----

----

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

| For the quarterly period ended June 30, 2012 |
|----------------------------------------------|

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

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

----

|                                              | Page                                                                                           |
|---------------------------------------------------|------------------------------------------------------------------------------------------------|
|                                              |                                                                                           |
| INDEX                                             |                                                                                           |
|                                              |                                                                                           |
| SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS |                                                                                           |
|                                              |                                                                                           |
| PART I. FINANCIAL INFORMATION                     |                                                                                           |
|                                              |                                                                                           |
| Item 1.                                           | Financial Statements                                                                           |   |
|                                              |                                                                                           |   |
|                                              | Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011                           | F-1 |
|                                              | Statements of Operations for the Three and Six Months ended June 30, 2012 and 2011 (Unaudited) | F-2 |
|                                              | Statements of Cash Flows for the Six Months ended June 30, 2012 and 2011 (Unaudited)           | F-3 |
|                                              | Notes to the Condensed Financial Statements (Unaudited)                                        | F-4 |
|                                              |                                                                                           |   |
| Item 2.                                           | Management’s Discussion and Analysis of Financial Condition and Results of Operations    | 3 |
| Item 3.                                           | Quantitative and Qualitative Disclosures About Market Risk                                     | 14 |
| Item 4.                                           | Controls and Procedures                                                                        | 14 |
|                                              |                                                                                           |   |
| PART II. OTHER INFORMATION                        |                                                                                           |
|                                              |                                                                                           |
| Item 1.                                           | Legal Proceedings                                                                              | 15 |
| Item 1A.                                          | Risk Factors                                                                                   | 15 |
| Item 2.                                           | Unregistered Sales of Equity Securities and Use of Proceeds                                    | 15 |
| Item 3.                                           | Defaults Upon Senior Securities                                                                | 16 |
| Item 4.                                           | Mine Safety Disclosure                                                                         | 16 |
| Item 5.                                           | Other Information                                                                              | 16 |
| Item 6.                                           | Exhibits                                                                                       | 17 |
|                                              |                                                                                           |   |
| SIGNATURES                                        | 18                                                                                             |

----

| EPAZZ, INC.                                                                        |   |
|------------------------------------------------------------------------------------|--------|
| CONDENSED CONSOLIDATED BALANCE SHEETS                                              |   |
|                                                                               |   |   |   |   |   |   |
|                                                                               |   |   |   |   |   |   |
|                                                                               |   | June 30, |   |   | December 31, |   |
|                                                                               |   | 2012 |   |   | 2011 |   |
|  Assets                                                                       |   | (Unaudited) |   |   |   |   |
|  Current assets:                                                              |   |   |   |   |   |   |
|  Cash                                                                         |   | $ | 81,667 |   |   | $ | 12,668 |   |
|  Accounts receivable, net                                                     |   |   | 103,300 |   |   |   | 148,418 |   |
|  Other current assets                                                         |   |   | 12,766 |   |   |   | 11,113 |   |
|  Total current assets                                                         |   |   | 197,733 |   |   |   | 172,199 |   |
|                                                                               |   |   |   |   |   |   |   |   |
|  Property and equipment, net                                                  |   |   | 240,703 |   |   |   | 145,593 |   |
|  Intangible assets, net                                                       |   |   | 908,474 |   |   |   | 576,598 |   |
|  Goodwill                                                                     |   |   | 255,460 |   |   |   | 140,832 |   |
|                                                                               |   |   |   |   |   |   |   |   |
|  Total assets                                                                 |   | $ | 1,602,370 |   |   | $ | 1,035,222 |   |
|                                                                               |   |   |   |   |   |   |   |   |
|                                                                               |   |   |   |   |   |   |   |   |
|  Liabilities and Stockholders' Equity (Deficit)                               |   |   |   |   |   |   |   |   |
|  Current liabilities:                                                         |   |   |   |   |   |   |   |   |
|  Accounts payable                                                             |   | $ | 105,397 |   |   | $ | 41,430 |   |
|  Accounts payable, related party                                              |   |   | 53,969 |   |   |   | - |   |
|  Accrued expenses                                                             |   |   | 126,381 |   |   |   | 102,572 |   |
|  Deferred revenue                                                             |   |   | 258,006 |   |   |   | 323,028 |   |
|  Lines of credit                                                              |   |   | 75,524 |   |   |   | - |   |
|  Current maturities of capital lease obligations payable                      |   |   | 32,767 |   |   |   | 47,515 |   |
|  Current maturities of long term debt                                         |   |   | 153,569 |   |   |   | 75,565 |   |
|  Notes payable, related parties                                               |   |   | 348,310 |   |   |   | 404,401 |   |
|  Convertible debt, net of discounts of $-0- and $14,978, respectively         |   |   | 59,500 |   |   |   | 64,522 |   |
|  Total current liabilities                                                    |   |   | 1,213,423 |   |   |   | 1,059,033 |   |
|                                                                               |   |   |   |   |   |   |   |   |
| Capital lease obligations payable, net of current maturities                       |   |   | 29,412 |   |   |   | 13,816 |   |
| Long term debt, net of current maturities                                          |   |   | 984,416 |   |   |   | 499,068 |   |
|  Total liabilities                                                            |   |   | 2,227,251 |   |   |   | 1,571,917 |   |
|                                                                               |   |   |   |   |   |   |   |   |
|  Stockholders' equity (deficit):                                              |   |   |   |   |   |   |   |   |
|  Common stock, Class A, $0.01 par value, 300,000,000 shares authorized , |   |   |   |   |   |   |   |   |
|  33,514,012 and 30,900,281 shares issued and outstanding, respectively        |   |   | 335,141 |   |   |   | 309,003 |   |
|  Common stock, Class B, $0.01 par value, 60,000,000 shares               |   |   |   |   |   |   |   |   |
|  authorized, 2,500,000 shares issued and outstanding                          |   |   | 25,000 |   |   |   | 25,000 |   |
|  Additional paid in capital                                                   |   |   | 2,331,231 |   |   |   | 2,337,369 |   |
|  Stockholders' receivable, consisting of 25,000,000 shares                    |   |   | (1,000,000 | ) |   |   | (1,000,000 | ) |
|  Accumulated deficit                                                          |   |   | (2,316,253 | ) |   |   | (2,208,067 | ) |
|  Total stockholders' equity (deficit)                                         |   |   | (624,881 | ) |   |   | (536,695 | ) |
|                                                                               |   |   |   |   |   |   |   |   |
|  Total liabilities and stockholders' equity (deficit)                         |   | $ | 1,602,370 |   |   | $ | 1,035,222 |   |
|                                                                               |   |   |   |   |   |   |   |   |
| See accompanying notes to financial statements.                                    |   |

