UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-KSB




[X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF


THE
SECURITIES EXCHANGE ACT OF 1934




For the
fiscal year ended December 31, 2007




[
 ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF


THE
SECURITIES EXCHANGE


ACT
OF 1934




For the
transition period from ______ to ______





Commission
file number: 333-139117





EPAZZ,
Inc.


(Exact
name of small business issuer as specified in its charter)





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





445
East Ohio, Suite 250


Chicago, IL
60611


(Address
of principal executive offices)





(312)
955-8161


(Registrant's
telephone number)





SECURITIES
REGISTERED PURSUANT TO SECTION 12(B)


OF THE EXCHANGE
ACT:




None




SECURITIES
REGISTERED PURSUANT TO SECTION 12(G)


OF THE EXCHANGE
ACT:





None




Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for
such shorter periods 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 [  ].





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [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
issuer had no revenues for the fiscal year ended December 31, 2007.





The
aggregate market value of the issuer's voting and non-voting common equity held
by non-affiliates computed by reference to the average bid and ask price of such
common equity on the Over-The-Counter Bulletin Board as of March 27, 2008 was
$2,110,937.




At April
8, 2008, there were 39,482,940 shares of the issuer's common stock
outstanding.





Transitional
Small Business Disclosure Format (check one):  Yes
[  ]  No [X].











TABLE
OF CONTENTS




PART
I





ITEM
      1.
            DESCRIPTION
      OF BUSINESS
            4ITEM
      2.
            DESCRIPTION
      OF PROPERTY
            9ITEM
      3.
            LEGAL
      PROCEEDINGS
            9ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
            9




PART
II





ITEM
      5.
            MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
            10ITEM
      6.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            11ITEM
      7
            FINANCIAL
      STATEMENTS
            F-1ITEM
      8.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
            28ITEM
      8A.
            CONTROLS
      AND PROCEDURES
            28ITEM
      8B.
            OTHER
      INFORMATION
            29




PART
III




ITEM
      9.
            DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16(A) OF THE EXCHANGE ACT
            29ITEM
      10
            EXECUTIVE
      COMPENSATION
            31ITEM
      11.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
            32ITEM
      12.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS
            33ITEM
      13.
            EXHIBITS
            33ITEM
      14
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
            34SIGNATURES
            
            35










PART
I




FORWARD-LOOKING
STATEMENTS




ALL
STATEMENTS IN THIS DISCUSSION THAT ARE NOT HISTORICAL ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. 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. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS.   REFERENCES IN
THIS FORM 10-KSB, UNLESS ANOTHER DATE IS STATED, ARE TO DECEMBER 31,
2007.  AS USED HEREIN, THE “COMPANY,” “EPAZZ,” “WE,” “US,” “OUR” AND
WORDS OF SIMILAR MEANING REFER TO EPAZZ, INC., UNLESS OTHERWISE
STATED.




ITEM 1.  DESCRIPTION OF
BUSINESS




EPAZZ,
Inc. 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 EPAZZ 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 used to retain
their relationships with clients, employees, vendors and
partners.





EPAZZ,
Inc. 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.





Effective
May 1, 2005, we affected a 20:1 forward stock split of our issued and
outstanding common stock.  All share amounts listed throughout this
report retroactively take into account the forward split.




-4-


Recent
Events:





On
February 25, 2008, we entered into a non-binding letter of intent (the “Letter
of Intent”) to acquire 100% of the outstanding shares of two proprietary office
efficiency software companies based in Chicago, Illinois (collectively the
“Target Company”).  The total cost of the acquisition of the Target
Company pursuant to the Letter of Intent is $420,000.  The Company
currently hopes to raise approximately $200,000 through the sale of equity, and
plans to borrow the additional $220,000, however, the Company has not received
any of this funding to date, and as such, there can be no assurance that such
funding will be raised on favorable terms, if at all.  The closing of
the acquisition is to occur on April 30, 2008 (the “Closing”), funding
permitting, and the Company is required to have funding in place to complete the
acquisition by April 7, 2008 (the “Funding Date”).  The Company has
paid $10,000 as deposit on the acquisition to date, which amount is refunded to
the Company in the event the Company terminates the Letter of Intent and to the
Target Company, in the event the Target Company terminates the Letter of Intent,
as described below.





The
Letter of Intent can be terminated by the mutual consent of both parties, by the
Company at any time while conducting due diligence, by the Target Company, if
the Company materially breaches any covenant under the Letter of Intent, or by
the Company, if the Target Company breaches any term of the Letter of
Intent.





The
Company does not currently have sufficient cash on hand to complete the
acquisition and is currently taking steps to raise additional funding through
the sale of debt and/or equity securities.  There can be no assurance
that the Company will have sufficient funds to complete the acquisition by the
Closing date or the Funding Date, that the parties will be able to agree to
binding terms for the definitive agreement in connection with the acquisition,
that the funds required for the acquisition will be raised on favorable terms,
if at all, or that such acquisition will be consummated by the
Company.





Our
Product




EPAZZ
BoxesOS v3.0 (Web Infrastructure Operating System) is EPAZZ's flagship product.
It is the core package of EPAZZ’s products and services. EPAZZ BoxesOS
integrates with each organization's back-end systems and provides a customizable
personal information system for each stakeholder.




Services
include:




Single
        sign-on: Provides a powerful single-sign-on with security procedure to
        product users’ information and
  identity.


Course
        Management System: Manage distance, traditional courses and
        Calendar.


Enterprise
        Web Site Content Management: Manage public sites with multi
        contributors.


Integration
        Management Services: Integrated into Enterprise Resource Planning
        (“ERP”) and Mainframes.


Email
        Management: Email server and web
  client.


Instant
        Messenger Services: Instant messaging and
  alerts.


Customer
        Relationship Management: Prospective students and
        alumni.


Calendar/Scheduler
        Management: Event directory, groupware, and personal
        calendar.


Administrative
        Support Services: Online payment
  services.


Business
        Services: Facility Management and Online
    Bookstore.





-5-


BoxesOS
software provides:





Web
Portal Component





BoxesOS
Web Portal Component is a gateway to all of an organization’s online services
and information resources. The Web Portal Component provides a Personal
Information System, which refers to the user's entire online environment - the
user’s resources, information, graphics, color, layout, and organization. All
resources are customizable. The Web Portal Component simplifies organizations’
ability to create and deploy custom web applications with a common graphic user
interface and connectivity to the back-end systems.





Administrative
Content Management





BoxesOS
Content Management Component provides an organization with enterprise level
tools for creating, managing, organizing, archiving and sharing content. Content
can be delivered in many forms such as web pages, emails, polls, documents, web
forms, rich site summaries (“RSS”), and “hot news.” The Content Management
Component enables staff members with little technical skills to create web pages
and processes without having any programming skills.




Work
Hub





Work Hub
provides a host of applications that can empower an organization to increase
productivity while decreasing costs. Work Hub helps to manage work flow
throughout an organization. Senior management is able to view a document for
approval before it is sent out to a client. A Company can view all projects of
the enterprise in one page. Some of the applications in Work Hub are
products/services management, project management, invoice management, time
management, content management and sales management. Work Hub has clear graphic
charts with detail reports on many areas.





Central
Repository





BoxesOS
Central Knowledge Repository is a collection and indexing of shareable content.
Central Knowledge Repository installs a server index application on the Windows
2003 platform to identify an organization’s current knowledge assets. All
knowledge assets will be imported into a storage device. The server index
application will import the knowledge assets into a temporary folder before
moving into a main folder. The server index application will prompt the
organization’s administrators to add detailed information about the knowledge
assets into the database by using a web form. These forms will allow the
administrators to add custom fields; therefore, allowing the organization to add
custom information to the database in the present and at a future date. The
organization would be able to group their knowledge objects by program, course,
subject, topic, users, content, or date.





ViewPoint





ViewPoint
is BoxesOS central communication hub, calendaring, contact management and
scheduling system. ViewPoint works with or can be used as an alternative to MS
Outlook/MS Exchange Server. The web applications provide the institution with an
extensive range of options including communication system email web client and
an email server. Email applications provide features you would find on popular
web-based e-mail providers. ViewPoint provides robust threaded discussion boards
and a “chatting” environment. ViewPoint provides each user with a personal
calendar, which notifies users of scheduling conflicts and appointments
priorities. ViewPoint makes it easy to create group calendars and public
calendars. With the ViewPoint scheduling system users are able to schedule group
meetings together. The scheduling system will view each user's calendar to see
the next available time and date the group can meet.




-6-


Learning
Management System




BoxesOS
My Courses is an extensive application for learning management, and e-learning.
My Courses is an effective means for managing traditional courses, distance
learning courses, and self-paced courses. My Courses is a powerful communication
tool that can be effectively used by students, instructors, employees and
corporate trainers to make information flow easily, clearly and faster. My
Courses provides a robust grade book, powerful authoring content tools, easy to
use drop box, sharable folders, wide-ranging course calendar and many more
features all designed  to provide customization to key stakeholders.
Organizations will be able to train their employees on systems using My Courses
self-paced settings, as well as test candidates on their skill sets before they
are hired.





Single
Sign-on




Single
Sign-on provides organizations the ability to log into multiple systems with a
single unique username and password. The username and password authenticates the
user’s credentials to make sure the person who is accessing the data is
authorized to. BoxesOS uses Microsoft Active Directory Identity Management to
accomplish single sign on. Microsoft Active Directory allows institutions to
centrally manage and share user information. Active Directory also acts as the
single sign on point for bringing systems and applications together. BoxesOS
user management integrates with Active Directory.





Pathways
Real-time Integration





EPAZZ
Pathways is an integration suite enabling real-time connectivity with ERP and
Legacy systems. Pathways integration suite allows organizations to retrieve data
from ERPs and write data back to ERPs in real-time.





Small Business
Market





Businesses
face issues about how to retain their relationships with different stakeholders.
BoxesOS enables businesses to enhance their existing IT systems by connecting
them together and making them work together. Businesses are able to see their
data in a common interface, from their databases and use the data to create
custom applications.





Many of
BoxesOS competitors' products are too costly for small and medium size
businesses. Portal and ERP vendors’ license fees can be beyond the scope of many
small and medium sized businesses budgets. Many businesses do not have a large
IT department to develop portal or web solutions on their own. Businesses
sometimes hire IT consulting firms, which provide them with a portal framework,
but not a total solution, like BoxesOS. When an IT consulting firm is finished
on a particular job businesses need to maintain their own system. BoxesOS
provides a better return on investment because organizations are buying into a
community of users which share the maintenance cost and provide critical user
feedback. BoxesOS decreases the need for 3rd party applications or consulting
firms.





BoxesOS
offers small and medium size businesses with a portal, courseware, website
management, email servers, customer relationship management and e-commerce
applications, which integrates into the business’s back-end systems within 12 to
16 weeks. BoxesOS provides a common user interface; furthermore BoxesOS content
management, workflow engine, and auto-processing enable businesses’ users with
no programming experience to create custom web applications to perform tasks as
processing traveling expenses.





BoxesOS
enables businesses, institutions and associations to create custom application
without spending additional capital on programmers or 3rd party programs.
BoxesOS is a complete solution, which helps organizations avoid the cost of
purchasing 3rd party programs. Most small businesses and small colleges and
universities simply do not have the resources to have a complete IT department.
BoxesOS truly provides a way for companies to decrease their administrative
costs by providing an all-in-one solution at a reasonable cost.




-7-


Sales
& Marketing




EPAZZ
uses telemarketing and email campaigns to meet with key decision makers in order
to demonstrate the significant customer satisfaction, cost savings, and revenue
enhancement benefits they can realize by using the EPAZZ systems.





EPAZZ plans
to contract with independent sales representatives as independent
contractors for IT sales. Independent representatives are independent
contractors who work on a performance basis and are located throughout the
United States. EPAZZ will pay commission on sales. Since the sales teams will be
independent and not employees of EPAZZ we do not plan to pay such sales
representatives salaries, travel expenses or office expenses. Furthermore, EPAZZ
we believe that we will be able to enter into more markets at less cost allowing
us to invest more in product development.





