical averages and would increase at 1% per month.

· The Company would redeem the notes based on availability of alternative financing, increasing 2% monthly to a maximum of 10%.

· The holder would automatically convert the note at maturity if the registration was effective and the Company was not in default.

· The computed volatility was projected based on historical volatility.

· The expected risk-free interest rate is based on the yield of the 1-year U.S. Treasury note.

· The estimated value represents the average or expected value from the Monte Carlo simulation. The simulation was specified to run until the expected value was within 1.0 percent of the true value using a 95% confidence interval. A total of 8,020,000 trials were necessary to reach the specified level of precision.

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4. Mergers and Acquisitions (Tables)

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Schedule of Assets Acquired and Liabilities Assumed

	April 4,
	2014
Consideration:
Cash paid at, and prior to, closing	$	75,000
Fair value of identifiable assets acquired assumed:
Software	$	8,035
Trade name		1,826
Total fair value of assets assumed		9,861
Consideration paid in excess of fair value (Goodwill)(1)	$	65,139

	May 9,
	2014
Consideration:
Cash paid at, and prior to, closing	$	215,000
Seller financed note payable(1)(2)		210,000
Adjustments to cash paid at closing(3)		(7,055	)
		417,945
Fair value of identifiable liabilities acquired:
Deferred revenue		86,423
Fair value of total consideration exchanged	$	504,368
Fair value of identifiable assets acquired assumed:
Accounts receivable	$	42,382
Software		37,180
Trade name		24,941
Total fair value of assets assumed		104,503
Consideration paid in excess of fair value (Goodwill)(4)	$	399,865

	February 28,
	2014
Consideration:
Cash paid at, and prior to, closing	$	200,000
Seller financed note payable(1)(2)		120,000
Excess liability adjustment to seller financed note payable(3)		(18,000	)
		302,000
Fair value of identifiable liabilities acquired:
Accounts payable and accrued expenses		43,500
Deferred revenue		162,016
Line of credit		24,500
Fair value of total consideration exchanged	$	532,016
Fair value of identifiable assets acquired assumed:
Cash	$	736
Other current assets		823
Technology-based intangible assets		72,490
Trade name		29,390
Total fair value of assets assumed		103,439
Consideration paid in excess of fair value (Goodwill)(4)	$	428,577

Unaudited Supplemental Pro Forma Results of Operations

	Combined Pro Forma:
	For the six months ended June 30,
	2014			2013
Revenue:	$	748,952		$	745,071
Expenses:
Operating expenses		3,249,648			2,440,624
Net operating income (loss)		(2,500,696	)		(1,695,553	)
Other income (expense)		(1,972,184	)		(366,946	)
Net income (loss)	$	(4,472,880	)	$	(2,062,499	)
Weighted average number of common shares
Outstanding – basic and fully diluted		4,783,826,881			1,666,897,778
Net income (loss) per share – basic and fully diluted	$	(0.00	)	$	(0.00	)

		Combined pro Forma:
		For the six months ended June 30,
		2014		2013
Revenue:		$	668,780	$	775,668
Expenses:
	Operating expenses		3,190,846		2,550,029
Net operating income (loss)			(2,522,066)		(1,774,361)
	Other income (expense)		(1,968,126)		(359,687)
Net income (loss)		$	(4,490,192)	$	(2,134,048)
Weighted average number of common shares
	Outstanding – basic and fully diluted		4,783,826,881		1,666,897,778
Net income (loss) per share – basic and fully diluted		$	(0.00)	$	(0.00)

Schedule of revenue for the relevant year

Revenue for the Relevant Year	Earn-Out
$-0- to $500,000	$	–
$500,000 to $600,000	$	25,000
$600,000 to $700,000	$	50,000
$700,000 to $800,000	$	75,000
$800,000 or more	$	100,000

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8. Property and Equipment (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 238,868	$ 530,078
Less accumulated depreciation and amortization	(107,895)	(416,668)
Total property and equipment, net	130,973	113,410
Assets Held under Capital Leases [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	17,855	134,800
Software [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	15,660	67,986
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	23,279	2,187
Computers and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 182,074	$ 325,105

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4. Mergers and Acquisitions (Details - Consideration given) (USD $)	3 Months Ended	4 Months Ended	2 Months Ended
	Apr. 04, 2014 Zinergy	May 09, 2014 Jadian [Member]	Feb. 28, 2014 Telecorp
Consideration:
Cash paid at, and prior to, closing	$ 75,000	$ 215,000	$ 200,000
Seller financed note payable(1)(2)		210,000	120,000
Adjustments to cash paid at closing		(7,055)
Excess liability adjustment to seller financed note payable(3)			(18,000)
Consideration transferred		417,945	302,000
Fair value of identifiable liabilities acquired:
Accounts payable and accrued expenses			43,500
Deferred revenue		86,423	162,016
Line of credit			24,500
Fair value of total consideration exchanged		504,368	532,016
Fair value of identifiable assets acquired assumed:
Cash			736
Accounts receivable		42,382
Other current assets			823
Technology-based intangible assets			72,490
Software	8,035	37,180
Trade name	1,826	24,941	29,390
Total fair value of assets assumed	9,861	104,503	117,189
Consideration paid in excess of fair value (Goodwill)(4)	$ 65,139	$ 399,865	$ 428,577