----

| EPAZZ, INC.                                           |   |
|-------------------------------------------------------|--------|
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS       |   |
| (Unaudited)                                           |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   | For the Three Months |   |   | For the Six Months |   |
|                                                  |   | Ended June 30, |   |   | Ended June 30, |   |
|                                                  |   | 2012 |   |   | 2011 |   |   | 2012 |   |   | 2011 |   |
|                                                  |   |   |   |   | (Restated) |   |   |   |   |   | (Restated) |   |
| Revenue                                               |   | $ | 432,890 |   |   | $ | 235,707 |   |   | $ | 547,367 |   |   | $ | 450,290 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| General and administrative                            |   |   | 259,828 |   |   |   | 177,438 |   |   |   | 484,093 |   |   |   | 330,933 |   |
| Depreciation and amortization                         |   |   | 75,167 |   |   |   | 32,604 |   |   |   | 122,641 |   |   |   | 59,644 |   |
| Bad debts (recoveries)                                |   |   | (42,847 | ) |   |   | - |   |   |   | (35,072 | ) |   |   | - |   |
| Total operating expenses                              |   |   | 292,148 |   |   |   | 210,042 |   |   |   | 571,662 |   |   |   | 390,577 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net operating income (loss)                           |   |   | 140,742 |   |   |   | 25,665 |   |   |   | (24,295 | ) |   |   | 59,713 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense):                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                       |   |   | 33 |   |   |   | 12 |   |   |   | 38 |   |   |   | 27 |   |
| Interest expense                                      |   |   | (42,854 | ) |   |   | (13,882 | ) |   |   | (83,929 | ) |   |   | (18,594 | ) |
| Total other income (expense)                          |   |   | (42,821 | ) |   |   | (13,870 | ) |   |   | (83,891 | ) |   |   | (18,567 | ) |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                     |   | $ | 97,921 |   |   | $ | 11,795 |   |   | $ | (108,186 | ) |   | $ | 41,146 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of common shares              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| outstanding - basic and fully diluted                 |   |   | 32,060,081 |   |   |   | 30,448,294 |   |   |   | 31,586,526 |   |   |   | 30,448,294 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per share - basic and fully diluted |   | $ | 0.00 |   |   | $ | 0.00 |   |   | $ | (0.00 | ) |   | $ | 0.00 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to financial statements.       |   |

----

| EPAZZ, INC.                                                 |   |
|-------------------------------------------------------------|--------|
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS             |   |
| (Unaudited)                                                 |   |
|                                                        |   |   |   |   |   |   |
|                                                        |   |   |   |   |   |   |
|                                                        |   | For the Six Months |   |
|                                                        |   | Ended June 30, |   |
|                                                        |   | 2012 |   |   | 2011 |   |
|                                                        |   |   |   |   | (Restated) |   |
|  Cash flows from operating activities                  |   |   |   |   |   |   |
|  Net income (loss)                                     |   | $ | (108,186 | ) |   | $ | 41,146 |   |
|  Adjustments to reconcile net income (loss) to         |   |   |   |   |   |   |   |   |
|  net cash provided by (used in) operating activities:  |   |   |   |   |   |   |   |   |
|  Bad debt (recoveries)                                 |   |   | (35,072 | ) |   |   | - |   |
|  Depreciation and amortization                         |   |   | 54,517 |   |   |   | 58,352 |   |
|  Amortization of intangible assets                     |   |   | 68,124 |   |   |   | - |   |
|  Amortization of deferred financing costs              |   |   | 5,041 |   |   |   | - |   |
|  Amortization of discount on convertible notes payable |   |   | 14,978 |   |   |   | - |   |
|  Decrease (increase) in assets:                        |   |   |   |   |   |   |   |   |
|  Accounts receivable                                   |   |   | 80,190 |   |   |   | 92,587 |   |
|  Other current assets                                  |   |   | 8,776 |   |   |   | - |   |
|  Increase (decrease) in liabilities:                   |   |   |   |   |   |   |   |   |
|  Accounts payable                                      |   |   | 63,967 |   |   |   | (37,787 | ) |
|  Accounts payable, related parties                     |   |   | 53,969 |   |   |   | - |   |
|  Accrued expenses                                      |   |   | (889 | ) |   |   | 1,291 |   |
|  Deferred revenues                                     |   |   | (65,022 | ) |   |   | (61,963 | ) |
|  Net cash provided by (used in) operating activities   |   |   | 140,393 |   |   |   | 93,626 |   |
|                                                        |   |   |   |   |   |   |   |   |
|  Cash flows from investing activities                  |   |   |   |   |   |   |   |   |
|  Proceeds from the sale of equipment                   |   |   | 14,175 |   |   |   | - |   |
|  Purchase of equipment                                 |   |   | (145,947 | ) |   |   | - |   |
|  Acquisition of subsidiaries                           |   |   | (39,200 | ) |   |   | - |   |
|  Net cash used in investing activities                 |   |   | (170,972 | ) |   |   | - |   |
|                                                        |   |   |   |   |   |   |   |   |
|  Cash flows from financing activities                  |   |   |   |   |   |   |   |   |
|  Proceeds on capital lease obligations payable         |   |   | - |   |   |   | 36,831 |   |
|  Payments on capital lease obligations payable         |   |   | (17,007 | ) |   |   | (72,541 | ) |
|  Proceeds from notes payable, related parties          |   |   | 19,539 |   |   |   | 66,530 |   |
|  Repayment of notes payable, related parties           |   |   | (75,630 | ) |   |   | (74,601 | ) |
|  Proceeds from long term debt                          |   |   | 293,487 |   |   |   | - |   |
|  Repayment of long term debt                           |   |   | (120,811 | ) |   |   | - |   |
|  Net cash provided by (used in) financing activities   |   |   | 99,578 |   |   |   | (43,781 | ) |
|                                                        |   |   |   |   |   |   |   |   |
|  Net increase (decrease) in cash                       |   |   | 68,999 |   |   |   | 49,845 |   |
|  Cash - beginning                                      |   |   | 12,668 |   |   |   | 40,613 |   |
|  Cash - ending                                         |   | $ | 81,667 |   |   | $ | 90,458 |   |
|                                                        |   |   |   |   |   |   |   |   |
|  Supplemental disclosures:                             |   |   |   |   |   |   |   |   |
|  Interest paid                                         |   | $ | 29,279 |   |   | $ | 13,615 |   |
|  Income taxes paid                                     |   | $ | - |   |   | $ | - |   |
|                                                        |   |   |   |   |   |   |   |   |
|  Non-cash investing and financing activities:          |   |   |   |   |   |   |   |   |
|  Acquisition of subsidiary in exchange for debt        |   | $ | 460,800 |   |   | $ | - |   |
|  Acquisition of leased assets for debt                 |   | $ | 17,855 |   |   | $ | - |   |
|  Value of shares issued for conversion of debt         |   | $ | 20,000 |   |   | $ | - |   |
|                                                        |   |   |   |   |   |   |   |   |
| See accompanying notes to financial statements.             |   |