EPAZZ hopes to receive revenues from
the following sources; however, we generated no revenues for the year ended
December 31, 2007:





1.
            Product:
      One time License fee.





2.
            Maintenance:
      Annual support service packages.





3.
            Partnership:
      Access fees, commissions.





4.
            Business
      Services: Subscription fees from relationship programs for universities
      and the business community.





5.
            Technical
      consulting services: Ongoing fees from
upgrades.





6.
            Online
      services: enhanced membership fees and pay-per-use fees from the
      stakeholders.





7.
            License
      Technology: License and royalties for EPAZZ technology in Data Centers for
      providing ASP (Application Service
Providers).




Research
and Development






Over the
previous two years we have issued 1,000,000 Class A Common Shares to software
developers in consideration for research and product development of
BoxesOS.  The Company has spent no other resources on research and
development activities for the fiscal years ended December 31, 2007 and
December 31, 2006.






Employees




Assuming
we begin selling products, we plan to rely on outside consultants in an
attempt to control our costs and expenses. As of December 31, 2007, we employed
one full-time employee, our Chief Executive Officer, Shaun Passley. None of our
employees are covered by a collective bargaining agreement.





Competition





The
environment for our products and services is intensely competitive. Our current
and potential competitors include many large and well capitalized software
companies and many smaller less-known software companies.





We
believe that the principal competitive factors in our market segments include
selection, price, availability, convenience, brand recognition, customer
service, reliability, ease of use, and ability to adapt to changing conditions,
as well as our future customers' overall trust in the entire experience in
transactions with us.




-8-


Our
overall market is intensely competitive, and there are a number of other
competitors that are much larger than us and have significantly greater
resources at their disposal. We believe that our product offerings are
competitive with others in the marketplace; however, we do not have a dominant
market share.





Intellectual
Property





We
received a trademark for “EPAZZ” on March 5, 2002 (Serial Number 75930172).
We regard our trademark, copyrights, domain names, trade dress, trade secrets,
proprietary technologies, and similar intellectual property as important to our
success, and we plan to rely on trademark and copyright law, trade-secret
protection, and confidentiality and/or license agreements with our employees,
customers, partners, and others to protect our proprietary rights.





Policing
unauthorized use of our proprietary rights is inherently difficult, and we may
not be able to determine the existence or extent of any unauthorized use. The
protection of our intellectual property may require the expenditure of
significant financial and managerial resources. Moreover, we cannot be certain
that the steps we take to protect our intellectual property will adequately
protect our rights or that others will not independently develop or otherwise
acquire equivalent or superior technology or other intellectual property
rights.





The
higher education sector needs to serve and find new customers (students), needs
to manage interactions with employees, needs to obey government regulations and
needs to conduct fund raising campaigns. Thus, a product for the higher
education industry can also be customized for businesses, school districts,
government agencies and non-profit organizations. Our current version of BoxesOS
can be deployed at colleges, universities, businesses, school districts,
government agencies and non-profit organizations. In addition to small colleges
and universities, EPAZZ targets businesses’ customers with between 250-2,500
employees. Many of these small colleges and universities and businesses do not
have large IT departments to develop applications on their own. EPAZZ provides
solutions to decrease operating expenses, improve workflow, enhance
communication, enhance online collaboration and manage customers’
relationships.




ITEM 2.  DESCRIPTION OF PROPERTY






The
Company's executive offices are located at 445 E. Ohio St Suite 250 Chicago, IL
60611.  The Company occupies this space at $305 per month sub lease on a
month to month basis.






ITEM 3.  LEGAL PROCEEDINGS




From time
to time, we may become a 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 4.  SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS






None
during the period of this report.




-9-




PART II






ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS






The
Company's Series A Common Stock has been quoted on the Over-the-Counter Bulletin
Board under the symbol "EPAZ" since January 24, 2008. As of April 8, 2008, the
Company had approximately 39,482,940 shares of Series A Common Stock outstanding
held by approximately 60 shareholders of record.






As of April 8, 2008, the Company had approximately
2,500,000 shares of Series B Common Stock outstanding, all of which is held by
the Company’s Chief Executive Officer, Shaun Passley. There is currently no
market for the Company’s Series B Common Stock.




CLASS
A COMMON STOCK, CLASS B COMMON STOCK AND SERIES A PREFERRED 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.
All voting power is vested in the holders of Class A Common Stock, Class B
Common Stock, and Series A Preferred Stock voting together without regard to
class but with votes determined as described below. However, we could in the
future create a series of Preferred Stock with voting rights equal to or greater
than our Class A Common Stock or Class B Common Stock ("Full Voting Preferred
Stock").




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 100 votes per share. Each holder
of Series A Preferred Stock is entitled to one vote per share.





Non-Cumulative
Voting Rights. Our Class A Common Stock and Class B Common Stock and Series A
Preferred Stock, as well as any Full Voting Preferred Stock we may issue, do not
have cumulative voting rights.




Voting by
Class. Holders of our Class A Common Stock and Class B Common Stock and Series A
Preferred Stock, vote as one class.




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 Series A Preferred Stock and none of the shares carries any liability
for further calls. Our Series A Preferred Stock is not convertible into any
other securities. We are not obligated to redeem or retire the Series A
Preferred Stock.




Ranking.
The Series A Preferred Stock ranks senior to the Class A Common Stock and Class
B Common Stock with respect to dividends and upon liquidation.




Dividends






We have
not paid any dividends on our common stock and do not anticipate paying any cash
dividends in the foreseeable future.  We intend to retain any earnings to
finance the growth of the business.  We cannot assure you that we will ever
pay cash dividends.  Whether we pay any cash dividends in the future will
depend on the financial condition, results of operations and other factors that
the Board of Directors will consider.






Sales
of Unregistered Securities






None.




-10-




ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS




Critical
Accounting Policies:





Use of
Estimates.  In preparing financial statements, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities in the balance sheet and revenue and expenses in the income
statement.  Actual results could differ from those
estimates.





Revenue
Recognition.  All revenue is recognized when persuasive
evidence of an arrangement exists, the sale is complete, the price is fixed or
determinable and collectibility is reasonably assured.





Recently Issued Accounting
Pronouncements.  Epazz does not expect the adoption of recently
issued accounting pronouncements to have a significant impact on Epazz results
of operations, financial position or cash flow.





FORWARD
LOOKING STATEMENTS:





The
following discussion of our financial condition and plan of operation should be
read in conjunction with our financial statements and the related notes, and the
other financial information included in this report. This Management’s
Discussion and Analysis or Plan of Operation describes the matters EPAZZ
considers to be important to understanding EPAZZ’s history, technology, current
position, financial condition and future plans. Our fiscal year begins on
January 1 and ends on December 31.





The
following discussion includes forward looking statements and uncertainties,
including plans, objectives, goals, strategies, financial projections as well as
known and unknown uncertainties. The actual results of our future performance
may differ materially from the results anticipated in these forward-looking
statements. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we can not guarantee future results,
levels of activity, performance or achievement.





PLAN OF
OPERATION




During
the next twelve months, we expect to take the following steps in connection with
the further development of our business and the implementation of our plan of
operations:




·We plan to seek out opportunities to sell our software to clients.
      We plan to raise additional capital though the sale of additional equity
      or the placement of debt. The proceeds of the additional financing will be
      used solely for working capital to assist in the payment of expenses such
      as salaries, professional services and overhead cost and hopefully to
      affect the purchase of the Target Company described above, of which there
      can be no assurance.





·We intend to implement our sales and marketing efforts by preparing
      sales materials and by management’s attendance at various industry
      conferences and meeting with potential customers. We plan to build
      relationships with educational institutions across the United States. We
      believe this strategy will be an important part of our early
      growth.




·We may begin to review potential acquisitions, such as the proposed
      acquisition of the Target Company, and seek investment partners in order
      to raise the necessary funds to acquire any operating business. Such
      partners may include banks, investment funds and broker-dealers, and
      management intends to utilize its contacts among these entities to
      facilitate such a relationship. We have no potential investment partners
      at this time nor have we entered into any discussions with any such
      potential partners. The funding of the cash required to consummate any
      acquisition will likely consist of a private placement of debt and/or our
      equity securities possibly through the assistance of a broker dealer. We
      may also use our common stock or securities that are convertible into
      shares of our common stock and we believe that such a placement would not
      result in any change in our control. However, the specific amount, timing
      and terms of any such placement will not be known until a purchase
      agreement has been executed by us and is reviewed by any potential
      investment partner.









-11-


·We plan to continue to seek out sales opportunities. In addition,
      we plan to continue to pursue potential acquisitions and if we execute a
      purchase agreement to acquire a business we will work to raise the
      necessary financing to consummate the
  acquisition.





·We intend to actively recruit new board members with appropriate
      experience and hire a corporate
staff.








We
believe we can satisfy our cash requirements for the next two months with our
current cash on hand. As such, continuing operations and completion of our plan
of operation, including the proposed purchase of the Target Company, as
described above, is subject to attaining adequate revenue. 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 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 goal of profit, revenue and
growth.




We
anticipate that our operational as well as general and administrative expenses
for the next 12 months will total approximately $150,000, not including the
significant funds we will need to raise to complete the acquisition of the
Target Company, which there can be no assurance will be raised. In the event we
are not successful in reaching our initial revenue targets, additional funds may
be required, and we would then not be able to proceed with our business plan for
the development and marketing of our software. Should this occur, we would
likely seek additional financing to support the continued operation of our
business. We anticipate that depending on market conditions and our plan of
operations, we would incur operating losses in the foreseeable future. We base
this expectation, in part, on the fact that we may not be able to generate
enough gross profit from sales to cover our operating expenses.




-12-


RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007, AS COMPARED TO THE YEAR
ENDED DECEMBER 31, 2006





For the
year ended December 31, 2007, we had revenue of $0 compared to revenue of
$11,416 for the year ended December 31, 2006. Revenue decreased in 2007 as
compared to 2006 due to no projects being completed in 2007.





Operating
expenses for the year ended December 31, 2007 totaled $135,657 compared to
$624,506 for 2006, a decrease of $488,849 or 78.3%. Operating expenses decreased
in 2007 as compared to 2006 primarily as a result of the $530,988 decrease in
general and administrative expenses, offset by the $43,677 increase in cost of
revenue.





We had
cost of revenue of $44,335 for the year ended December 31, 2007 compared to cost
of revenue of $658 for the year ended December 31, 2006, an increase of $43,677
from the prior year.  This increase in cost of revenue is primarily
due to our redesign of BoxesOS for the general business community instead of
such software only being tailored towards colleges.





General
and administrative expenses decreased by $530,988 or 85.4% to $90,701 for the
year ended December 31, 2007 compared to general and administrative expenses of
$621,689 for the year ended December 31, 2006.  This decrease in
general and administrative expenses is due to only limited marketing of BoxesOS
being undertaken during the year ended December 31, 2007, compared to the year
ended December 31, 2006, when the Company undertook more significant marketing
activities.





We had
depreciation expense of $621 for the year ended December 31, 2007 compared to
$2,159 for the year ended December 31, 2006.





Interest
expense was $17,020 for the year ended December 31, 2007 compared to $5,994 for
2006, an increase of $11,026 or 184% from the prior period. Interest expense
increased for the year ended December 31, 2007 because we borrowed additional
funds from our CEO and against a bank line of credit during the year ended
December 31, 2007, as described below.





We had a
net loss of $152,658 for the year ended December 31, 2007 compared to a net loss
of $618,989 for the year ended December 31, 2006.





LIQUIDITY
AND CAPITAL RESOURCES





We had
cash of $3,016 as of December 31, 2007.





We had
negative working capital of $111,967 and a total accumulated deficit of
$1,673,203 as of December 31, 2007.





We had
net cash used in operating activities of $140,501 for the year ended December
31, 2007, which was mainly due to $152,658 of net loss, offset by $11,536 of
change in accounts payable and accrued liabilities.