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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities
Net loss	$ (4,495,604)	$ (2,066,149)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt (recoveries)	(5,262)	(8,740)
Depreciation and amortization	25,949	56,837
Amortization of intangible assets	71,606	87,324
Amortization of deferred financing costs	233,277	19,905
Amortization of discount on convertible debts	495,683	128,612
Loss on debt modification, related parties	172,864	96,032
Loss on default provisions of convertible debt	77,375	0
Change in fair market value of derivative liabilities	777,664	0
Stock based compensation issued for services	37,500	0
Stock based compensation issued for services, related party	2,243,402	1,522,000
Decrease (increase) in assets:
Accounts receivable	1,130	(29,759)
Other current assets	42,835	1,743
Increase (decrease) in liabilities:
Accounts payable	44,656	41,662
Accrued expenses	20,085	(2,914)
Accrued expenses, related parties	54,002	10,536
Deferred revenues	(74,059)	(30,252)
Net cash used in operating activities	(276,897)	(173,163)
Cash flows from investing activities
Cash acquired in merger	736	0
Purchase of equipment	(43,512)	(1,697)
Acquisition of subsidiaries	(482,945)	0
Net cash used in investing activities	(525,721)	(1,697)
Cash flows from financing activities
Payments on capital lease obligations payable	(9,260)	(9,713)
Proceeds from notes payable, related parties	675,152	203,950
Repayment of notes payable, related parties	(82,879)	(119,167)
Proceeds from convertible notes	0	30,000
Repayment of convertible notes	(1,500)	(27,500)
Proceeds from long term debts	345,696	271,095
Repayment of long term debt	(231,287)	(172,719)
Net cash provided by financing activities	695,922	175,946
Net increase (decrease) in cash	(106,696)	1,086
Cash - beginning	208,567	46,101
Cash - ending	101,871	47,187
Supplemental disclosures:
Interest paid	187,563	106,869
Income taxes paid	0	0
Non-cash investing and financing activities:
Acquisition of subsidiary in exchange for debt	312,000	0
Value of shares issued for conversion of debt	533,360	120,160
Value of shares issued for conversion of debt, related parties	112,183	100,239
Discount on derivatives	422,240	0
Discount on beneficial conversion feature of convertible debt	35,028	33,000
Deferred financing costs	235,394	32,076
Value of derivative adjustment due to debt conversions	1,199,904	0
Dividends payable declared	$ 0	$ 18,000

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5. Related Parties

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

5. Related Parties

Debt Financings

From time to time we have received and repaid loans from our CEO and his immediate family members to fund operations. These related party debts are fully disclosed in Note 13 below.

In addition to the debts disclosed in Note 13, we had a convertible note with a related party that is disclosed in Note 14 as follows:

	June 30, 2014		December 31, 2013
Originated April 2, 2014, an unsecured $51,000 convertible promissory note, carried a 15% interest rate, matured on August 1, 2014, (“First Vivienne Passley Note”) owed to Vivienne Passley, a related party. The convertible promissory note was issued in exchange for a promissory note originally issued on August 12, 2013 to the same debt holder, which did not carry conversion terms. The principal and accrued interest was convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.0001 per share. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The debt modification resulted in a loss on debt modifications, related party of $172,864. The assigned principal of $51,000, interest of $4,933 and liquidated damages incurred prior to assignment of $2,500 was subsequently converted to a total of 584,333,745 shares of common stock over various dates from April 2, 2014 to June 17, 2014 in complete satisfaction of the debt.	$	–	$	–

Unsecured $440,849 convertible promissory note due to a related party, carries a 10% interest rate (“Star Convertible Note”), matures on July 2, 2017. The principal and unpaid interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 75% of the average closing price of the Company’s common stock over the five (5) consecutive trading days immediately preceding the date of conversion, or the fixed price of $0.005 per share, whichever is greater. The note carries a fourteen percent (14%) interest rate in the event of default, and the debt holder is limited to owning 9.99% of the Company’s issued and outstanding shares. This note was subsequently amended on March 5, 2013 to change the conversion price to, "equal to the greater of, (a) 50% of the Market Price, or (b) the fixed conversion price of $0.00075 per share". The modification resulted in a loss on debt modification of $81,792. The note holder converted $250,000 of outstanding principal into 50,000,000 shares pursuant to debt conversion on September 15, 2012, $46,000 into 50,000,000 shares pursuant to debt conversion on March 14, 2013, $40,000 into 50,000,000 shares pursuant to debt conversion on April 10, 2013, $26,400 into 80,000,000 shares pursuant to debt conversion on July 9, 2013 and $32,000 into 40,000,000 shares pursuant to debt conversion on August 7, 2013, $18,750 into 125,000,000 shares pursuant to debt conversion on April 7, 2014, $20,000 into 200,000,000 shares pursuant to debt conversion on May 3, 2014, and $15,000, consisting of $7,699 of principal and $7,301 of interest into 150,000,000 shares pursuant to the final debt conversion on May 22, 2014.