----

|                                   |   | State of      |   |            |   | Abbreviated |
|----------------------------------------|--------|---------------|--------|-----------------|--------|-------------|
| Name of Entity(2)                      |   | Incorporation |   | Relationship(1) |   | Reference   |
| Epazz, Inc.                            |   | Illinois      |   | Parent          |   | Epazz       |
| IntelliSys, Inc.                       |   | Wisconsin     |   | Subsidiary      |   | IntelliSys  |
| Professional Resource Management, Inc. |   | Illinois      |   | Subsidiary      |   | PRMI        |
| Desk Flex, Inc.                        |   | Illinois      |   | Subsidiary      |   | DFI         |
| K9 Bytes, Inc.                         |   | Illinois      |   | Subsidiary      |   | K9 Bytes    |
| MS Health, Inc.                        |   | Illinois      |   | Subsidiary      |   | MS Health   |

----

----

----

|                                                                 |   | As Originally |       |   |        |   |       |        |   |
|----------------------------------------------------------------------|--------|---------------|------------|--------|-------------|--------|------------|-------------|--------|
|                                                                 |   | Reported      |       |   |        |   |       | As Restated |   |
|                                                                 |   | June 30,      |       |   |        |   |       | June 30,    |   |
|                                                                 |   | 2011          |       |   | Adjustments |   |       | 2011        |   |
|  Assets                                                         |   |          |       |   |        |   |       | (Restated)  |   |
|  Current assets:                                                |   |          |       |   |        |   |       |        |   |
|  Cash                                                           |   | $             | 89,858     |   |        | $      | 600        |        |   | $ | 90,458 |   |
|  Accounts receivable, net                                       |   |          | 201,950    |   |        |   | -          |        |   |   | 201,950 |   |
|  Deferred financing cost, current                               |   |          | 2,342      |   |        |   | -          |        |   |   | 2,342 |   |
|  Other current assets                                           |   |          | 8,852      |   |        |   | (600       | )           |   |   | 8,252 |   |
|  Total current assets                                           |   |          | 303,002    |   |        |   | -          |        |   |   | 303,002 |   |
|                                                                 |   |          |       |   |        |   |       |        |   |   |   |   |
|  Property and equipment, net                                    |   |          | 201,124    |   |        |   | 3,164      |        |   |   | 204,288 |   |
|  Intangible assets, net                                         |   |          | 355,178    |   |        |   | 190,001    |        |   |   | 545,179 |   |
|  Goodwill                                                       |   |          | 253,588    |   |        |   | (200,000   | )           |   |   | 53,588 |   |
|  Prepaid expense                                                |   |          | 1,000,000  |   |        |   | (1,000,000 | )           |   |   | - |   |
|                                                                 |   |          |       |   |        |   |       |        |   |   |   |   |
|  Total assets                                                   |   | $             | 2,112,892  |   |        | $      | (996,836   | )           |   | $ | 1,106,057 |   |
|                                                                 |   |          |       |   |        |   |       |        |   |   |   |   |
|                                                                 |   |          |       |   |        |   |       |        |   |   |   |   |
|  Liabilities and Stockholders' Equity (Deficit)                 |   |          |       |   |        |   |       |        |   |   |   |   |
|  Current liabilities:                                           |   |          |       |   |        |   |       |        |   |   |   |   |
|  Accounts payable and accrued liabilities                       |   | $             | 116,151    |   |        | $      | 443        |        |   | $ | 116,594 |   |
|  Deferred revenue                                               |   |          | 204,928    |   |        |   | -          |        |   |   | 204,928 |   |
|  Current maturities of capital lease obligations payable        |   |          | 50,641     |   |        |   | -          |        |   |   | 50,641 |   |
|  Current maturities of long term debt                           |   |          | 61,731     |   |        |   | -          |        |   |   | 61,731 |   |
|  Total current liabilities                                      |   |          | 433,451    |   |        |   | 443        |        |   |   | 433,894 |   |
|                                                                 |   |          |       |   |        |   |       |        |   |   |   |   |
| Capital lease obligations payable, net of current maturities         |   |          | 52,295     |   |        |   | -          |        |   |   | 52,295 |   |
| Notes payable, related parties, net of current maturities            |   |          | 558,017    |   |        |   | -          |        |   |   | 558,017 |   |
| Long term debt, net of current maturities                            |   |          | 257,675    |   |        |   | 36,392     |        |   |   | 294,067 |   |
|  Total liabilities                                              |   |          | 1,301,438  |   |        |   | 36,835     |        |   |   | 1,338,273 |   |
|                                                                 |   |          |       |   |        |   |       |        |   |   |   |   |
|  Stockholders' equity (deficit):                                |   |          |       |   |        |   |       |        |   |   |   |   |
|  Common stock, Class A, $0.01 par value, 60,000,000 shares |   |          |       |   |        |   |       |        |   |   |   |   |
|  authorized, 30,448,294 shares issued and outstanding           |   |          | 304,483    |   |        |   | -          |        |   |   | 304,483 |   |
|  Common stock, Class B, $0.01 par value, 60,000,000 shares |   |          |       |   |        |   |       |        |   |   |   |   |
|  authorized, 2,500,000 shares issued and outstanding            |   |          | 25,000     |   |        |   | -          |        |   |   | 25,000 |   |
|  Additional paid in capital                                     |   |          | 2,268,360  |   |        |   | -          |        |   |   | 2,268,360 |   |
|  Stockholders’ receivable                                 |   |          | -          |   |        |   | (1,000,000 | )           |   |   | (1,000,000 | ) |
|  Accumulated deficit                                            |   |          | (1,786,389 | )      |        |   | (43,670    | )           |   |   | (1,848,658 | ) |
|  Total stockholders' equity (deficit)                           |   |          | (811,454   | )      |        |   | (1,043,670 | )           |   |   | (232,216 | ) |
|                                                                 |   |          |       |   |        |   |       |        |   |   |   |   |
|  Total liabilities and stockholders' equity (deficit)           |   | $             | 2,112,892  |   |        | $      | (1,006,835 | )           |   | $ | 1,106,057 |   |