We had
$1,242 of net cash used in investing activities for the year ended December 31,
2007 for the purchase of fixed assets.





We had
$139,378 of net cash provided by financing activities during the year ended
December 31, 2007, which represented $100,000 of borrowing from debt and $42,433
of proceeds from loans payable to related parties, offset by $3,055 of repayment
of debt.





On June
5, 2007, we obtained a line of credit of $100,000 from a bank.  The
outstanding balance on the line of credit bears interest at prime plus 4.5%
(9.75% as of March 27, 2008, with the prime rate at 5.25% as of that date),
resetting every January 1, April 1, July 1, and October 1, that the line of
credit is outstanding, and expiring on July 5, 2010.  Interest is due
monthly.  Combined equal installments of principal and interest are to
be paid monthly beginning July 5, 2010 until June 5, 2014.  We agreed
pursuant to the line of credit to pay a late fee equal to 4% of any payment due
under the line of credit which is more than fifteen days late.




-13-


We also
borrow from our Chief Executive Officer, Shaun Passley and other related parties
periodically under a verbal agreement.  The loans bear interest at 15%
interest.  At December 31, 2007, the outstanding balance was
$92,235.





We have
no current commitment from our officers and Directors or any of our shareholders
to supplement our operations or provide us with financing in the future. If we
are unable to raise additional capital from conventional sources and/or
additional sales of stock in the future, we may be forced to curtail or cease
our operations. Even if we are able to continue our operations, the failure to
obtain financing could have a substantial adverse effect on our business and
financial results.





In the
future, we may be required to seek additional capital by selling debt or equity
securities, selling assets, or otherwise be required to bring cash flows in
balance when we approach a condition of cash insufficiency. The sale of
additional equity or debt securities, if accomplished, may result in dilution to
our then shareholders. We provide no assurance that financing will be available
in amounts or on terms acceptable to us, or at all.





RISK
FACTORS




Any
investment in our common stock involves a high degree of risk. Investors should
carefully consider the risks described below and all of the information
contained in this report before deciding whether to make an equity investment in
our Company. Our business, financial condition or results of operations could be
materially adversely affected by these risks if any of them actually occur. Some
of these factors have affected our financial condition and operating results in
the past or are currently affecting us.




RISKS
RELATED TO OUR BUSINESS





We
will need to raise additional funds in the future to continue our operations and
these funds may not be available on acceptable terms or at all. Failure to raise
additional funds could require us to substantially reduce or terminate our
operations.





We
anticipate raising additional funds through public or private financing,
strategic relationships or other arrangements in the near future to support our
business operations; however we currently do not have commitments from third
parties for additional capital. We currently anticipate that we will only be
able to continue our business operations for the next two (2) months with our
current cash on hand and will need approximately $150,000 to continue our
operations for the next 12 months, not including any funds we will need in
connection with the acquisition of the Target Company.  We cannot be
certain that any such financing will be available on acceptable terms, or at
all, and our failure to raise capital when needed could limit our ability to
continue and expand our business. We intend to overcome the circumstances that
impact our ability to remain a going concern through a combination of the
commencement of additional revenues, with interim cash flow deficiencies
being addressed through additional equity and debt financing. Our ability to
obtain additional funding in year 2008 and thereafter will determine our ability
to continue as a going concern. There can be no assurances that these plans for
additional financing will be successful. Failure to secure additional financing
in a timely manner and on favorable terms if and when needed in the future could
have a material adverse effect on our financial performance, results of
operations and stock price and require us to implement cost reduction
initiatives and curtail operations. Furthermore, additional equity financing may
be dilutive to the holders of our common stock, and debt financing, if
available, may involve restrictive covenants, and strategic relationships, if
necessary to raise additional funds, and may require that we relinquish valuable
rights.





We will require a significant amount
of additional financing to complete our planned Target Company
acquisition.




On
February 25, 2008, we entered into a non-binding letter of intent (the “Letter
of Intent”) to acquire 100% of the outstanding shares of two proprietary office
efficiency software companies based in Chicago, Illinois (collectively the
“Target Company”).  The total cost of the acquisition of the Target
Company pursuant to the Letter of Intent is $420,000.   We will need
to raise additional funds in order to acquire the Target Company. Any required
additional financing may not be available on terms acceptable to us, or at all.
If we raise additional funds by issuing equity securities, you may experience
significant dilution of your ownership interest, and the newly-issued securities
may have
rights senior to those of the holders of our common stock. If we raise
additional funds by obtaining loans from third-parties, the terms of those
financing arrangements may include negative covenants or other restrictions on
our business that could impair our operational flexibility, and would also
require us to fund additional interest expense. If additional financing is not
available when required or is not available on acceptable terms, we may be
unable to successfully complete the acquisition of the Target Company, which
could materially adversely affect our software and services offerings, revenue,
results of operations and financial condition. We have not currently raised any
funds in connection with the planned purchase of the Target
Company.





-14-


If
we are deemed to be a “shell company,” shareholders who hold unregistered shares
of our common stock will be subject to resale restrictions pursuant to Rule
144.





Pursuant
to Rule 144 of the Securities Act of 1933, as amended (“Rule 144”), a “shell
company” is defined as a company that has no or nominal operations; and, either
no or nominal assets; assets consisting solely of cash and cash equivalents; or
assets consisting of any amount of cash and cash equivalents and nominal other
assets.  We do not currently believe that we are a “shell company”
however, we may be deemed to be a “shell company.” If we are deemed to be a
“shell company” pursuant to Rule 144, sales of our securities pursuant to Rule
144 will not be able to be made until 1) we have ceased to be a “shell company;
2) we are subject to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, and have filed all of our required periodic reports for a period of
one year; and a period of at least twelve months has elapsed from the date “Form
10 information” has been filed with the Commission reflecting the Company’s
status as a non-“shell company.”  Because none of our securities will
be able to be sold pursuant to Rule 144, until at least a year after we cease to
be a “shell company” (as described in greater detail above), any securities we
issue to consultants, employees, in consideration for services rendered or for
any other purpose will have no liquidity in the event we are deemed to be a
“shell company” until and unless such securities are registered with the
Commission and/or until a year after we cease to be a “shell company” and have
complied with the other requirements of Rule 144, as described
above.  As a result, it may be harder for us to fund our operations
and pay our consultants with our securities instead of
cash.  Furthermore, it will be harder for us to raise funding through
the sale of debt or equity securities unless we agree to register such
securities with the Commission, which could cause us to expend additional
resources in the future.  If we are deemed a “shell company,” it could
prevent us from raising additional funds, engaging consultants using our
securities to pay for any acquisitions, which could cause the value of our
securities, if any, to decline in value or become
worthless.





We
have a limited operating history on which to evaluate our business which makes
it difficult to predict future operating results.




Our
business prospects are difficult to predict because of our limited operating
history, unproven business strategy and unproven product. Since our inception in
March 2000, it has been our business plan to design, develop and distribute our
sole product - BoxesOS. BoxesOS is enterprise software for higher education
institutions and enterprises. BoxesOS has yet to be introduced to the mainstream
market and there is no guarantee that our product will be able to generate any
significant revenues. To the extent that we are able to implement our business
plan, our business will be subject to all of the problems that typically affect
a business with a limited operating history, such as unanticipated expenses,
capital shortfalls, delays in design and manufacturing and possible cost
overruns.





We
have a history of losses and we anticipate that our expenses will dramatically
increase as we execute our business plan. Thus, we will likely experience
continued losses in the near future and may not ever achieve or maintain
profitability.





EPAZZ has
yet to initiate significant sales or demonstrate that it can generate sufficient
sales to become profitable. EPAZZ incurred significant net losses since its
inception in March 2000, including a net loss of $152,658 and $618,988 for the
years ended December 31, 2007 and 2006, respectively. As of December 31, 2007,
EPAZZ had an accumulated deficit of $1,673,203. We expect to continue to incur
operating losses in the future. Furthermore, we expect operating expenses to
increase as we seek to update our product, build relationships with future
customers, build a distribution channel for our products, continue design and
development projects, and increase administrative activities to support our
planned growth. We expect to need approximately $150,000 to sustain our
operations for the next 12 months, not including the purchase of the Target
Company. We anticipate only being able to continue our operations for the next
two months if no additional funding is raised.  The extent of our
future operating losses and the
timing of our profitability are highly uncertain, we may never generate
sufficient revenues to achieve or sustain profitability.





-15-





Our
independent registered public accountants indicate that we have conditions that
raise substantial doubts that we can continue as a going concern, which may
negatively affect our ability to raise additional funds and otherwise operate
our business. If we fail to raise sufficient capital, we will not be able to
implement our business plan, we may have to liquidate our business, and you may
lose your investment.




GBH CPAs,
PC, our independent registered public accountants, has added an explanatory
paragraph to their audit opinion issued in connection with the financial
statements contained herein indicating that it has substantial doubt about our
ability to continue as a going concern given our recurring losses from
operations and deficiencies in working capital and equity. This opinion could
materially limit our ability to raise additional funds by issuing new debt or
equity securities or otherwise. If we fail to raise sufficient capital, we will
not be able to implement our business plan, we may have to liquidate our
business and you may lose your investment. You should consider our independent
registered public accountants’ comments when determining if an investment in us
is suitable.




Shares
eligible for future sale may adversely affect the market price of our common
stock, as the future sale of a substantial amount of outstanding stock in the
public marketplace could reduce the price of our common
stock. Additionally, shares issued in our planned offering will cause
immediate and substantial dilution to our existing shareholders.




Shares
eligible for future sale may have an adverse effect on the market price of our
common stock by creating an excessive supply. We currently plan to undertake an
offering of our securities in connection with the planned acquisition of the
Target Company, which would cause a significant increase in the number of
outstanding shares which we currently have, and would cause immediate and
substantial dilution to our existing shareholders.  Additionally in
the future, shareholders, including our President and Chief Executive Officer,
and any shareholders who purchase shares in the planned offering may be eligible
to sell all or some of their shares of common stock by means of ordinary
brokerage transactions in the open market pursuant to Rule 144, promulgated
under the Securities Act, subject to certain limitations. In general, pursuant
to Rule 144, if Epazz remains a reporting company, a non “affiliate” stockholder
(or stockholders whose shares are aggregated) who has satisfied a six month
holding period may sell their securities free of any volume limitations. Rule
144 also permits, under certain circumstances, the sale of securities, with
certain volume limitations, by an affiliate, if the Company is a reporting
company, the “affiliate” has held such shares for six months, and the Company
continues to file periodic reports with the commission.  The rules are
different however for non-reporting companies in that non-“affiliate” and
“affiliate shareholders must hold their securities for at least a year, and no
sales by “non-affiliates” are able to be made unless certain requirements are
met, including, but not limited to that there is current public information
available regarding the Company and the “affiliate” complies with the applicable
volume limitations.  The disclosures in this paragraph assume for all
purposes that the Company is not a “shell company,” as described above. Any
substantial sale of common stock pursuant to any resale prospectus or Rule 144
may have an adverse effect on the market price of our common stock by creating
an excessive supply.





Our
business is based on a single unproven product, and we may not be able to
generate significant revenue if our product fails.





We have
one product line. Our business and ability to generate revenue will depend on
our ability to successfully develop and commercialize our only product type —
our BoxesOS software — which currently has a very limited market. We may
experience unforeseen difficulties during our development of a market for our
product, which may require us to expend a significant amount of resources. Any
problems with the product could affect the commercial viability of the
product.





Further,
even if we are able to release our product into the broad market, there can be
no assurance that it will be well-received by the market or that it will
generate any substantial revenue. Accordingly, our failure to generate revenue
from our sole product type will have a significant negative impact on our
business and results of operation, and shareholders in our company may lose all
or part of their investment.




-16-


Our
success depends in part upon our ability to develop new products and enhance our
existing products. Failure to successfully introduce new or enhanced products to
the market may adversely affect our business.




We may
not be successful in achieving market acceptance of our recently released
products, any other new products that we develop or any enhanced versions of our
existing products that we introduce. Any failure or delay in diversifying our
existing product offerings could harm our business, results of operations and
financial condition.