–

46,449

Total convertible debts, related parties

–

46,449

Less: unamortized discount on beneficial conversion feature

–

(5,653

)

Convertible debts

–

40,796

Less: current maturities of convertible debts, related parties included in convertible debts

–

–

Long term convertible debts, related parties included in convertible debts

$

–

$

40,796

Changes in Stockholders’ Equity, Related Parties

Dividends Payable

On January 1, 2013, the Company declared and accrued dividends quarterly on its Convertible Series B Preferred Stock pursuant to the recognition of revenues in excess of $1 million during the year ended December 31, 2012. Dividends equal to 1.5% of the Company’s revenues per quarter during the year ending December 31, 2013 accrue quarterly, resulting in a dividend payable of $11,000, which was subsequently paid on September 11, 2014, with the issuance of 110,000,000 shares of Class A Common Stock in lieu of cash.

Shares of Convertible Series C Preferred Stock Issued for Services to Related Parties

On January 17, 2014, the Company issued 600,000,000 shares of the recently designated Series C Convertible Preferred Stock to the Company’s CEO in exchange for 600,000,000 shares of his previously issued Class A Common Stock. The total fair value of the Series C Convertible Preferred Stock was $568,283 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $345,427 due to the difference in the fair value of the Class A Common Stock exchanged.

On February 7, 2014, the Company issued 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $26,000 short term promissory note. The total fair value of the common stock was $2,385 based on an independent valuation on the date of grant.

On February 21, 2014, the Company issued 10,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $75,000 short term promissory note. The total fair value of the common stock was $9,562 based on an independent valuation on the date of grant.

On February 22, 2014, the Company issued 15,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $100,000 short term promissory note. The total fair value of the common stock was $14,266 based on an independent valuation on the date of grant.

On March 7, 2014, the Company issued 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $30,000 short term promissory note. The total fair value of the common stock was $2,912 based on an independent valuation on the date of grant.

On March 22, 2014, the Company issued 200,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, for providing a personal guaranty on an acquisition loan. The total fair value of the common stock was $127,746 based on an independent valuation on the date of grant.

On March 22, 2014, the Company issued 200,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, for providing a personal guaranty on an acquisition loan. The total fair value of the common stock was $127,746 based on an independent valuation on the date of grant.

On March 22, 2014, the Company issued 1,821,052,632 shares of the Series C Convertible Preferred Stock to the Company’s CEO in exchange for 1,821,052,632 shares, consisting of 1,730,526,316 previously issued and unvested shares of Class A Common Stock and 90,526,316 shares of his previously issued and vested Class A Common Stock. The vesting terms were accelerated commensurate with the exchange. The total fair value of the Series C Convertible Preferred Stock was $1,163,162 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $707,025 due to the difference in the fair value of the Class A Common Stock exchanged.

On March 22, 2014, the Company issued 13,669,568 shares of the Series C Convertible Preferred Stock to L&F Lawn Services, a company owned by our CEO’s family member, a related party, in exchange for 13,669,568 of their previously issued Class A Common Stock. The total fair value of the Series C Convertible Preferred Stock was $8,731 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $5,370 due to the difference in the fair value of the Class A Common Stock exchanged.

On March 22, 2014, the Company issued 60,000,000 shares of the Series C Convertible Preferred Stock to the Company’s CEO in exchange for 60,000,000 shares, consisting of 54,000,000 previously issued and unvested shares of Class A Common Stock and 6,000,000 shares of his previously issued and vested Class A Common Stock. The vesting terms were accelerated commensurate with the exchange. The total fair value of the Series C Convertible Preferred Stock was $38,324 based on an independent valuation on the date of grant; therefore the Company recognized additional compensation expense of $23,295 due to the difference in the fair value of the Class A Common Stock exchanged.

Debt Conversions into Class A Common Stock – Related Parties

On April 2, 2014, the Company issued 250,000,000 shares of Class A Common Stock pursuant to the conversion of $25,000 of convertible debt held by Vivienne Passley, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On April 7, 2014, the Company issued 125,000,000 shares of Class A Common Stock pursuant to the conversion of $18,750 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 3, 2014, the Company issued 200,000,000 shares of Class A Common Stock pursuant to the conversion of $20,000 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On May 22, 2014, the Company issued 150,000,000 shares of Class A Common Stock pursuant to the conversion of $15,000 of convertible debt held by Star Financial Corporation, a related party, which consisted entirely of principal. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

On June 17, 2014, the Company issued 334,333,745 shares of Class A Common Stock pursuant to the conversion of $33,433 of convertible debt held by Vivienne Passley, a related party, which consisted of $26,000 of principal, $4,933 of interest and $2,500 of liquidated damages. The note was converted in accordance with the conversion terms; therefore no gain or loss has been recognized.