----

|                          |   | As Originally |    |   |        |   |    |        |   |
|-------------------------------|--------|---------------|---------|--------|-------------|--------|---------|-------------|--------|
|                          |   | Reported      |    |   |        |   |    | As Restated |   |
|                          |   | June 30,      |    |   |        |   |    | June 30,    |   |
|                          |   | 2011          |    |   | Adjustments |   |    | 2011        |   |
|                          |   |          |    |   |        |   |    | (Restated)  |   |
| Revenue                       |   | $             | 282,707 |   |        | $      | (47,000 | )           |   | $ | 235,707 |   |
|                          |   |          |    |   |        |   |    |        |   |   |   |   |
| Expenses:                     |   |          |    |   |        |   |    |        |   |   |   |   |
| General and administrative    |   |          | 180,798 |   |        |   | (3,360  | )           |   |   | 177,438 |   |
| Depreciation and amortization |   |          | 29,271  |   |        |   | 3,333   |        |   |   | 32,604 |   |
| Total operating expenses      |   |          | 210,069 |   |        |   | (27     | )           |   |   | 210,042 |   |
|                          |   |          |    |   |        |   |    |        |   |   |   |   |
| Net operating income          |   |          | 72,638  |   |        |   | (46,973 | )           |   |   | 25,665 |   |
|                          |   |          |    |   |        |   |    |        |   |   |   |   |
| Other income (expense):       |   |          |    |   |        |   |    |        |   |   |   |   |
| Interest income               |   |          | 12      |   |        |   | -       |        |   |   | 12 |   |
| Interest expense              |   |          | (13,882 | )      |        |   | -       |        |   |   | (13,882 | ) |
| Total other income (expense)  |   |          | (13,870 | )      |        |   | -       |        |   |   | (13,870 | ) |
|                          |   |          |    |   |        |   |    |        |   |   |   |   |
| Net income                    |   | $             | 58,768  |   |        | $      | (46,973 | )           |   | $ | 11,795 |   |

|                          |   | As Originally |    |   |        |   |    |        |   |
|-------------------------------|--------|---------------|---------|--------|-------------|--------|---------|-------------|--------|
|                          |   | Reported      |    |   |        |   |    | As Restated |   |
|                          |   | June 30,      |    |   |        |   |    | June 30,    |   |
|                          |   | 2011          |    |   | Adjustments |   |    | 2011        |   |
|                          |   |          |    |   |        |   |    | (Restated)  |   |
| Revenue                       |   | $             | 487,129 |   |        | $      | (36,839 | )           |   | $ | 450,290 |   |
|                          |   |          |    |   |        |   |    |        |   |   |   |   |
| Expenses:                     |   |          |    |   |        |   |    |        |   |   |   |   |
| General and administrative    |   |          | 324,709 |   |        |   | 6,224   |        |   |   | 330,933 |   |
| Depreciation and amortization |   |          | 52,978  |   |        |   | 6,666   |        |   |   | 59,644 |   |
| Total operating expenses      |   |          | 377,687 |   |        |   | 12,890  |        |   |   | 390,577 |   |
|                          |   |          |    |   |        |   |    |        |   |   |   |   |
| Net operating income          |   |          | 109,442 |   |        |   | (49,729 | )           |   |   | 59,713 |   |
|                          |   |          |    |   |        |   |    |        |   |   |   |   |
| Other income (expense):       |   |          |    |   |        |   |    |        |   |   |   |   |
| Interest income               |   |          | 27      |   |        |   | -       |        |   |   | 27 |   |
| Interest expense              |   |          | (24,820 | )      |        |   | 6,226   |        |   |   | (18,594 | ) |
| Total other income (expense)  |   |          | (24,793 | )      |        |   | 6,226   |        |   |   | (18,567 | ) |
|                          |   |          |    |   |        |   |    |        |   |   |   |   |
| Net income                    |   | $             | 84,649  |   |        | $      | (43,503 | )           |   | $ | 41,146 |   |