Our
future success depends in part on our ability to develop enhancements to our
existing products and to introduce new products that keep pace with rapid
technological developments. We must continue to modify and enhance our products
to keep pace with changes in technologies. We may not be successful in
developing these modifications and enhancements or in bringing them to market in
a timely manner. In addition, uncertainties about the timing and nature of new
technologies and platforms or modifications to existing platforms or
technologies, could increase our research and development expenses. Any failure
of our products to operate effectively with future network platforms and
technologies could reduce the demand for our products, result in customer
dissatisfaction and harm our business.  Additionally, accelerated
product introductions and short product life cycles require high levels of
expenditures for research and development that could adversely affect our
operating results.





Our
operating results are difficult to predict and fluctuate substantially from
quarter to quarter and year to year, which may increase the difficulty of
financial planning and forecasting and may result in declines in our stock
price.




Our
future operating results may vary from our past operating results, are difficult
to predict and may vary from year to year due to a number of factors. Many of
these factors are beyond our control. These factors include:






·the potential delay in recognizing revenue from transactions due to
      revenue recognition ruleswhich
      we must follow;





·customer decisions to delay implementation of our
      products;





·any seasonality of technology
purchases;





·demand for our products, which may fluctuate
      significantly;





·the timing of new product introductions and product enhancements by
      both EPAZZ and ourcompetitors;





·changes in our pricing policy;
and





·the publication of opinions concerning us, our products or
      technology by industry analysts.


As a
result of these and other factors, our operating results for any fiscal year
will be subject to significant variation, and we believe that period-to-period
comparisons of our results of operations are not necessarily meaningful in terms
of their relation to future performance. You should not rely upon these
comparisons as indications of future performance. It is likely that our future
quarterly and annual operating results from time to time will not meet the
expectations of public market analysts or investors, which could cause a drop in
the price of our common stock.





Defects or errors in our software
could adversely affect our reputation, result in significant costs to us and
impair our ability to sell our software.




If our
software is determined to contain defects or errors, our reputation could be
materially adversely affected, which could result in significant costs to us and
impair our ability to sell our software in the future. The costs we would incur
to correct product defects or errors may be substantial and would materially
adversely affect our operating results. After the release of our software,
defects or errors may be identified from time to time by our internal team and
by our clients. Such defects or errors may occur in the future.




-17-


Any
defects in our applications, or defects that cause other applications to
malfunction or fail, could result in:





·lost or delayed market acceptance and sales of our
      software;





·loss of clients;





·product liability suits against
us;





·diversion of development
resources;





·injury to our reputation;
and





·increased maintenance and warranty
costs.




Our
market is subject to rapid technological change and if we fail to continually
enhance our products and services in a timely manner, our revenue and business
would be harmed.




We must
continue to enhance and improve the performance, functionality and reliability
of our products and services in a timely manner. The software industry is
characterized by rapid technological change, changes in user requirements and
preferences, frequent new product and services introductions embodying new
technologies, and the emergence of new industry standards and practices that
could render the our products and services obsolete. Our failure to continually
enhance our products and services in a timely manner would adversely impact our
business and prospects. Our success will depend, in part, on our ability to
internally develop and license leading technologies to enhance our existing
products and services, to develop new products and services that address the
increasingly sophisticated and varied needs of our future customers, and to
respond to technological advances and emerging industry standards and practices
on a cost-effective and timely basis. Our product development efforts with
respect to ourBoxesOSproduct is expected to continue to require substantial investments by
EPAZZ, and we may not have sufficient resources to make the necessary
investments. If we are unable to adapt our products and services to changing
market conditions, customer requirements or emerging industry standards, we may
not be able to maintain or increase our revenue and expand our
business.





Our
management has no senior management experience in the software industry which
may hinder our ability to manage our operations.





Our
Company is a new software company and our management has limited experience
managing in our industry and our management and employees have limited
experience developing and selling software. The lack of experience in software
design and sales may make it difficult to compete against companies that have
more senior management and design experience. We expect to add additional key
personnel in the future. Our failure to attract and fully integrate our new
employees into our operations or successfully manage such employees could have a
material adverse effect on our business, financial condition and results of
operations.





Our
lack of product diversification means that any decline in price or demand for
our products and services would seriously harm our business.




Our
BoxesOS product and related services have accounted for substantially all of our
revenue and this situation is expected to continue for the foreseeable future.
Consequently, a decline in the price of, or demand for BoxesOS or related
services, or its failure to achieve broad market acceptance, would seriously
harm our business.




Significant
unauthorized use of our products would result in material loss of potential
revenues and our pursuit of protection for our intellectual property rights
could result in substantial costs to us.




EPAZZ’s
software is planned to be licensed to customers under license agreements, which
license may include provisions prohibiting the unauthorized use, copying and
transfer of the licensed program. Policing unauthorized use of our products will
likely be difficult and, while we are unable to determine the extent to which
piracy of our software products exists, any significant piracy of our products
could materially and adversely affect our business, results
of operations and financial condition. In addition, the laws of some foreign
countries do not protect the proprietary rights to as great an extent as do the
laws of the United States and our means of protecting our proprietary rights may
not be adequate.




-18-


We
may face product liability claims from our future customers which could lead to
additional costs and losses to the Company.




Our
license agreements with our future customers will contain provisions designed to
limit our exposure to potential product liability claims. It is possible,
however, that the limitation of liability provisions contained in the license
agreements may not be effective under the laws of some jurisdictions. A
successful product liability claim brought against EPAZZ could result in payment
by EPAZZ of substantial damages, which would harm its business, operating
results and financial condition and cause the price of its common stock to
fall.




We may not be able to respond to
technological changes with new software applications, which could materially
adversely affect our sales and profitability.





The
markets for our software applications are characterized by rapid technological
changes, changing customer needs, frequent introduction of new software
applications and evolving industry standards. The introduction of software
applications that embody new technologies or the emergence of new industry
standards could make our software applications obsolete or otherwise
unmarketable. As a result, we may not be able to accurately predict the
lifecycle of our software applications, which may become obsolete before we
receive any revenue or the amount of revenue that we anticipate receiving from
them. If any of the foregoing events were to occur, our ability to retain or
increase market share could be materially adversely affected.




To be
successful, we need to anticipate, develop and introduce new software
applications on a timely and cost-effective basis that keep pace with
technological developments and emerging industry standards and that address the
increasingly sophisticated needs of our future customers and their budgets. We
may fail to develop or sell software applications that respond to technological
changes or evolving industry standards, experience difficulties that could delay
or prevent the successful development, introduction or sale of these
applications or fail to develop applications that adequately meet the
requirements of the marketplace or achieve market acceptance. Our failure to
develop and market such applications and services on a timely basis, or at all,
could materially adversely affect our sales and profitability.





Our failure to offer high quality
customer support services could harm our reputation and could materially
adversely affect our sales of software applications and results of
operations.




Our
future customers, if any, will depend on us to resolve implementation, technical
or other issues relating to our software. A high level of service is critical
for the successful marketing and sale of our software. If we do not succeed in
helping our customers quickly resolve post-deployment issues, our reputation
could be harmed and our ability to make new sales or increase sales to customers
could be damaged.





We
expect to rely on off-shore independent contract service providers and, as a
result, will be exposed to potential service problems from those
providers.





Certain
company functions, such as software development, will be provided through
off-shore contract providers. Any material disruption or slowdown in service
resulting from telephone or Internet failures, power or service outages, natural
disasters, labor disputes, or other events could make it difficult or impossible
to provide adequate off-shore services. Furthermore, we may be unable to attract
and retain an adequate number of competent software developers, which is
essential in creating a favorable customer experience. In addition, because our
outsourced software development is located in India, we may experience
difficulties in training or monitoring the level of support provided. If we are
unable to continually provide adequate and trained staffing for our software
development operations, our reputation could be seriously harmed and our sales
could decline. Further, we cannot assure you that our needs will not exceed our
capacities. If this occurs, we could experience delays in developing software
and addressing customer concerns. Because our success depends in large part on
keeping our future customers satisfied, any failure to provide satisfactory
levels of software development would likely impair our reputation and we could
lose customers.





-19-


Our
business could be harmed if our independent third party contractors violate
labor or other laws.





Once we
are able to retain them, our independent contract third party contractors may
not operate in compliance with applicable United States and foreign laws and
regulations, including labor practices. If one of any of our possible future
independent contractors violates labor or other laws or diverges from those
labor practices generally accepted as ethical in the United States, it could
result in adverse publicity for us, damage our reputation in the United States
or render our conduct of business in a particular foreign country undesirable or
impractical, any of which could harm our business.





Our
future success depends on our ability to respond to changing customer demands,
identify and interpret trends and successfully market new products.





The
software industry is subject to rapidly changing customer demands, particularly
in the “enterprise” market that we intend to market our product. Accordingly, we
must identify and interpret trends and respond in a timely manner. Demand for
and market acceptance of new products are uncertain and achieving market
acceptance for new products generally requires substantial product development
and marketing efforts and expenditures. If we do not meet changing customer
demands or are unable to develop products that appeal to current customer
demands, our results of operations will be negatively impacted. In addition, we
will have to make decisions about product development and marketing expenditures
in advance of the time when customer acceptance can be determined. If we fail to
anticipate, identify or react appropriately to changes and trends or are not
successful in marketing our products, we could experience excess inventories,
higher than normal markdowns or an inability to sell our products once and if
the products are available.





Our
business and the success of our products could be harmed if we are unable to
establish and maintain a brand image.





We
believe that establishing the EPAZZ brand is critical to achieving acceptance of
our software products and to establishing key strategic relationships. As a new
company with a new brand, we believe that we have little to no brand recognition
with the public. We may experience difficulty in establishing a brand name that
is well-known and regarded, and any brand image that we may be able to create
may be quickly impaired. The importance of brand recognition will increase when
and if our competitors create products that are similar to our products. Even if
we are able to establish a brand image and react appropriately to changes in
customer preferences, customers may consider our brand image to be less
prestigious or trustworthy than those of our larger competitors. Our results of
operations may be affected in the future should our products even be
successfully launched.





We
may fail in introducing and promoting our products to the software market, which
will have an adverse effect on our ability to generate revenues.




Demand
for and market acceptance of new products such as BoxesOS is inherently
uncertain. We expect that our revenue, if and when generated, will come from the
sale of our products, and our ability to sell our products will depend on
various factors, including the eventual strength, if any, of our brand name,
competitive conditions and our access to necessary capital. If we fail to
introduce and promote our products, we may not be able to generate any
significant revenues. In addition, as part of our growth strategy, we intend to
expand our product offerings to introduce products in multiple categories. This
strategy may however prove unsuccessful and our association with failed products
could impair our brand image. Introducing and achieving market acceptance for
these products will require, among other things:





·the establishment of our
brand;





·the development and performance to our planned product
      introductions;





·the establishment of key relationships with customers for our
      software products; and





·substantial marketing and product development efforts and
      expenditures to create and sustain customer
  demand.







-20-





We
are likely to depend upon a relatively small group of customers for a large
portion of our sales making us vulnerable to significant decreases in
revenue.





While we
do not currently have any customers, our future customers are not likely to have
a contractual obligation to purchase our products once they are available and we
cannot be certain that we will be able to retain major customers. We are likely
to rely at all stages of our business on certain significant customers. If we
lose a major customer in the future, experience a significant decrease in sales
to a major customer or are unable to collect the accounts receivable of a major
customer, our business could be harmed.





We
will face intense competition, including competition from companies with
significantly greater resources than ours, and if we are unable to compete
effectively with these companies, our business could be harmed.





We will
face intense competition in the software industry from other established
companies. We have a very limited market for our product, product sales, brand
recognition, manufacturing or brand equity. Almost all of our competitors have
significantly greater financial, technological, engineering, manufacturing,
marketing and distribution resources than we do. Their greater capabilities in
these areas will enable them to better withstand periodic downturns in the
software industry, compete more effectively on the basis of price and production
and more quickly develop new products. In addition, new companies may enter the
markets in which we expect to compete, further increasing competition in the
software industry.