Convertible Class B Common Stock Issuance for Services

On March 22, 2014, the Company issued 12,500,000 shares of Convertible Class B Common Stock to the Company’s CEO in consideration for providing services. The total fair value of the common stock was $44,737 based on the closing price of the Company’s common stock on the date of grant.

Subscriptions Payable Issued for Shares of Class A Common Stock Granted for Services

On April 23, 2014, the Company granted 3,500,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $35,000 short term promissory note. The total fair value of the common stock was $1,050 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On April 24, 2014, the Company granted 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $150,000 short term promissory note. The total fair value of the common stock was $3,000 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On May 7, 2014, the Company granted 10,000,000 shares of Class A Common Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $125,000 short term promissory note. The total fair value of the common stock was $2,000 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On May 28, 2014, the Company granted 3,250,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $32,500 short term promissory note. The total fair value of the common stock was $650 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

On June 12, 2014, the Company granted 2,125,000 shares of Class A Common Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $5,000 short term promissory note. The total fair value of the common stock was $213 based on the closing price of the Company’s common stock on the date of grant. The shares were subsequently issued on August 29, 2014.

Subscriptions Payable Issued for Shares of Convertible Series C Preferred Stock Granted for Services

On January 15, 2014, the Company granted 5,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $43,000 short term promissory note. The total fair value of the common stock was $6,465 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On February 8, 2014, the Company granted 1,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $13,000 short term promissory note. The total fair value of the common stock was $1,193 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 7, 2014, the Company granted 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $22,000 short term promissory note. The total fair value of the common stock was $1,942 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 26, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $37,500 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 26, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,928 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 28, 2014, the Company granted 2,000,000 shares of Convertible Series C Preferred Stock to GG Mars Capital, a related party entity owned by Vivienne Passley, as a loan origination cost in consideration for a $18,750 short term promissory note. The total fair value of the common stock was $1,594 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

On March 28, 2014, the Company granted 3,000,000 shares of Convertible Series C Preferred Stock to Star Financial, a company owned by our CEO’s family member, a related party, as a loan origination cost in consideration for a $25,000 short term promissory note. The total fair value of the common stock was $2,390 based on an independent valuation on the date of grant. The shares were subsequently issued on July 7, 2014.

Equity Based Debt Settlement Financing, Conversions into Class A Common Stock – IBC Funds, LLC

On February 14, 2014, IBC Funds, LLC (“IBC”) filed a Joint Motion for Approval of Settlement Agreement and Stipulation, and Request for Fairness Hearing in the Circuit Court of the Twelfth Judicial Circuit in and for Sarasota County, Florida, Case No. 2014-CA-000899. IBC has contracted with various note holders of the Company to acquire approximately $314,021 of Company debt and subsequently converted the debt to common stock of the Company at 50% of the lowest trading price over the 15 days prior to, and including the conversion request date pursuant to Section 3(a)(10) of the Securities Act of 1933, which allows the exchange of claims, securities, or property for stock when the arrangement is approved for fairness by a court proceeding. In addition, the Company agreed to issue 75,000,000 settlement shares to IBC. The Company has agreed to these terms as the acquisition of these debts and subsequent conversion would alleviate a significant portion of the Company’s liabilities. A fairness hearing was held on February 14, 2014 and the arrangement was approved. A total of 3,040,823,600 shares of Class A Common Stock was issued, in addition to the 75,000,000 settlement shares, in complete satisfaction of the debt, as disclosed in detail below.

Employment Agreement

On September 6, 2012, we entered into an employment agreement with Shaun Passley, Ph.D., our Chief Executive Officer, President, and Chairman of the Board of Directors which had a term of ten (10) years. Compensation pursuant to the agreement calls for a base salary of $180,000 per year; of which $30,000 shall be payable annually in cash and $150,000 shall be payable in shares of the Company’s Common Stock at the rate of $0.006 per share, or 25,000,000 shares per year. In addition, the Company issued 1 billion shares of Class A Common Stock to the Company’s CEO as a bonus in consideration for various services performed, and to be performed over a ten year period beginning on September 6, 2012, provided that all of the shares remain subject to forfeiture until such time, if ever, as we generate annual revenues of at least $10 million, subject to the below termination provisions. The total fair value of the common stock was $6,000,000 based on the closing price of the Company’s common stock on the date of grant, which has been presented as a deduction against additional paid in capital in the equity section of the balance sheet until the terms of the vesting periods are satisfied. The vesting restrictions were subsequently lifted on March 22, 2014 pursuant to the exchange of these shares for Convertible Series C Preferred shares. In the event of the termination of Dr. Passley’s employment agreement for cause by the Company or without good reason by Dr. Passley, any non-vested shares are to be cancelled and he is to be paid any consideration he is owed through the date of termination. In the event of the termination of Dr. Passley’s employment agreement for good reason (as described in the agreement) by Dr. Passley or without cause by the Company, he is due eight additional weeks of compensation and all non-vested shares vest to him immediately. In the event of the termination of Dr. Passley’s employment agreement for any other reason, he is due eight weeks of additional salary and any non-vested shares are to be cancelled.