----

|                                                |   | As Originally |    |   |        |   |    |        |   |
|-----------------------------------------------------|--------|---------------|---------|--------|-------------|--------|---------|-------------|--------|
|                                                |   | Reported      |    |   |        |   |    | As Restated |   |
|                                                |   | June 30,      |    |   |        |   |    | June 30,    |   |
|                                                |   | 2011          |    |   | Adjustments |   |    | 2011        |   |
|                                                |   |          |    |   |        |   |    | (Restated)  |   |
|  Cash flows from operating activities          |   |          |    |   |        |   |    |        |   |
|  Net income (loss)                             |   | $             | 84,647  |   |        | $      | (43,501 | )           |   | $ | 41,146 |   |
|  Adjustments to reconcile net income (loss) to |   |          |    |   |        |   |    |        |   |   |   |   |
|  net cash provided by operating activities:    |   |          |    |   |        |   |    |        |   |   |   |   |
|  Depreciation and amortization                 |   |          | 52,978  |   |        |   | 5,374   |        |   |   | 58,352 |   |
|  Decrease (increase) in assets:                |   |          |    |   |        |   |    |        |   |   |   |   |
|  Accounts receivable                           |   |          | 92,582  |   |        |   | 5       |        |   |   | 92,587 |   |
|  Increase (decrease) in liabilities:           |   |          |    |   |        |   |    |        |   |   |   |   |
|  Accounts payable                              |   |          | (37,787 | )      |        |   | -       |        |   |   | (37,787 | ) |
|  Accrued expenses                              |   |          | -       |   |        |   | 1,291   |        |   |   | 1,291 |   |
|  Deferred revenues                             |   |          | (61,963 | )      |        |   | -       |        |   |   | (61,963 | ) |
|  Net cash provided by operating activities     |   |          | 130,457 |   |        |   | (36,831 | )           |   |   | 93,626 |   |
|                                                |   |          |    |   |        |   |    |        |   |   |   |   |
|  Cash flows from financing activities          |   |          |    |   |        |   |    |        |   |   |   |   |
|  Proceeds on capital lease obligations payable |   |          | -       |   |        |   | 36,381  |        |   |   | 36,381 |   |
|  Payments on capital lease obligations payable |   |          | (72,541 | )      |        |   | -       |        |   |   | (72,541 | ) |
|  Proceeds from notes payable, related parties  |   |          | 66,530  |   |        |   | -       |        |   |   | 66,530 |   |
|  Repayment of notes payable, related parties   |   |          | (74,601 | )      |        |   | -       |        |   |   | (74,601 | ) |
|  Net cash used in financing activities         |   |          | (80,612 | )      |        |   | 36,381  |        |   |   | (43,781 | ) |
|                                                |   |          |    |   |        |   |    |        |   |   |   |   |
|  Net increase (decrease) in cash               |   |          | 49,845  |   |        |   | -       |        |   |   | 49,845 |   |
|  Cash - beginning                              |   |          | 40,013  |   |        |   | 600     |        |   |   | 40,613 |   |
|  Cash - ending                                 |   | $             | 89,858  |   |        | $      | 600     |        |   | $ | 90,458 |   |
|                                                |   |          |    |   |        |   |    |        |   |   |   |   |
|  Supplemental disclosures:                     |   |          |    |   |        |   |    |        |   |   |   |   |
|  Interest paid                                 |   | $             | 13,882  |   |        | $      | -       |        |   | $ | 13,882 |   |
|  Income taxes paid                             |   | $             | -       |   |        | $      | -       |        |   | $ | - |   |

----

|                                                     |   | October 26, |    |
|----------------------------------------------------------|--------|-------------|---------|
|                                                     |   | 2011        |    |
| Consideration:                                           |   |        |    |
| Cash paid at closing                                     |   | $           | 5,000   |   |
| Small business loan(1)                                   |   |        | 169,250 |   |
| Seller financed note payable(2)                          |   |        | 30,750  |   |
| Fair value of total consideration exchanged              |   | $           | 205,000 |   |
|                                                     |   |        |    |   |
| Fair value of identifiable assets acquired assumed:      |   |        |    |   |
| Accounts receivable                                      |   | $           | 25,483  |   |
| Inventories supplies                                     |   |        | 1,000   |   |
| Equipment                                                |   |        | 1,273   |   |
| Technology-based intangible assets                       |   |        | 42,000  |   |
| Customer base                                            |   |        | 11,000  |   |
| Trade name                                               |   |        | 22,000  |   |
| Non-compete agreement                                    |   |        | 15,000  |   |
| Total fair value of assets assumed                       |   |        | 117,756 |   |
| Consideration paid in excess of fair value (Goodwill)(3) |   | $           | 87,244  |   |
|                                                     |   |        |    |   |

| (1)Consideration included partial proceeds obtained from a $235,000 Small Business Association (“SBA”) loan, carrying a term of ten (10) years; maturing on October 26, 2021, bearing interest at the prime rate plus 2.75% per annum, adjusted quarterly; and payable in monthly installments (beginning in December 2011) of $2,609 per month. The loan is guaranteed by the Company and personally guaranteed by Shaun Passley, the Company’s Chief Executive Officer; and is secured by all of the assets of K9 Bytes, Inc., the Illinois corporation and wholly-owned subsidiary formed to house the acquired assets and the Company, 100% of the outstanding capital of the K9 subsidiary, and a life insurance policy on Mr. Passley’s life in the amount of $235,000. |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| (2)Consideration included an unsecured $30,750 seller financed note payable, bearing 6% per annum and is payable in monthly installments of $333 per month starting in November 2011 and ending on October 26, 2014, at which time the then remaining balance of the K9 Note is due ($23,017, assuming no additional payments other than those scheduled).                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |
| (3)The consideration paid in excess of the net fair value of assets acquired and liabilities assumed has been recognized as goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |

----

----

|                                                     | March 28, |   |
|----------------------------------------------------------|-----------|--------|
|                                                     | 2012      |   |
| Consideration:                                           |      |   |   |
| Cash paid at closing                                     |      | $      | 39,200 |   |
| Small business loan(1)                                   |      |   | 360,800 |   |
| Seller financed note payable(2)(3)                       |      |   | 124,697 |   |
| Fair value of total consideration exchanged              |      | $      | 524,697 |   |
|                                                     |      |   |   |   |
| Fair value of identifiable assets acquired assumed:      |      |   |   |   |
| Other current assets                                     |      | $      | 7,367 |   |
| Equipment                                                |      |   | 2,703 |   |
| Contracts                                                |      |   | 258,000 |   |
| Technology-based intangible assets                       |      |   | 124,000 |   |
| Non-compete agreement                                    |      |   | 18,000 |   |
| Total fair value of assets assumed                       |      |   | 410,070 |   |
| Consideration paid in excess of fair value (Goodwill)(4) |      | $      | 114,627 |   |
|                                                     |      |   |   |   |

| (1)Consideration included partial proceeds obtained from a $360,800 Small Business Association (“SBA”) loan, bearing interest at fixed and variable rates. The initial interest rate is 5.5% per year for three (3) years, consisting of the Prime Rate in effect on the first business day of the month in which the SBA loan application was received, plus 2.25%. The loan terms then transition to a variable interest rate over the remaining seven (7) years of the ten (10) year maturity term, calculated at 2.25% above the Prime Rate, as adjusted quarterly. The Company must pay principal and interest payments of $3,916 monthly. The SBA Loan is guaranteed by PRMI, K9 Bytes, Desk Flex, Inc., MS Health and the Company, and secured by the assets of MS Health and the Company. |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| (2)Consideration included an unsecured $100,000 seller financed note payable (“MSHSC Note”), bearing interest at 6% per annum, a ten (10) year amortization, a right of offset, no payments of either principal or interest for two (2) years and equal payments of principal and interest commencing in year 3, no prepayment penalty, and full payment of all amounts due after five (5) years. The MSHSC Note is secured by a security interest over the assets of MS Health. We did not purchase and MSHSC agreed to retain and be responsible for any and all liabilities of MSHSC.                                                                                                                                                                                                          |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| (3)The fair value of the seller financed note in excess of the $100,000 principal balance attributable to the deferred payment terms will be amortized to interest expense over the deferred financing period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |
| (4)The consideration paid in excess of the net fair value of assets acquired and liabilities assumed has been recognized as goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |

----

|                                                        |   | Combined Pro Forma:      |       |
|-------------------------------------------------------------|--------|--------------------------|------------|
|                                                        |   | For the six months ended |       |
|                                                        |   | June 30,                 |       |
|                                                        |   | 2012                     |       |   | 2011 |   |
|                                                        |   |                     |       |   |   |   |
| Revenue:                                                    |   | $                        | 720,390    |   |   | $ | 591,229 |   |
|                                                        |   |                     |       |   |   |   |   |   |
| Expenses:                                                   |   |                     |       |   |   |   |   |   |
| Operating expenses                                          |   |                     | 1,130,649  |   |   |   | 1,064,403 |   |
|                                                        |   |                     |       |   |   |   |   |   |
| Net operating income (loss)                                 |   |                     | (410,259   | ) |   |   | (473,174 | ) |
|                                                        |   |                     |       |   |   |   |   |   |
| Other income (expense)                                      |   |                     | (87,396    | ) |   |   | 6,842 |   |
|                                                        |   |                     |       |   |   |   |   |   |
| Net income (loss)                                           |   | $                        | (497,655   | ) |   | $ | (466,332 | ) |
|                                                        |   |                     |       |   |   |   |   |   |
| Weighted average number of common shares                    |   |                     |       |   |   |   |   |   |
| Outstanding – basic and fully diluted                 |   |                     | 31,586,526 |   |   |   | 30,448,294 |   |
|                                                        |   |                     |       |   |   |   |   |   |
| Net income (loss) per share – basic and fully diluted |   | $                        | (0.02      | ) |   | $ | (0.02 | ) |

----

|                                        |   | Fair Value Measurements at June 30, 2012 |   |
|---------------------------------------------|--------|------------------------------------------|--------|
|                                        |   | Level 1                                  |   |   | Level 2 |   |   | Level 3 |   |
| Assets                                      |   |                                     |   |   |   |   |   |   |   |
| Intangible assets                           |   | $                                        | -      |   |   | $ | - |   |   | $ | 908,474 |   |
| Goodwill                                    |   |                                     | -      |   |   |   | - |   |   |   | 255,460 |   |
| Total assets                                |   |                                     |   |   |   |   |   |   |   |   | 1,163,934 |   |
| Liabilities                                 |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Seller financed promissory note, MSHSC Note |   |                                     | -      |   |   |   | - |   |   |   | 124,697 |   |
| Convertible debt, net of discount of $-0-   |   |                                     | -      |   |   |   | 59,500 |   |   |   | - |   |
| Total Liabilities                           |   |                                     | -      |   |   |   | 59,500 |   |   |   | 124,697 |   |
|                                        |   | $                                        | -      |   |   | $ | (59,500 | ) |   | $ | 1,039,237 |   |

|                                         |   | Fair Value Measurements at December 31, 2011 |   |
|----------------------------------------------|--------|----------------------------------------------|--------|
|                                         |   | Level 1                                      |   |   | Level 2 |   |   | Level 3 |   |
| Assets                                       |   |                                         |   |   |   |   |   |   |   |
| Intangible assets                            |   | $                                            | -      |   |   | $ | - |   |   | $ | 576,598 |   |
| Goodwill                                     |   |                                         | -      |   |   |   | - |   |   |   | 140,833 |   |
| Total assets                                 |   |                                         |   |   |   |   |   |   |   |   | 717,431 |   |
| Liabilities                                  |   |                                         |   |   |   |   |   |   |   |   |   |   |
| Convertible debt, net of discount of $14,978 |   |                                         | -      |   |   |   | 64,522 |   |   |   | - |   |
| Total Liabilities                            |   |                                         | -      |   |   |   | 64,522 |   |   |   | - |   |
|                                         |   | $                                            | -      |   |   | $ | (64,522 | ) |   | $ | 717,431 |   |