We
believe that our ability to compete successfully will depend on a number of
factors, including the functionality of our products once marketed and the
strength of our brand, once established, as well as many factors beyond our
control. We may not be able to compete successfully in the future, and increased
competition may result in price reductions, reduced profit margins, loss of
market share and an inability to generate cash flows that are sufficient to
maintain or expand our development and marketing of new products.





We
depend on key personnel to manage our business effectively in a rapidly changing
market, and if we are unable to retain existing personnel, our business could be
harmed.





Our
future success depends upon the continued services of key employees especially
Shaun Passley, our President and Chief Executive Officer. The loss of the
services of Mr. Passley or any other key employee could harm us. Our future
success also depends on our ability to identify, attract and retain additional
qualified personnel. Competition for employees in our industry is intense and we
may not be successful in attracting and retaining such personnel.





The
disruption, expense and potential liability associated with unanticipated future
litigation against us could have a material adverse effect on our business,
results of operations and financial condition.





We may be
subject to various legal proceedings and threatened legal proceedings from time
to time as part of our ordinary business. We are not currently a party to any
legal proceedings. However, any unanticipated litigation in the future,
regardless of merits, could significantly divert management’s attention from our
operations and result in substantial legal fees to us. Further, there can be no
assurance that any actions that have been or will be brought against us will be
resolved in our favor or, if significant monetary judgments are rendered against
us, that we will have the ability to pay such judgments. Such disruptions, legal
fees and any losses resulting from these claims could have a material adverse
effect on our business, results of operations and financial
condition.




Protection of our intellectual
property is limited, and any misuse of our intellectual property by others could
materially adversely affect our sales and results of
operations.




Proprietary
technology in our software is important to our success. To protect our
proprietary rights, we plan to rely on a combination of patents, copyrights,
trademarks, trade secrets, confidentiality procedures and contractual
provisions. We do not own any issued patents and we have not emphasized patents
as a source of significant competitive advantage. We have sought to protect our
proprietary technology under laws affording protection for trade secrets,
copyright and trademark protection of our software, products and developments
where available and appropriate. In the event we are issued patents, our issued
patents may not provide us with any competitive advantages or may be challenged
by third parties, and the patents of others may seriously impede our ability to conduct
our business. Further, any patents issued to us may not be timely or broad
enough to protect our proprietary rights.




-21-


We also
have one registered trademark in the U.S. for our EPazz mark. Although we
attempt to monitor use of and take steps to prevent third parties from using our
trademark without permission, policing the unauthorized use of our trademark is
difficult. If we fail to take steps to enforce our trademark rights, our
competitive position and brand recognition may be diminished.




We plan
to protect our software, trade secrets and proprietary information, in part, by
requiring all of our employees to enter into agreements providing for the
maintenance of confidentiality and the assignment of rights to inventions made
by them while employed by us. We also enter into non-disclosure agreements with
our consultants to protect our confidential and proprietary information. There
can be no assurance that our confidentiality agreements with our employees,
consultants and other third parties will not be breached, that we will be able
to effectively enforce these agreements, have adequate remedies for any breach,
or that our trade secrets and other proprietary information will not be
disclosed or otherwise be protected. Furthermore, there also can be no assurance
that others will not independently develop technologies that are similar or
superior to our technology or reverse engineer our products.




Protection
of trade secrets and other intellectual property rights in the markets in which
we operate and compete is highly uncertain and may involve complex legal and
scientific questions. The laws of countries in which we operate may afford
little or no protection to our trade secrets and other intellectual property
rights. Policing unauthorized use of our trade secret technologies and proving
misappropriation of our technologies is particularly difficult, and we expect
software piracy to continue to be a persistent problem. Piracy of our products
represents a loss of revenue to us. Furthermore, any changes in, or unexpected
interpretations of, the trade secret and other intellectual property laws in any
country in which we operate may adversely affect our ability to enforce our
trade secret and intellectual property rights. Costly and time-consuming
litigation could be necessary to enforce and determine the scope of our
confidential information and trade secret protection. If we are unable to
protect our proprietary rights or if third-parties independently develop or gain
access to our or similar technologies, our competitive position and revenue
could suffer.





We
may incur significant litigation expenses protecting our intellectual property
or defending our use of intellectual property, which may have a material adverse
effect on our cash flow and results of operations.





If our
efforts to protect our intellectual property rights are inadequate to prevent
imitation of our products by others or to prevent others from seeking to block
sales of our products as a violation of the intellectual property rights of
others, we could incur substantial significant legal expenses in resolving such
disputes.





Our
competitors may develop similar, non-infringing products that adversely affect
our ability to generate revenues.





Our
competitors may be able to produce a software product that is similar to our
product without infringing on our intellectual property rights. Since we have
yet to establish any significant brand recognition for our product, we could
lose a substantial amount of business due to competitors developing products
similar to BoxesOS software product. As a result, our future growth and ability
to generate revenues from the sale of our product could suffer a material
adverse effect.




Claims that we misuse the
intellectual property of others could subject us to significant liability and
disrupt our business, which could materially adversely affect our results of
operations and financial condition.




Because
of the nature of our business, we may become subject to material claims of
infringement by competitors and other third-parties with respect to current or
future software applications, trademarks or other proprietary rights. Our
competitors, some of which may have substantially greater resources than us and
have made significant investments in competing technologies or products, may
have, or seek to apply for and obtain, patents that will prevent, limit or
interfere with our ability to make, use and sell our current and future
products, and we may not be successful in defending allegations of infringement
of these patents. Further, we may not be aware of all of the patents and other
intellectual property rights owned by third-parties that may be potentially
adverse to our interests. We may need to resort to litigation to enforce our
proprietary rights or to determine the scope and validity of a third party’s
patents or other proprietary rights, including whether any of our products or
processes infringe the patents or other proprietary rights of third-parties. The
outcome of any such proceedings is uncertain and, if unfavorable, could
significantly harm our business. If we do not prevail in this type of
litigation, we may be required to:









-22-


·pay damages, including actual monetary damages, royalties, lost
      profits or other damages and third-party’s attorneys’ fees, which may be
      substantial;





·expend significant time and resources to modify or redesign the
      affected products or procedures so that they do not infringe a
      third-party’s patents or other intellectual property rights; further,
      there can be no assurance that we will be successful in modifying or
      redesigning the affected products or
procedures;





·obtain a license in order to continue manufacturing or marketing
      the affected products or processes, and pay license fees and royalties; if
      we are able to obtain such a license, it may be non-exclusive, giving our
      competitors access to the same intellectual property, or the patent owner
      may require that we grant a cross-license to part of our proprietary
      technologies; or





·stop the development, manufacture, use, marketing or sale of the
      affected products through a court-ordered sanction called an injunction,
      if a license is not available on acceptable terms, or not available at
      all, or our attempts to redesign the affected products are
      unsuccessful.




Any of
these events could adversely affect our business strategy and the value of our
business. In addition, the defense and prosecution of intellectual property
suits, interferences, oppositions and related legal and administrative
proceedings in the United States and elsewhere, even if resolved in our favor,
could be expensive, time consuming, generate negative publicity and could divert
financial and managerial resources.




We expect
that software developers will increasingly be subject to infringement claims as
the number of software applications and competitors in our industry segment
grows and the functionality of software applications in different industry
segments overlaps. Thus, we could be subject to additional patent infringement
claims in the future. There can be no assurance that the claims that may arise
in the future can be amicably disposed of, and it is possible that litigation
could ensue.




Intellectual
property litigation can be complex, costly and protracted. As a result, any
intellectual property litigation to which we are subject could disrupt our
business operations, require us to incur substantial costs and subject us to
significant liabilities, each of which could severely harm our
business.





Plaintiffs
in intellectual property cases often seek injunctive relief. Any intellectual
property litigation commenced against us could force us to take actions that
could be harmful to our business, including the following:





·stop selling our products or using the technology that contains the
      allegedly infringing intellectual
property;





·attempt to obtain a license to use the relevant intellectual
      property, which may not be available on reasonable terms or at all;
      and





·attempt to redesign the products that allegedly infringed upon the
      intellectual property.




If we are
forced to take any of the foregoing actions, our business, financial position
and operating results could be harmed. We may not be able to develop, license or
acquire non-infringing technology under reasonable terms, if at all. These
developments would result in an inability to compete for customers and would
adversely affect our ability to increase our revenue. The measure of damages in
intellectual property litigation can be complex, and is often subjective or
uncertain. If we were to be found liable for the infringement of a third party’s
proprietary rights, the amount of damages we might have to pay could be
substantial and would be difficult to predict.




-23-


Our
business may be negatively impacted as a result of changes in the economy and
corporate and institutional spending.





Our
business will depend on the general economic environment and levels of corporate
and institutional spending. Purchases of software may decline in periods of
recession or uncertainty regarding future economic prospects. During periods of
recession or economic uncertainty, we may not be able to maintain or increase
our sales to customers, maintain sales levels, establish operations on a
profitable basis or create earnings from operations as a percentage of net
sales. As a result, our operating results may be adversely and materially
affected by downward trends in the economy or the occurrence of events that
adversely affect the economy in general. Our operating results and margins will
be adversely impacted if we do not grow as anticipated.




We may engage in future acquisitions
or investments that present many risks, and we may not realize the anticipated
financial and strategic goals for any of these
transactions.




We do not
have significant experience acquiring companies. However, in the future we may
acquire or make investments in additional companies and have entered into a
Letter of Intent to acquire the Target Company, described above. If we acquire
or make investments in complementary companies, products, services and
technologies, the acquisitions and investments will involve a number of risks,
including:




·we do not have experience acquiring or making investments in
      complementary companies, products, services and
    technologies;





·we may find that the acquired company or assets do not further our
      business strategy, or that we overpaid for the company or assets, or that
      industry or economic conditions change, all of which may generate a future
      impairment charge;





·we may have difficulty integrating the operations and personnel of
      the acquired business and may have difficulty retaining the key personnel
      of the acquired business;





·we may have difficulty incorporating the acquired technologies or
      products with our existing product
lines;





·there may be customer confusion where our products overlap with
      those that we acquire;





·our ongoing business and management’s attention may be disrupted or
      diverted by transition or integration issues and the complexity of
      managing geographically and culturally diverse
  locations;





·we may have difficulty maintaining uniform standards, controls,
      procedures and policies across
locations;





·the acquisition may result in litigation from terminated employees
      or third parties; and





·we may experience significant problems or liabilities associated
      with product quality, technology and legal
  contingencies.




These
factors could have a material adverse effect on our business, results of
operations and financial condition or cash flows, particularly in the case of a
larger acquisition or multiple acquisitions in a short period of time. From time
to time, we may enter into negotiations for acquisitions or investments that are
not ultimately consummated. These negotiations could result in significant
diversion of management time, as well as out-of-pocket costs.




The
consideration paid for an investment or acquisition may also affect our
financial results. If we were to proceed with one or more significant
acquisitions in which the consideration included cash, we could be required to
use a substantial portion of our available cash, including a portion of the net
proceeds of this offering. To the extent we issue shares of our capital stock or
other rights to purchase shares of our capital stock, including options or other rights,
our existing stockholders may be diluted, and our earnings per share may
decrease. In addition, acquisitions may result in the incurrence of debt, large
one-time write-offs, including write-offs of acquired in-process research and
development costs, and restructuring charges. They may also result in goodwill
and other intangible assets that are subject to impairment tests, which could
result in future impairment charges.




-24-


We
may be unable to scale our operations successfully and fail to attain our
planned growth.




Our plan
is to grow our business rapidly. Our growth, if it occurs as planned, will place
significant demands on our management, as well as our financial, administrative
and other resources. We will need to hire highly skilled personnel to effectuate
our planned growth. There is no guarantee that we will be able to locate and
retain qualified personnel for such positions, which would likely hinder our
ability to manage operations. Furthermore, we cannot guarantee that any of the
systems, procedures and controls we put in place will be adequate to support the
commercialization of our products or other operations. Our operating results
will depend substantially on the ability of our officers and key employees to
manage changing business conditions and to implement and improve our financial,
administrative and other resources. If we are unable to respond to and manage
changing business conditions, or the scale of our products, services and
operations, then the quality of our services, our ability to retain key
personnel and our business could be harmed.