We do not have an employment or consultant agreement with Craig Passley, our Secretary, however on March 20, 2013, we granted 60 million shares to Craig Passley for services rendered between 2012 and 2021. The shares vest annually over the 10 year period with the first 6 million vesting upon the grant date. The vesting restrictions were subsequently lifted on March 22, 2014 pursuant to the exchange of these shares for Convertible Series C Preferred shares.

Amendments to Employment Agreement

On August 16, 2013, the Company amended Shaun Passley, Ph.D.’s employment agreement to increase the cash portion of his compensation from $30,000 per year to $100,000 in the initial year of the agreement only. All other terms remain in effect, and the shares of stock awarded as a bonus as previously disclosed were granted in addition to the stock based compensation outlined in the original agreement.

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16. Derivative Liabilities - Rollforward (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Derivative Liabilities - Rollforward Details
Balance beginning	$ 0	$ 0
Increase in derivative value due to issuances of convertible promissory notes, Magna Group	124,323	0
Increase in derivative value due to issuances of debt, IBC Funds, LLC	1,134,927	0
Change in fair market value of derivative liabilities due to the mark to market adjustment	(59,346)	0
Debt conversions	(1,199,904)	0
Derivative liability	$ 0	$ 0

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5. Related Parties (Tables)

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

Related party debt

	June 30, 2014		December 31, 2013
Originated April 2, 2014, an unsecured $51,000 convertible promissory note, carried a 15% interest rate, matured on August 1, 2014, (“First Vivienne Passley Note”) owed to Vivienne Passley, a related party. The convertible promissory note was issued in exchange for a promissory note originally issued on August 12, 2013 to the same debt holder, which did not carry conversion terms. The principal and accrued interest was convertible into shares of common stock at the discretion of the note holder at a fixed conversion price of $0.0001 per share. The debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. The debt modification resulted in a loss on debt modifications, related party of $172,864. The assigned principal of $51,000, interest of $4,933 and liquidated damages incurred prior to assignment of $2,500 was subsequently converted to a total of 584,333,745 shares of common stock over various dates from April 2, 2014 to June 17, 2014 in complete satisfaction of the debt.	$	–	$	–

Unsecured $440,849 convertible promissory note due to a related party, carries a 10% interest rate (“Star Convertible Note”), matures on July 2, 2017. The principal and unpaid interest is convertible into shares of common stock at the discretion of the note holder at a price equal to 75% of the average closing price of the Company’s common stock over the five (5) consecutive trading days immediately preceding the date of conversion, or the fixed price of $0.005 per share, whichever is greater. The note carries a fourteen percent (14%) interest rate in the event of default, and the debt holder is limited to owning 9.99% of the Company’s issued and outstanding shares. This note was subsequently amended on March 5, 2013 to change the conversion price to, "equal to the greater of, (a) 50% of the Market Price, or (b) the fixed conversion price of $0.00075 per share". The modification resulted in a loss on debt modification of $81,792. The note holder converted $250,000 of outstanding principal into 50,000,000 shares pursuant to debt conversion on September 15, 2012, $46,000 into 50,000,000 shares pursuant to debt conversion on March 14, 2013, $40,000 into 50,000,000 shares pursuant to debt conversion on April 10, 2013, $26,400 into 80,000,000 shares pursuant to debt conversion on July 9, 2013 and $32,000 into 40,000,000 shares pursuant to debt conversion on August 7, 2013, $18,750 into 125,000,000 shares pursuant to debt conversion on April 7, 2014, $20,000 into 200,000,000 shares pursuant to debt conversion on May 3, 2014, and $15,000, consisting of $7,699 of principal and $7,301 of interest into 150,000,000 shares pursuant to the final debt conversion on May 22, 2014.		–		46,449
Total convertible debts, related parties		–		46,449
Less: unamortized discount on beneficial conversion feature		–		(5,653	)
Convertible debts		–		40,796
Less: current maturities of convertible debts, related parties included in convertible debts		–		–
Long term convertible debts, related parties included in convertible debts	$	–	$	40,796