----

|                                           |   | June 30, |     |   | December 31, |   |
|------------------------------------------------|--------|----------|----------|--------|--------------|--------|
|                                           |   | 2012     |     |   | 2011         |   |
| Furniture and fixtures                         |   | $        | 2,187    |   |         | $      | 2,187 |   |
| Computers and equipment                        |   |     | 310,526  |   |         |   | 181,459 |   |
| Software                                       |   |     | 55,029   |   |         |   | 52,326 |   |
| Assets held under capital leases               |   |     | 134,800  |   |         |   | 116,945 |   |
|                                           |   |     | 502,542  |   |         |   | 352,917 |   |
| Less accumulated depreciation and amortization |   |     | (261,839 | )      |         |   | (207,324 | ) |
|                                           |   | $        | 240,703  |   |         | $      | 145,593 |   |

|                                                 |   | Useful   |   | June 30, |      | December 31, |
|------------------------------------------------------|--------|----------|--------|----------|-----------|--------------|
| Description                                          |   | Life     |   | 2012     |      | 2011         |
| Technology-based intangible assets - PRMI            |   | 15 Years |   | $        | 480,720   |         | $ | 480,720 |
| Technology-based intangible assets - IntelliSys      |   | 5 Years  |   |     | 200,000   |         |   | 200,000 |
| Technology-based intangible assets - K9 Bytes        |   | 5 Years  |   |     | 42,000    |         |   | 42,000 |
| Technology-based intangible assets – MS Health |   | 5 Years  |   |     | 124,000   |         |   | - |
| Contracts – MS Health                          |   | 6 Years  |   |     | 258,000   |         |   | - |
| Trade name - K9 Bytes                                |   | 5 Years  |   |     | 22,000    |         |   | 22,000 |
| Other intangible assets – MS Health            |   | 2 Years  |   |     | 18,000    |         |   | - |
| Other intangible assets - K9 Bytes                   |   | 2 Years  |   |     | 26,000    |         |   | 26,000 |
| Total intangible assets                              |   |     |   |     | 1,170,720 |         |   | 770,720 |
| Less: accumulated amortization                       |   |     |   |     | (262,246) |         |   | (194,122) |
| Intangible assets, net                               |   |     |   | $        | 908,474   |         | $ | 576,598 |

|                                                                                                                                                                                                                                                           |   | June 30, |   |   | December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                                           |   | 2012     |   |   | 2011         |   |
|                                                                                                                                                                                                                                                           |   |     |   |   |         |   |
| Line of credit of $50,000 from PNC bank, originating on February 16, 2012. The outstanding balance on the line of credit bears interest at an introductory rate of 4.25% for the first year, subject to renewal thereafter. Payments of $739 are due monthly.  |   | $        | 48,071 |   |         | $      | - |   |
|                                                                                                                                                                                                                                                           |   |     |   |   |         |   |   |   |
| Line of credit of $20,000 from US Bank, originating on June 8, 2012. The outstanding balance on the line of credit bears interest at 9.75%, maturing on June 5, 2019. Payments of $500 are due monthly.                                                        |   |     | 20,000 |   |         |   | - |   |
|                                                                                                                                                                                                                                                           |   |     |   |   |         |   |   |   |
| Line of credit of $40,000 from Dell Business Credit available for the purchase of Dell products, such as computer and software equipment. The outstanding balance on the line of credit bears interest at a rate of 26.99%. Variable payments are due monthly. |   |     | 7,453  |   |         |   | - |   |
|                                                                                                                                                                                                                                                           |   |     |   |   |         |   |   |   |
| Total line of credit                                                                                                                                                                                                                                           |   |     | 75,524 |   |         |   | - |   |
| Less: current portion                                                                                                                                                                                                                                          |   |     | 75,524 |   |         |   | - |   |
| Line of credit, less current portion                                                                                                                                                                                                                           |   | $        | -      |   |         | $      | - |   |