RISKS
RELATED TO OUR CAPITAL STRUCTURE




THERE
IS CURRENTLY A LIMITED PUBLIC MARKET FOR OUR SECURITIES. MOVING FORWARD OUR
STOCK PRICE MAY BE VOLATILE AND ILLIQUID.





Our
securities have been approved for quotation on the Over-The-Counter Bulletin
Board (“OTCBB”) under the symbol “EPAZ”, however, there is currently only a
limited market for our securities.  If there is a market for our
common stock in the future, we anticipate that such market would be illiquid and
would be subject to wide fluctuations in response to several factors, including,
but not limited to:





(1)
            actual
      or anticipated variations in our results of operations;(2)
            our
      ability or inability to generate new revenues;(3)
            increased
      competition; and(4)
            conditions
      and trends in the market for organizational
  software.





Furthermore,
our stock price may be impacted by factors that are unrelated or
disproportionate to our operating performance. These market fluctuations, as
well as general economic, political and market conditions, such as recessions,
interest rates or international currency fluctuations may adversely affect the
market price and liquidity of our common stock.





The
price of our common stock may be volatile.




In the
past several years, technology stocks have experienced high levels of volatility
and significant declines in value from their historic highs. The trading price
of our common stock may fluctuate substantially. These fluctuations could cause
you to lose all or part of your investment in our common stock. Factors that
could cause fluctuations in the trading price of our common stock include the
following:




·price and volume fluctuations in the overall stock market from time
      to time;





·significant volatility in the market price and trading volume of
      software companies;





·actual or anticipated changes in our earnings or fluctuations in
      our operating results;





·actual or anticipated changes in the expectations of securities
      analysts;










-25-


·announcements of technological innovations, new solutions,
      strategic alliances or significant agreements by us or by our
      competitors;





·general economic conditions and
trends;





·major catastrophic events;





·sales of large blocks of our stock;
or





·recruitment or departures of key
  personnel.




In the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation has often been brought against
that company. If our stock price is volatile, we may become the target of
securities litigation. Securities litigation could result in substantial costs
and divert our management’s attention and resources from our
business.




We
may experience a decline in revenue or volatility in our operating results,
which may adversely affect the market price of our common stock.




We cannot
predict our future revenue with certainty because of many factors outside of our
control. A significant revenue or profit decline, lowered forecasts or
volatility in our operating results could cause the market price of our common
stock to decline substantially. Factors that could affect our revenue and
operating results include the following:





·the possibility that our future customers may cancel, defer or
      limit purchases as a result of reduced information technology
      budgets;





·the possibility that our future customers may defer purchases of
      our software applications in anticipation of new software applications or
      updates from us or our competitors;





·the ability of EPAZZ or its distributors to meet their sales
      objectives;





·market acceptance of our new applications and
      enhancements;





·our ability to control
expenses;





·changes in our pricing and distribution terms or those of our
      competitors;





·the demands on our management, sales force and services
      infrastructure as a result of the introduction of new software
      applications or updates; and





·the possibility that our business will be adversely affected as a
      result of the threat of terrorism or military actions taken by the United
      States or its allies.




Our
expense levels are relatively fixed and are based, in part, on our expectations
of our future revenue. If revenue levels fall below our expectations, our net
income would decrease because only a small portion of our expenses varies with
our revenue. Therefore, any significant decline in revenue for any period could
have an immediate adverse impact on our results of operations for the period. We
believe that period-to-period comparisons of our results of operations should
not be relied upon as an indication of future performance. In addition, our
results of operations could be below expectations of public market analysts and
investors in future periods, which would likely cause the market price of our
common stock to decline.





-26-


The
President and Chief Executive officer of EPAZZ Inc. has significant influence
over our company.




Shaun
Passley beneficially owns approximately 76% of our Class A Common Stock, and
100% of our Class B Common Stock, which is entitled to 100 votes per share,
which represents 96.7% of our aggregate outstanding voting stock. Mr. Passley,
as majority shareholder, sole Director, President and Chief Executive Officer of
the Company possesses significant influence over our Company, giving him the
ability, among other things, to elect a majority of the Board of Directors and
to approve significant corporate transactions. Such stock ownership and control
may also have the effect of delaying or preventing a future change in control,
impeding a merger, consolidation, takeover or other business combination or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our Company. While Mr. Passley has managed EPAZZ
since its inception, he has no other accounting or finance experience and has no
experience relating to a public company.





If securities analysts do not publish
research or reports about our business or if they publish negative evaluations
of our stock, the price of our stock could decline.




The
trading market for our common stock will rely in part on the research and
reports that industry or financial analysts publish about us or our business. If
one or more of the analysts covering us downgrade their evaluations of our
stock, the price of our stock could decline. If one or more of these analysts
cease coverage of our company, we could lose visibility in the market for our
stock, which in turn could cause our stock price to decline.




If
we are late in filing our Quarterly or Annual Reports with the SEC, we may be
de-listed from the Over-The-Counter Bulletin Board.





Pursuant
to Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely filing
of periodic reports with the SEC, any OTCBB issuer which fails to file a
periodic report (Form 10-Q's or 10-K's) by the due date of such report (not
withstanding any extension granted to the issuer by the filing of a Form
12b-25), three (3) times during any twenty-four (24) month period is
automatically de-listed from the OTCBB. Such removed issuer would not be
re-eligible to be listed on the OTCBB for a period of one-year, during which
time any subsequent late filing would reset the one-year period of de-listing.
If we are late in our filings three times in any twenty-four (24) month period
and are de-listed from the OTCBB, our securities may become worthless and we may
be forced to curtail or abandon our business plan.





In
the future, we will incur significant increased costs as a result of operating
as a fully reporting company in connection with Section 404 of the Sarbanes
Oxley Act, and our management will be required to devote substantial time to new
compliance initiatives.





Moving
forward, we anticipate incurring significant legal, accounting and other
expenses in connection with our status as a fully reporting public company. The
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and new rules subsequently
implemented by the SEC have imposed various new requirements on public
companies, including requiring changes in corporate governance practices. As
such, our management and other personnel will need to devote a substantial
amount of time to these new compliance initiatives. Moreover, these rules and
regulations will increase our legal and financial compliance costs and will make
some activities more time-consuming and costly. In addition, the Sarbanes-Oxley
Act requires, among other things, that we maintain effective internal controls
for financial reporting and disclosure of controls and procedures. In
particular, commencing in calendar 2008 (one year after we began publicly
reporting), we must perform system and process evaluation and testing of our
internal controls over financial reporting to allow management to report on the
effectiveness of our internal controls over financial reporting, and in fiscal
2009, to allow our independent registered public accounting firm to report on
the effectiveness of our internal controls over financial reporting, as required
by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing
by our independent registered public accounting firm, may reveal deficiencies in
our internal controls over financial reporting that are deemed to be material
weaknesses. Our compliance with Section 404 will require that we incur
substantial accounting expense and expend significant management efforts. We
currently do not have an internal audit group, and we will need to hire
additional accounting and financial staff with appropriate public company
experience and technical accounting knowledge. Moreover, if we are not able to
comply with the requirements of Section 404 in a timely manner, or if we or our
independent registered public accounting firm identifies deficiencies in our
internal controls over financial reporting that are
deemed to be material weaknesses, the market price of our stock could decline,
and we could be subject to sanctions or investigations by the SEC or other
regulatory authorities, which would require additional financial and management
resources.




Investors
may face significant restrictions on the resale of our common stock due to
federal regulations of penny stocks.





Once our
common stock is listed on the OTC Bulletin Board, if ever, it will be subject to
the requirements of Rule 15(g)9, promulgated under the Securities Exchange Act
as long as the price of our common stock is below $4.00 per share. Under such
rule, broker-dealers who recommend low-priced securities to persons other than
established customers and accredited investors must satisfy special sales
practice requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the purchaser's
consent prior to the transaction. The Securities Enforcement Remedies and Penny
Stock Reform Act of 1990, also requires additional disclosure in connection with
any trades involving a stock defined as a penny stock. Generally, the Commission
defines a penny stock as any equity security not traded on an exchange or quoted
on NASDAQ that has a market price of less than $5.00 per share. The required
penny stock disclosures include the delivery, prior to any transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
with it. Such requirements could severely limit the market liquidity of the
securities and the ability of purchasers to sell their securities in the
secondary market.





-27-


ITEM 7. FINANCIAL STATEMENTS




EPAZZ,
INC.


INDEX TO FINANCIAL STATEMENTS




PageAnnual
      Financial StatementsReport
      of Independent Registered Public Accounting Firm
            F-2Balance
      Sheet as of December 31, 2007
            F-3Statements
      of Operations for the years ended December 31, 2007 and
    2006
            F-4Statements
      of Changes in Stockholders' Equity (Deficit) for the years ended December
      31, 2007 and 2006
            F-5Statements
      of Cash Flows for the years ended December 31, 2007 and
    2006
            F-6Notes
      to Financial Statements
            F-7
























F-1


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM











To the
Board of Directors


Epazz,
Inc.


Chicago,
IL





We have
audited the accompanying balance sheet of Epazz, Inc. as of December 31, 2007,
and the related statements of operations, changes in stockholders’ deficit and
cash flows for the years ended December 31, 2007 and 2006.  These
financial statements are the responsibility of Epazz, Inc.'s
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.





We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Epazz, Inc. as of December 31,
2007, and the results of its operations and its cash flows for the periods
described above in conformity with accounting principles generally accepted in
the United States of America.





The
accompanying financial statements have been prepared assuming that Epazz will
continue as a going concern.  As discussed in Note 2 to the financial
statements, Epazz has incurred losses since inception and has a stockholders’
deficit at December 31, 2007.  Those conditions, among others, raise
substantial doubt about the Company's ability to continue as a going
concern.  Management's plans regarding these matters are also
described in Note 2.  The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.











GBH CPAs,
PC


www.gbhcpas.com


Houston,
Texas





March 25,
2008





F-2


EPAZZ,
INC.


BALANCE
SHEET


As
of December 31, 2007





ASSETSCurrent
      Assets – Cash
            
            $
            3,016Property
      and equipment, net of accumulated depreciation of $10,984
            
            
            1,678TOTAL
      ASSETS
            
            $
            4,694LIABILITIES
      AND STOCKHOLDERS’ DEFICITLIABILITIESCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
            
            $
            12,239Current
      portion of note payable
            
            
            3,509Loans
      payable to related parties
            
            
            92,235Total
      current liabilities
            
            
            114,983Long-term
      note payable, net of current portion
            
            
            2,070Long-term
      line of credit
            
            
            100,000TOTAL
      LIABILITIES
            
            
            217,053STOCKHOLDERS’
      DEFICITCommon
      stock, Series A, $0.01 par value, 60,000,000 shares authorized, 39,482,940
      shares issued and outstanding
            
            
            394,829Common
      stock, Series B, $0.01 par value, 60,000,000 shares authorized, 2,500,000
      shares issued and outstanding
            
            
            25,000Additional
      paid-in capital
            
            
            1,041,015Accumulated
      deficit
            
            
            (1,673,203
            )Total
      stockholders’ deficit
            
            
            (212,359
            )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
            
            $
            4,694











See notes
to financial statements.





F-3


EPAZZ,
INC.