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1. Basis of Presentation and Consolidation (Details - Entities) (Subsidiaries [Member])	6 Months Ended
	Jun. 30, 2014
Epazz
Name of Entity	Epazz, Inc.
State of Incorporation	Illinois
Relationship	Parent
Abbreviated	Epazz
IntelliSys [Member]
Name of Entity	IntelliSys, Inc.
State of Incorporation	Wisconsin
Relationship	Subsidiary
Abbreviated	IntelliSys
PRMI [Member]
Name of Entity	Professional Resource Management, Inc.
State of Incorporation	Illinois
Relationship	Subsidiary
Abbreviated	PRMI
DFI
Name of Entity	Desk Flex, Inc.
State of Incorporation	Illinois
Relationship	Subsidiary
Abbreviated	DFI
K9 Bytes [Member]
Name of Entity	K9 Bytes, Inc.
State of Incorporation	Illinois
Relationship	Subsidiary
Abbreviated	K9 Bytes
MS Health
Name of Entity	MS Health, Inc.
State of Incorporation	Illinois
Relationship	Subsidiary
Abbreviated	MS Health
FlexFridge
Name of Entity	FlexFridge, Inc.
State of Incorporation	Illinois
Relationship	Subsidiary
Abbreviated	FlexFridge
Terran
Name of Entity	Terran Power, Inc.
State of Incorporation	Illinois
Relationship	Subsidiary
Abbreviated	Terran
Telecorp
Name of Entity	Telecorp Products, Inc.
State of Incorporation	Michigan
Relationship	Subsidiary
Abbreviated	Telecorp
Jadian [Member]
Name of Entity	Jadian, Inc.
State of Incorporation	Illinois
Relationship	Subsidiary
Abbreviated	Jadian

XML

15. Long Term Debts

6 Months Ended

Jun. 30, 2014

Long-term Debt, Current and Noncurrent [Abstract]

Long Term Debts

Long term debts consist of the following at June 30, 2014 and December 31, 2013, respectively:

	June 30,		December 31,
	2014		2013
On June 6, 2014, the Company received a loan of $42,000 from Global Merchant Cash, Inc. (“GMC Loan”). The loan bears interest at an effective rate of 187%, consisting of 100 daily weekday payments of $599, maturing on November 3, 2014. The loan is collateralized with the accounts receivable of Epazz, Inc. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.	$	39,021	$	–
On May 9, 2014, the Company issued an unsecured $210,000 seller financed note payable as partial payment on an asset purchase (“Jadian Note”), which bears interest at 6% per annum until the maturity date of May 9, 2017, and provides for equal monthly principal and interest payments of $6,389 commencing on June 1, 2014. The Jadian Note includes a balloon payment, consisting of the remaining outstanding balance of principal and interest upon maturity at May 9, 2017. The interest rate shall be 8% per annum with an additional 5% late payment fee upon default.		208,462		–
On April 30, 2014, the Company purchased furniture and fixtures and computer equipment in the total amount of $41,300 from IKEA, which was partially financed with proceeds of $37,788 pursuant to an equipment financing agreement with Financial Pacific Leasing bearing an effective interest rate of 26.78%, consisting of 36 monthly payments of $1,488; maturing on March 15, 2017. The loan is collateralized with the furniture and fixtures and computer equipment, along with a personal guarantee by Shaun Passley, Ph.D., our Chief Executive Officer.		34,493		–
On Deck Capital Loan – Telecorp: On April 4, 2013, the Company received a loan of $65,000 from On Deck Capital, Inc., (“On Deck”), bearing an effective interest rate of 42.74%, consisting of 377 daily weekday payments of $234, maturing on September 11, 2015. The loan is collateralized with Telecorp’s receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		57,119		–
On April 2, 2014, the Company received a loan of $25,000 from BSB Leasing, Inc. (“BSB Loan”) as a partial financing to purchase certain assets of Cynergy, Inc. for a total of $75,000. The loan bears interest at an effective rate of 25%, consisting of monthly payments of $944, maturing on February 25, 2017. The loan is collateralized with Cynergy’s assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		22,463		–
On March 20, 2014, the Company received a loan of $25,000 from BMT Leasing, Inc. (“BMT Loan”) as a partial financing to purchase certain assets of Cynergy, Inc. for a total of $75,000. The loan bears interest at an effective rate of 21%, consisting of monthly payments of $910, maturing on March 20, 2017. The loan is collateralized with Cynergy’s assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		22,163		–
On March 25, 2014, the Company received a loan of $25,000 from Navitas Leasing, Inc. (“Navitas Loan”) as a partial financing to purchase certain assets of Cynergy, Inc. for a total of $75,000. The loan bears interest at an effective rate of 21%, consisting of monthly payments of $907, maturing on April 1, 2017. The loan is collateralized with Cynergy’s assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		21,639		–
On February 28, 2014, the Company provided Troy Holdings with a Promissory Note in the amount of $120,000 (the “Telecorp Note”), which was adjusted down to $102,000 for excess liabilities acquired during the acquisition of Telecorp Products, Inc. The Note provides for six (6) equal monthly payments of $20,000 commencing thirty (30) days after the Closing. The Telecorp Note is non-interest bearing except upon default, in which case the interest rate shall be 10% per annum.		67,616		–

On June 11, 2014, DeskFlex refinanced the Accion #2 promissory note and entered into a $15,207 promissory note, bearing interest at 10.25% (“Accion #3”). The promissory note is payable in monthly principal and interest installments of $1,339 per month, maturing on June 20, 2015 (the “Maturity Date”).	14,153	–
Can Capital Loan – Epazz: On November 4, 2013, the Company received net proceeds of $75,381, and a direct payoff of $36,619 on the Rapid Advance Loan listed below, on a loan of $112,000 from CAN Capital Assets Servicing, Inc., (“CAN Capital #4”) bearing an effective interest rate of 53.1%, consisting of 370 daily weekday payments of $552, maturing on November 13, 2014. The loan is collateralized with Epazz’s receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer. On April 23, 2014, we amended this loan agreement to increase the loan balance to $150,000, consisting of additional proceeds of $71,685, and a rolled over loan balance of $78,315, to be paid over the restarted term of the loan via 432 daily weekday payments of $648, maturing on July 7, 2015.	133,425	98,984
On November 20, 2013, DeskFlex entered into a $10,550 demand promissory note bearing interest at 10.25% (“Accion #2”). The promissory note is payable in monthly installments of $1,223 per month, maturing on August 20, 2014 (the “Maturity Date”).	–	9,417
On October 24, 2013, the Company purchased licenses to develop content management software in the total amount of $51,250 from Igenti, Inc., of which $51,250 was financed pursuant to an equipment financing agreement with Baytree National Bank & Trust Company bearing an effective interest rate of 13.235%, consisting of 36 monthly payments of $1,719; maturing on October 23, 2016. The loan is collateralized with the data management software. Igenti subsequently paid a total of $53,500, including $2,250 of penalties, to the Company for future payment for the development of the content management software. Given the nature and status of the software development, no equipment costs have been capitalized.	38,662	47,321
On October 10, 2013, the Company purchased licenses to develop content management software in the total amount of $34,800 from Igenti, Inc., of which $34,800 was financed pursuant to an equipment financing agreement with Financial Pacific Leasing bearing an effective interest rate of 31.625%, consisting of 36 monthly payments of $1,438; maturing on October 9, 2016. The loan is collateralized with the content management software. Igenti retained a total of $1,300 of financing fees and paid the remaining proceeds of $33,500 to the Company for future payment for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	28,220	32,025
Can Capital Loan – MS Health: On June 24, 2013, the Company received a loan of $15,000 from WebBank, c/o NewLogic Business Loans, Inc., (“NewLogic”), which has been renamed to CAN Capital Assets Servicing, Inc (“CAN Capital”) bearing an effective interest rate of 63.9%, consisting of 176 daily weekday payments of $106, maturing on February 19, 2014. The loan is collateralized with MS Health’s receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer. On January 7, 2014, we amended this loan agreement to increase the loan balance to $22,025, consisting of additional proceeds of $18,323, a rolled over loan balance of $3,702 to be paid over the restarted one year term of the loan via daily payments of $113.	13,261	4,202
Can Capital Loan – K9 Bytes: On February 20, 2014, the Company received a loan of $22,283 from WebBank, c/o CAN Capital Assets Servicing, Inc (“CAN Capital”) bearing an effective interest rate of 58.7%, consisting of 308 daily weekday payments of $130, maturing on December 25, 2014. The loan is collateralized with K9 Bytes’ receivables. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.	14,181	–