STATEMENTS
OF OPERATIONS


Years
Ended December 31, 2007 and 2006








2007
            
            
            2006Revenue
            
            $
            –
            
            
            $
            11,416Operating
      expenses:Cost
      of revenue
            
            
            44,335
            
            
            
            658General
      & administrative
            
            
            90,701
            
            
            
            621,689Depreciation
            
            
            621
            
            
            
            2,159Total
      operating expenses
            
            
            135,657
            
            
            
            624,506Operating
      income (loss)
            
            
            (135,657
            )
            
            
            (613,090
            )Other
      income (expense):Interest
      income
            
            
            19
            
            
            
            4Interest
      expense
            
            
            (17,020
            )
            
            
            (5,994
            )Other
      income
            
            
            –
            
            
            
            91Total
      other income (expense)
            
            
            (17,001
            )
            
            
            (5,899
            )Net
      loss
            
            $
            (152,658
            )
            
            $
            (618,989
            )Basic
      and diluted net loss per common share
            
            $
            (0.00
            )
            
            $
            (0.02
            )Weighted
      average common shares outstanding
            
            
            41,982,940
            
            
            
            40,061,972











See notes
to financial statements.








F-4





EPAZZ,
INC.


STATEMENTS
OF CHANGES IN STOCKHOLDERS’ DEFICIT


Years
Ended December 31, 2007 and 2006








Series A Common Stock
            
            
            Series B Common Stock
            
            
            Additional
      Paid-In
            
            
            Accumulated
            
            
            Total
      Stockholders’Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            (Deficit)Balance
      at December 31, 2005
            
            
            37,161,240
            
            
            
            371,612
            
            
            
            2,500,000
            
            
            
            25,000
            
            
            
            483,806
            
            
            
            (901,556
            )
            
            
            (21,138
            )Common
      shares issued for cash
            
            
            1,000
            
            
            
            10
            
            
            
            
            
            
            
            
            
            
            
            240
            
            
            
            
            
            
            
            250Common
      shares issued for services
            
            
            2,320,700
            
            
            
            23,207
            
            
            
            
            
            
            
            
            
            
            
            556,969
            
            
            
            
            
            
            
            580,176Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (618,989
            )
            
            
            (618,989
            )Balance
      at December 31, 2006
            
            
            39,482,940
            
            
            $
            394,829
            
            
            
            2,500,000
            
            
            $
            25,000
            
            
            $
            1,041,015
            
            
            $
            (1,520,545
            )
            
            $
            (59,701
            )Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (152,658
            )
            
            
            (152,658
            )Balance
      at December 31, 2007
            
            
            39,482,940
            
            
            $
            394,829
            
            
            
            2,500,000
            
            
            $
            25,000
            
            
            $
            1,041,015
            
            
            $
            (1,673,203
            )
            
            $
            (212,359
            )











See notes
to financial statements.





F-5


EPAZZ,
INC.


STATEMENTS
OF CASH FLOWS


Years
Ended December 31, 2007 and 2006








2007
            
            
            2006CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (152,658
            )
            
            $
            (618,988
            )Adjustments
      to reconcile net loss to cash used in operating
activities:Share-based
      compensation
            
            
            –
            
            
            
            580,175Depreciation
            
            
            621
            
            
            
            2,159Changes
      in:Accounts payable and accrued
      liabilities
            
            
            11,536
            
            
            
            4,736Net
      cash used in operating activities
            
            
            (140,501
            )
            
            
            (31,919
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of fixed assets
            
            
            (1,242
            )
            
            
            (833
            )Net
      cash used in investing activities
            
            
            (1,242
            )
            
            
            (833
            )CASH
      FLOWS FROM FINANCING ACTIVITIESBorrowing
      from debt
            
            
            100,000
            
            
            
            8,634Repayment
      of debt
            
            
            (3,055
            )
            
            
            (9,500
            )Proceeds
      from loans payable to related parties
            
            
            42,433
            
            
            
            37,001Proceeds
      from issuance of common stock
            
            
            –
            
            
            
            250Net
      cash provided by financing activities
            
            
            139,378
            
            
            
            36,385NET
      CHANGE IN CASH
            
            
            (2,365
            )
            
            
            3,633CASH
      AT BEGINNING OF PERIOD
            
            
            5,381
            
            
            
            1,748CASH
      AT END OF PERIOD
            
            $
            3,016
            
            
            $
            5,381Supplemental
      Disclosures:Interest
      paid
            
            $
            5,418
            
            
            $
            963Income
      tax paid
            
            
            –
            
            
            
            –











See notes
to financial statements.




F-6


EPAZZ,
INC.


NOTES
TO FINANCIAL STATEMENTS





NOTE 1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Nature of
Business.  Epazz, Inc. ("Epazz") was incorporated in Illinois
on March 23, 2000.  Epazz sells software products.





Use of
Estimates.  In preparing financial statements, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities in the balance sheet and revenue and expenses in the income
statement.  Actual results could differ from those
estimates.





Revenue
Recognition.  All revenue is recognized when persuasive
evidence of an arrangement exists, the sale is complete, the price is fixed or
determinable and collectibility is reasonably assured.





Cash
Equivalents.  Highly liquid investments with original
maturities of three months or less are considered cash equivalents.





Allowance for Doubtful
Accounts.  Bad debt expense is recognized based on management’s
estimate of likely losses per year, based on past experience and an estimate of
current year uncollectible amounts.





Equipment.  Equipment
is valued at cost.  Maintenance and repairs are charged to expense as
incurred.  Upon disposition or retirement of equipment, the cost and
related accumulated depreciation are removed and any resulting gain or loss is
reflected in operations.  Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, which is
five years.





Income
Taxes.  Epazz utilizes the asset and liability method in
accounting for income taxes.  Under this method, deferred tax assets
and liabilities are recognized for operating loss and tax credit carryforwards
and for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.  Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
year in which those temporary differences are expected to be recovered or
settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the results of operations in the period
that includes the enactment date.  A valuation allowance is recorded
to reduce the carrying amounts of deferred tax assets unless it is more likely
than not that the value of such assets will be realized.





Earnings Per
Share.  Basic earnings per share equals net earnings divided by
weighted average shares outstanding during the year.  Diluted earnings
per share include the impact on dilution from all contingently issuable shares,
including options, warrants and convertible securities.  The common
stock equivalents from contingent shares are determined by the treasury stock
method.  Epazz has incurred net losses for the years ended December
31, 2007 and 2006 and has, therefore, excluded certain securities from the
computation of diluted earnings per share as the effect would be
anti-dilutive.





Recently Issued Accounting
Pronouncements.  Epazz does not expect the adoption of recently
issued accounting pronouncements to have a significant impact on Epazz results
of operations, financial position or cash flow.








NOTE 2 –
GOING CONCERN





As of
December 31, 2007, Epazz had an accumulated deficit of $1,673,203 and a working
capital deficit of $111,967.  In addition, Epazz did not generate any
cash from operations and had no cash reserve dedicated to fund
expenditures.  These factors create a substantial doubt as to Epazz's
ability to continue as a going concern.




F-7


Epazz
will require substantial additional funding for continuing research and
development, obtaining regulatory approval and for the commercialization of its
products.  Management expects to be able to raise enough funds to meet
its working capital requirements through through debt and/or equity
financing.  There is no assurance that Epazz will be able to obtain
sufficient additional funds when needed, or that such funds, if available, will
be obtainable on terms satisfactory to Epazz.  The financial
statements do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.








NOTE 3 –
PROPERTY AND EQUIPMENT





Property
and equipment consisted of the following at December 31, 2007:





Description
            
            Life
            
            AmountComputer
      equipment
            
            5
      years
            
            $
            12,662Less:
      accumulated depreciation
            
            
            
            
            (10,984
            )Equipment,
      net
            
            
            
            $
            1,678








NOTE 4 –
DEBT





Epazz had
a line of credit with a bank.  The line of credit bore interest at
prime plus 2.50% and was paid off in May 2006.





In August
2006, Epazz borrowed $10,000 on an unsecured loan from a third
party.  The interest rate on the note is 13.95% and is payable in 36
monthly installments of $342 maturing on August 2, 2009.  At December
31, 2007, the outstanding balance was $5,579.








NOTE 5 –
LINE OF CREDIT





On June
5, 2007, Epazz obtained a line of credit of $100,000 from a bank.  The
outstanding balance on the line of credit bears interest at prime plus 4.5%
(11.75% at December 31, 2007) and expires on July 5, 2010.  Interest
is due monthly beginning on July 5, 2007.  Combined equal installments
of principal and interest are to be paid monthly beginning July 5, 2010 until
June 5, 2014.








NOTE 6 –
LOANS PAYABLE TO RELATED PARTIES





Epazz has
borrowed from its Chief Executive Officer and other related parties periodically
under a verbal agreement.  The loans bear interest at 15%
interest.  At December 31, 2007, the outstanding balance was $92,235
and accrued interest payable was $17,683.








NOTE 7 –
COMMON STOCK





In
October 2006, Epazz issued 2,320,700 Series A common shares with a value of
$580,176 for services.





In
October 2006, Epazz issued 1,000 Series A common shares for $250.








NOTE 8 -
INCOME TAXES





During
2007 and 2006, Epazz incurred net losses and, therefore, had no tax
liability.  The net deferred tax asset of about $157,000 at December
31, 2007 generated by the loss carry-forward has been fully reserved.  The
cumulative net operating loss carry-forward was approximately $463,000 at
December 31, 2007 and will expire in the years 2023 through 2027.




F-8


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE




Effective September 10, 2007, the Company’s
Board of Directors terminated the client auditor relationship between the
Company and Malone & Bailey, PC ("Malone"). Effective September 10, 2007,
the Company engaged GBH CPAs, PC ("GBH") as its principal independent public
accountant for the fiscal year ended December 31, 2007. The Company’s financial
statements for the year ended December 31, 2006 have been re-audited by GBH, and
as such, only the report of independent registered public accounting firm GBH is
attached to this filing.





The
decision to change accountants was ratified and approved by the Company's Board
of Directors on September 21, 2007. Malone's report on the financial
statements of the Company for the fiscal years ended December 31, 2005 and
December 31, 2006, and any later interim period, including the interim period up
to and including the date the relationship with Malone ceased, did not contain
any adverse opinion or disclaimer of opinion and was not qualified or modified
as to uncertainty, audit scope or accounting principles except for concerns
about the Company's ability to continue as a going concern.





In
connection with the audit of the Company's fiscal years ended December 31, 2005
and December 31, 2006, and any later interim period, including the interim
period up to and including the date the relationship with Malone ceased, there
were no disagreements between Malone and the Company on a matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of Malone
would have caused Malone to make reference to the subject matter of the
disagreement in connection with its report on the Company's financial
statements.





There
have been no reportable events as provided in Item 304(a)(iv)(B) of Regulation
S-B during the Company's fiscal years ended December 31, 2005 and December 31,
2006, and any later interim period, including the interim period up to and
including the date the relationship with Malone ceased.





The
Company has authorized Malone to respond fully to any inquiries of any new
auditors hired by the Company relating to their engagement as the Company's
independent accountant.  The Company has requested that Malone review
the disclosure and Malone has been given an opportunity to furnish the Company
with a letter addressed to the Commission containing any new information,
clarification of the Company's expression of its views, or the respect in which
it does not agree with the statements made by the Company in this section. Such
letter has been incorporated by reference as Exhibit 16.1 to this
report.





The
Company has not previously consulted with GBH regarding either (i) the
application of accounting principles to a specific completed or contemplated
transaction; (ii) the type of audit opinion that might be rendered on the
Company's financial statements; or (iii) a reportable event (as provided in Item
304(a)(iv)(B) of Regulation S-B) during the Company's fiscal years ended
December 31, 2005 and December 31, 2006, and any later interim period, including
the interim period up to and including the date the relationship with Malone
ceased. GBH has reviewed the disclosure required by Item 304 (a) before it was
filed with the Commission and has been provided an opportunity to furnish the
Company with a letter addressed to the Commission containing any new
information, clarification of the Company's expression of its views, or the
respects in which it does not agree with the statements made by the Company in
response to Item 304 (a). GBH did not furnish a letter to the
Commission.




ITEM
8A.  CONTROLS AND PROCEDURES






(a)          
Evaluation of disclosure controls and procedures






We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of December 31, 2007.  This
evaluation was accomplished under the supervision and with the participation of
our Chief Executive Officer and the Chief Financial Officer who concluded that
our disclosure controls and procedures are not effective to ensure that all
material information required to be filed in the annual report on Form 10-KSB
has been made known to him.