On May 1, 2013, the Company purchased licenses to develop data management software in the total amount of $51,250 from Igenti, Inc., bearing an effective interest rate of 11%, consisting of 36 monthly payments of $1,674, maturing on April 30, 2016. The loan is collateralized with the data management software. Igenti retained a total of $4,615 of financing fees and paid the remaining proceeds of $46,615 to the Company for future payment to Sveltoz Solutions for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	33,210	41,167
On February 22, 2013, the Company purchased licenses to develop data management software in the total amount of $102,500 from Igenti, Inc., of which $51,250 was financed pursuant to an equipment financing agreement with Baytree National Bank & Trust Company on March 7, 2013 bearing an effective interest rate of 11.48%, consisting of 36 monthly payments of $1,674; maturing on March 6, 2016. The loan is collateralized with the data management software. Igenti retained a total of $3,000 of financing fees and paid the remaining proceeds of $99,500 to the Company for future payment to Sveltoz Solutions for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	28,948	38,361
On February 22, 2013, the Company purchased licenses to develop data management software in the total amount of $102,500 from Igenti, Inc., of which $51,250 was financed with an equipment finance loan from Summit Funding Group, Inc. equipment with a three year loan term consisting of monthly loan payments of $1,828, with $2,078 paid at signing, maturing on February 21, 2016. The loan is collateralized with the data management software. Igenti retained a total of $3,000 of financing fees and paid the remaining proceeds of $99,500 to the Company for future payment to Sveltoz Solutions for the development of the data management software. Given the nature and status of the software development, no equipment costs have been capitalized.	32,010	40,108
On August 10, 2012, the Company purchased $13,870 of equipment with a three year equipment finance loan. The loan bears interest at an effective interest rate of 31.55%, along with monthly principal and interest payments of $585. The loan is collateralized with the purchased equipment. Matures on August 9, 2015.	8,200	10,228
On April 1, 2012, the Company purchased $129,747 of equipment with a three year equipment finance loan. The loan bears interest at an effective interest rate of 8.3%, along with monthly principal and interest payments of $4,078. The loan is collateralized with the purchased equipment. Matures on April 1, 2015.	57,170	78,603
Consideration for the MS Health acquisition included partial proceeds obtained from a $360,800 Small Business Association (“SBA”) loan, bearing interest at fixed and variable rates, maturing on March 27, 2022. The initial interest rate is 5.5% per year for three (3) years, consisting of the Prime Rate in effect on the first business day of the month in which the SBA loan application was received, plus 2.25%. The loan terms then transition to a variable interest rate over the remaining seven (7) years of the ten (10) year maturity term, calculated at 2.25% above the Prime Rate, as adjusted quarterly. The Company must pay principal and interest payments of $3,916 monthly. The SBA Loan is guaranteed by PRMI, K9 Bytes, Desk Flex, Inc., MS Health and the Company, and secured by the assets of MS Health and the Company.	298,043	312,095
Consideration for the MS Health acquisition included an unsecured $100,000 seller financed note payable (“MSHSC Note”), bearing interest at 6% per annum, a ten (10) year amortization, a right of offset, no payments of either principal or interest for two (2) years and equal payments of principal and interest commencing in year three (3), no prepayment penalty, and full payment of all amounts due after five (5) years, maturing March 27, 2022. Pursuant to an amendment to a consulting agreement with the seller on March 23, 2012, the Company agreed to begin to repay principal of $1,000 per month, and had repaid a total of $6,000 during the year ended December 31, 2012. The MSHSC Note is secured by a security interest over the assets of MS Health. We did not purchase and MSHSC agreed to retain and be responsible for any and all liabilities of MSHSC.	103,228	94,000

Pursuant to an asset purchase agreement entered into on October 26, 2011, the Company granted K9 Bytes, Inc., a Florida corporation, a subordinated secured $30,750 promissory note carrying a 6% interest rate, 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 promissory note ($23,017, assuming no additional payments other than those scheduled) is due. The promissory note is secured by a secondary lien on all of the assets of Epazz’s subsidiary, K9 Bytes, Inc., an Illinois corporation formed to house the purchased assets. The promissory note is also personally guaranteed by Shaun Passley, Ph.D., our Chief Executive Officer.		1,544			2,510
Unsecured $50,000 promissory note originated on September 15, 2010 between IntelliSys and Paul Prahl, payable in monthly installments of $970 carries a 6% interest rate, maturing on September 18, 2015. The Company also agreed to provide Mr. Prahl earn-out rights, which provide that he will receive up to a maximum of $13,350 per year for the three calendar years following the Closing (with the first such calendar year beginning on January 1, 2011), based on the revenues generated by IntelliSys during such applicable year, whereas $6,675 is earned if revenues are between $350,000 and $380,000, $10,012 is earned if revenues are between $380,000 and $395,000, or $13,350 is earned if revenues are greater than $395,000 during each relevant year.		8,454			8,186
Unsecured term loan between Epazz and Bank of America, originating on June 15, 2011 bearing interest at 9.5% matures on June 17, 2016. Payments of $1,559 are due monthly.		50,954			60,573
Unsecured promissory note between Epazz and Newtek Finance for $185,000 originating on September 30, 2010 bearing interest at 6% matures on September 30, 2020. Payments of $2,054 are due monthly.		128,699			137,087
The Company raised funds paid pursuant to an asset purchase agreement with K9 Bytes, Inc., a Florida corporation, on October 26, 2011, through a $235,000 Small Business Association (“SBA”) loan from a third party lender (the “Third Party Lender” and the “SBA Loan”). The SBA Loan has a term of ten (10) years; maturing on October 26, 2021, bearing interest at the prime rate plus 2.75% per annum, 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, Ph.D., 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 Dr. 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 Bytes 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 the wholly-owned subsidiary, K9 Bytes, Inc.		187,032			197,062
Total long term debt		1,652,370			1,211,929
Less: current portion		(612,898	)		(354,786	)
Long term debt, less current portion	$	1,039,472		$	857,143

The Company recorded interest expense on long term debts, credit lines and capital leases in the amount of $370,174 and $100,160 for the six months ended June 30, 2014 and 2013, respectively.