-28-




Disclosure
controls and procedures are designed to ensure that information required to be
disclosed in our reports filed or submitted under the Securities Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms.  Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in our reports
filed under the Exchange Act is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosure.






Based
upon an evaluation conducted for the period ended December 31, 2007, Shaun
Passley who is our Chief Executive Officer and Chief Financial Officer (which
duties include that of principal accounting officer) as of December 31, 2007,
and the date of this Report, has concluded that as of the end of the period
covered by this report, we have identified the following material weakness of
our internal controls:


- Reliance upon
  independent financial reporting consultants for review of critical accounting
  areas and disclosures and material non-standard transactions.
- Lack of
  sufficient accounting staff, which results in a lack of segregation of duties
  necessary for a good system of internal control.

In order
to remedy our existing internal control deficiencies, as soon as our finances
allow, we will hire a Chief Financial Officer who will be sufficiently versed in
public company accounting to implement appropriate procedures for timely and
accurate disclosures.






This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.






(b)          
Changes in internal controls






We have
not yet made any changes in our internal control over financial reporting that
occurred during the period covered by this report on Form 10-KSB that has
materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.






ITEM 8B. OTHER INFORMATION






None.






ITEM 9. DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT






Directors
and Executive Officers




Our executive officers and director and
their ages as of April 8, 2008 are as follows:




NAME
            AGE
            POSITIONShaun
      Passley
            29
            President,
      Chief Executive Officer, Chief Financial Officer and Chairman of the Board
      of Directors


Craig
      Passley
            36
            Secretary




Set forth
below is a brief description of the background and business experience of our
executive officers and director.




-29-


Shaun
Passley.





Shaun
Passley has been the President, Chief Executive Officer, Chief Financial
Officer, Chairman of the Board of Directors since our inception in March
2000.  Mr. Passley obtained his Bachelors degree from De Paul
University in Finance in 2000, his Master’s Degree from De Paul University in
Information Technology in 2006, and his MBA from Benedictine University in
2007.





Craig
Passley.





Craig
Passley has served as our Secretary since May 2005.  Since November
2000, Mr. Passley has worked for KB Builders.  Mr. Passley obtained
his Bachelors degree from Bradley University in 1997 and his Masters Degree from
the Keller Graduate School of Management in 2001.





Shaun
Passley and Craig Passley are brothers.





The
Board of Directors and Committees





Our Board
of Directors does not maintain a separate audit, nominating or compensation
committee. Functions customarily performed by such committees are performed by
our Board of Directors as a whole. Our Director is elected annually and holds
office until our next annual meeting of the shareholders and until his
successors are elected and qualified. Officers will hold their positions at the
pleasure of the Board of Directors, absent any employment agreement. Our
officers and Director may receive compensation as determined by us from time to
time by vote of the Board of Directors. Such compensation might be in the form
of stock options. Directors may be reimbursed by the Company for expenses
incurred in attending meetings of the Board of Directors. Vacancies in the Board
are filled by majority vote of the remaining Director(s).





-30-




ITEM 10. EXECUTIVE COMPENSATION




Summary
Compensation Table





The
following table sets forth information concerning the compensation for EPAZZ,
Inc. for the years ended December 31, 2007, 2006 and 2005.





SUMMARY
      COMPENSATION TABLEName
      and principal position
              (a)
            Year
              (b)
            Salary
              ($)
              (c)
            Bonus
              ($)
              (d)
            Stock
      Awards
              ($)
              (e)
            Option
      Awards
              ($)
              (f)
            Non-Equity
      Incentive Plan Compensation ($)
              (g)
            Nonqualified
      Deferred Compensation Earnings
              ($)
              (h)
            All
      Other Compensation
              ($)
              (i)
            Total
              ($)
              (j)Shaun
      Passley President, Chief Executive Officer,
            2007
            -
            -
            -
            -
            -
            -
            -
            -Chief
      Financial Officer and
            2006
            -
            -
            -
            -
            -
            -
            227(1)
            227Chairman
      of the Board of Directors
            2005
            -
            -
            625,000(2)
            -
            -
            -
            -
            625,000











Other
than the named executive officer above, the Company had no other executive
officers who made more than $100,000 in total compensation for the years ended
December 31, 2007, 2006 or 2005.





(1)
            
            This
      amount represents any excess accrued interest received by Shaun Passley
      from Loans made to EPAZZ, Inc.




(2)
            
            This
      amount represents the value of 2,500,000 shares of Series A Preferred
      Stock, which were subsequently converted into 2,500,000 shares of Series B
      common shares, issued for services.






Stock
Option Grants




We have
not granted any stock options to our executive officers since our
incorporation.




Employment
Agreements




We do not
have an employment or consultant agreement with Shaun Passley, our Chief
Executive Officer, President, and Chairman of the Board of Directors or Craig
Passley, our Secretary.







-31-


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS






Security
Ownership Of Certain Beneficial Owners And Management




The following table provides the names and
addresses of each person known to us to own more than 5% of our outstanding
shares of Class A common stock as of April 8, 2008, and by the officers and
directors, individually and as a group. Except as otherwise indicated, all
shares are owned directly.




Title
      of Class
            Name
      and Address
              of
      Beneficial Owner
            Amount
      and Nature
              of
      Beneficial Owner
            Percent
              of
      Class (1)Class
      A Common Stock
            Shaun
      Passley (2)
              CEO,
      CFO, and
              Chairman
      of the Board of Directors
              512
      N. McClurg Ct 602
              Chicago,
      IL 60611
            30,000,500(6)
            76%





Class
      B Common Stock
            Shaun
      Passley (2)
              CEO,
      CFO, and
              Chairman
      of the Board of Directors
              512
      N. McClurg Ct 602
              Chicago,
      IL 60611
            2,500,000
            100%Class
      A Common Stock
            Craig
      Passley
              Secretary
              445
      East Ohio, Suite 250
              Chicago,
      IL 60611
            100,500
            0.3%Class
      A Common Stock
            Vivienne
      Passley (4)
              2629
      N Wilshire Ln,
              Arlington
      Heights, IL 60004
            2,975,900
            7.5%
      (3)Class
      A Common Stock
            Fay  Passley
      (5)
              5539
      RFD
              Long
      Grove, IL 60047
            2,748,240
            7%
      (3)Class
      B Common Stock
            All
      executive officers
              and
      directors as a group
              (2
      Persons)
            2,500,000
            100%Class
      A Common Stock
            All
      executive officers
              and
      directors as a group (2 Persons)
            30,101,000(6)
            76%(2)




(1)
      The percent of class is based on 39,482,940 shares of our Class A common
      stock issued and outstanding as of April 8, 2008, and 2,500,000 shares of
      our Class B common stock issued and outstanding as of April 8,
      2008.


(2)
      Based upon his ownership of Class A Common Stock and Class B Common Stock
      Shaun Passley controls 96.7% of our voting stock.(3)
      Since our Class A Common Stock and Class B Common Stock vote as a single
      class, Vivienne Passley and Fay  Passley control .01% and .01%,
      respectively of our voting stock.(4)
      Vivienne Passley is the aunt of Shaun Passley.(5)
      Fay  Passley is the mother of Shaun Passley.
              (6)
      Includes 500 shares held in the name of IT Business Solutions Group, Inc.,
      which entity is now defunct and which shares Mr. Passley beneficially
      owns.






-32-


ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; INDEPENDENT
DIRECTORS




We borrow from our Chief Executive Officer and
other related parties to the Company and our Chief Executive Officer
periodically under a verbal agreement.  The loans bear interest at 15%
interest.  At December 31, 2007, the outstanding balance was $92,235
and accrued interest payable was $17,683.  At December 31, 2007, the
total balance owing to our Chief Executive Officer, Shaun Passley was
approximately $52,000.




ITEM
13.  EXHIBITS




Exhibit
              No.
            Description3.1(1)
            Articles
      of Incorporation (filed March 23, 2000)3.2(1)
            Articles
      of Amendment (filed April 5, 2005)3.3(1)
            Articles
      of Amendment (filed July 12, 2005)3.4(1)
            Articles
      of Amendment (filed March 2, 2006)3.5(1)
            Statement
      of Change of Registered Agent (filed January 12, 2006)3.6(1)
            Articles
      of Amendment (filed May 17, 2006)3.7(1)
            Amended
      and Restated By-Laws4.1(1)
            Specimen
      Stock Certificate10.1(2)
            Form
      of Subscription Agreement of July 2005 Private
  Placement.10.2(3)
            Promissory
      Note with Fay  Passley10.3(3)
            Promissory
      Note with L &  F  Lawn Service, Inc.10.4(3)
            Promissory
      Note with Shaun Passley16.1(4)
            Letter
      from Malone & Bailey, PC


31*
            Certificate
      of the Chief Executive Officer and Chief Financial Officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200232*
            Certificate
      of the Chief Executive Officer and Chief Financial Officer pursuant to
      Section 906 of the Sarbanes-Oxley Act of
2002




* Filed
herewith.




(1)
            Filed
      as an Exhibit to our Form SB-2, filed with the Commission on December 4,
      2006, and incorporated herein by
reference.





(2)
            Filed
      as an Exhibit to our Form SB-2A, filed with the Commission on May 11,
      2007, and incorporated herein by
reference.





(3)
            Filed
      as an Exhibit to our Form SB-2A, filed with the Commission on September
      24, 2007, and incorporated herein by
reference.





(4)
            Filed
      as an Exhibit to our Form SB-2A, filed with the Commission on November 28,
      2007, and incorporated herein by
reference.







-33-


ITEM
14.  PRINCIPAL ACCOUNTING FEES AND SERVICES






Fees
to Auditors Fiscal Year ended December 31, 2007






Audit Fees: The
aggregate fees, including expenses, billed by the Company's principal
accountants for professional services rendered for the audit of the Company's
consolidated financial statements during the fiscal year ending December 31,
2007 and for the review of the Company's financial information included in its
quarterly reports on Form SB-2 during the fiscal year ending December 31, 2007
or services that are normally provided in connection with statutory and
regulatory filings or engagements during the fiscal year ending December 31,
2007 was $11,000.






Audit Related Fees:  The aggregate fees, including expenses, billed by principal
accountants for assurance and related services reasonably related to the
performance of the Company's audit or review of the Company's financial
statements were $0.






Tax Fees:  The
aggregate fees, including expenses, billed by principal accountants for tax
compliance, tax advice and tax planning during year 2007 was $150.






All Other Fees:  The aggregate fees, including expenses, billed for all other
services rendered to the Company by principal accountants during year 2007 was
$300.






Fees
to Auditors Fiscal Year ended December 31, 2006






Audit Fees: The
aggregate fees, including expenses, billed by principal accountants for
professional services rendered for the audit of the Company's consolidated
financial statements during fiscal year ending December 31, 2007 and for the
review of the Company's financial information included in its quarterly reports
on Form SB-2 during the fiscal year ending December 31, 2006 or services that
are normally provided in connection with statutory and regulatory filings or
engagements during the fiscal year ending December 31, 2006 was
$3,500.






Audit Related Fees:  The aggregate fees, including expenses, billed by principal
accountants for assurance and related services reasonably related to the
performance of the Company's audit or review of the Company's financial
statements during the year ended December 31, 2005 were $0.






Tax Fees:  The
aggregate fees, including expenses, billed by principal accountants for tax
compliance, tax advice and tax planning during year 2006 was $0.






All Other Fees:  The aggregate fees, including expenses, billed for all other
services rendered to the Company by principal accountants during year 2006 was
$0.






The
Company has no audit committee.  The Company's board of directors has
considered whether the provisions of the services covered above under the
captions is compatible with maintaining the auditor's independence.  All
services were approved by the board of directors prior to the completion of the
respective audit.







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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:
      April 10, 2008
            By:
      /s/ Shaun
      PassleyShaun
      PassleyChief
      Executive Officer (Principal Executive Officer),Chief
      Financial Officer (Principal Accounting Officer), and
    Director


















































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