----

| Twelve Months                                         |   |   |     |
|-------------------------------------------------------|--------|--------|----------|
| Ending                                                |   |   |     |
| June 30,                                              |   | Amount |     |
|                                                  |   |   |     |
| 2013                                                  |   |   | 46,564   |   |
| 2013                                                  |   |   | 62,172   |   |
| 2014                                                  |   |   | 42,500   |   |
| 2015                                                  |   |   | 5,500    |   |
| 2016                                                  |   |   | 5,500    |   |
| Total minimum payments                                |   | $      | 162,236  |   |
| Less: amount representing interest                    |   |   | (100,057 | ) |
| Present value of net minimum lease payments           |   |   | 62,179   |   |
| Less: Current maturities of capital lease obligations |   |   | (32,767  | ) |
| Long-term capital lease obligations                   |   | $      | 29,412   |   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | June 30, |    |   | December 31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2012     |    |   | 2011         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     |    |   |         |   |
| Various unsecured promissory notes carrying a 15% interest rate, due on demand from the Company’s CEO.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | $        | 9,422   |   |         | $      | 61,513 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     |    |   |         |   |   |   |
| Unsecured promissory note payable owed to an immediate family member of the Company’s CEO carries a 15% interest rate, matured on July 31, 2007. Currently in default.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     | 34,700  |   |         |   | 34,700 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     |    |   |         |   |   |   |
| Unsecured promissory note payable owed to a Company owned by an immediate family member of the Company’s CEO carries a 15% interest rate, matured on July 31, 2007. Currently in default.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |     | 8,085   |   |         |   | 12,085 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     |    |   |         |   |   |   |
| Secured promissory note originated on June 4, 2008 due to Star Financial Corporation, which is owned by Fay Passley, the mother of the Company’s CEO, Shaun Passley, which has since been amended. The loan bears interest at 10%. In April 2010, Star Financial, agreed to modify the repayment terms of the June 2008 Note (as defined above), to provide for $100,000 to be due on August 1, 2011, $100,000 to be due on August 1, 2012, and the remaining balance of the June 2008 Note to be due on August 1, 2013 in return for junior lien on the Company’s assets. On July 2, 2012 this note and accrued interest was exchanged for a convertible promissory note in the amount of $440,849. The note is convertible at 75% of the average closing price of the Company’s common stock immediately preceding the date of conversion, or the fixed price of $0.005 per share, whichever is greater. |   |     | 296,103 |   |         |   | 296,103 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     |    |   |         |   |   |   |
| Total notes payable, related parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     | 420,981 |   |         |   | 404,401 |   |
| Less: current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |     | 420,981 |   |         |   | 404,401 |   |
| Notes payable, related parties, less current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $        | -       |   |         | $      | - |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | June 30, |   |   | December 31, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2012     |   |   | 2011         |   |
| Unsecured $50,000 convertible promissory note carries an 8% interest rate (“First Asher Note”), matured on February 28, 2012. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-nine percent (59%) of the average of the five lowest trading bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00009 per share, whichever is greater. The note carries a twenty two percent (22%) interest rate in the event of default, and the debt holder is limited to owning 4.99% of the Company’s issued and outstanding shares. The note holder converted a total of $20,000 and $8,000 of principal into 2,613,731 and 451,977 shares of common stock during the six months ended June 30, 2012 and the year ended December 31, 2011, respectively. Currently in default. |   | $        | 22,000 |   |         | $      | 42,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |     |   |   |         |   |   |   |
| Unsecured $37,500 convertible promissory note carries an 8% interest rate (“Second Asher Note”), matured on March 30, 2012. The principal is convertible into shares of common stock at the discretion of the note holder at a price equal to fifty-nine percent (59%) of the average of the five lowest bid prices of the Company’s common stock for the ten (10) trading days prior to the conversion date, or $0.00009 per share, whichever is greater. The note carries a twenty-two percent (22%) interest rate in the event of default, and the debt holder was limited to owning 4.99% of the Company’s issued and outstanding shares. Currently in default.                                                                                                                                                                                                                               |   |     | 37,500 |   |         |   | 37,500 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |     |   |   |         |   |   |   |
| Total convertible debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |     | 59,500 |   |         |   | 79,500 |   |
| Less: unamortized discount on beneficial conversion feature                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |     | -      |   |         |   | (14,978 | ) |
| Convertible debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $        | 59,500 |   |         | $      | 64,522 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | June 30, |    |   | December 31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2012     |    |   | 2011         |   |
| On April 1, 2012, the Company purchased $129,747 of equipment with a three year equipment finance loan. The loan bears interest at an effective interest rate of 8.3%, along with monthly principal and interest payments of $4,078. The loan is collateralized with the purchased equipment. Matures on April 1, 2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $        | 119,998 |   |         | $      | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |     |    |   |         |   |   |   |
| Consideration for the MS Health acquisition included partial proceeds obtained from a $360,800 Small Business Association (“SBA”) loan, bearing interest at fixed and variable rates. The initial interest rate is 5.5% per year for three (3) years, consisting of the Prime Rate in effect on the first business day of the month in which the SBA loan application was received, plus 2.25%. The loan terms then transition to a variable interest rate over the remaining seven (7) years of the ten (10) year maturity term, calculated at 2.25% above the Prime Rate, as adjusted quarterly. The Company must pay principal and interest payments of $3,916 monthly. The SBA Loan is guaranteed by PRMI, K9 Bytes, Desk Flex, Inc., MS Health and the Company, and secured by the assets of MS Health and the Company. |   |     | 353,915 |   |         |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |     |    |   |         |   |   |   |
| Consideration for the MS Health acquisition included an unsecured $100,000 seller financed note payable (“MSHSC Note”), bearing interest at 6% per annum, a ten (10) year amortization, a right of offset, no payments of either principal or interest for two (2) years and equal payments of principal and interest commencing in year 3, no prepayment penalty, and full payment of all amounts due after five (5) years. The MSHSC Note is secured by a security interest over the assets of MS Health. We did not purchase and MSHSC agreed to retain and be responsible for any and all liabilities of MSHSC.                                                                                                                                                                                                          |   |     | 100,000 |   |         |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |     |    |   |         |   |   |   |

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| On November 7, 2011, DeskFlex entered into a four month $20,000 note payable agreement with On Deck Capital. Payments of $183 are due daily on the loan. The Company paid total initial fees of $500 in connection with the loan, agreed to pay additional fees of $387 per month in servicing fees during the term of the loan and to repay the loan via daily payments of $183. The total payments due on the loan equate to an annual interest rate of 18%. On January 3, 2012, we amended our loan agreement to increase the loan balance by approximately $35,500. The proceeds were received with substantially the same terms as the original debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | 9,330     |   |   |   | 14,627  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|---------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |      |   |   |   |    |   |
| On March 20, 2012, DeskFlex entered into a $25,000 three year promissory note bearing interest at 11%. The promissory note is payable in monthly installments of $843 per month, maturing on March 20, 2015 (the “Maturity Date”).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 22,565    |   |   |   | -       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |      |   |   |   |    |   |
| On May 15, 2011 DeskFlex entered into an unsecured $33,478 promissory note with Art Goes which is payable in monthly installments of $2,322, carries a 6% interest rate, maturing on August 15, 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 4,610     |   |   |   | 15,935  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |      |   |   |   |    |   |
| Pursuant to an asset purchase agreement entered into on October 26, 2011, the Company granted K9 Bytes, Inc., a Florida corporation, a subordinated secured $30,750 promissory note carrying a 6% interest rate, payable in monthly installments of $333 per month starting in November 2011 and ending on October 26, 2014, at which time the then remaining balance of the promissory note ($23,017, assuming no additional payments other than those scheduled) is due. The promissory note is secured by a secondary lien on all of the assets of Epazz’s subsidiary, K9 Bytes, Inc., an Illinois corporation formed to house the purchased assets. The promissory note is also personally guaranteed by Shaun Passley, our Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 29,291    |   |   |   | 29,634  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |      |   |   |   |    |   |
| Unsecured $50,000 promissory note originated on September 15, 2010 between Intellisys and Paul Prahl, payable in monthly installments of $970 carries a 6% interest rate, maturing on September 18, 2015. The Company also agreed to provide Mr. Prahl earn-out rights, which provide that he will receive up to a maximum of $13,350 per year for the three calendar years following the Closing (with the first such calendar year beginning on January 1, 2011), based on the revenues generated by IntelliSys during such applicable year, whereas $6,675 is earned if revenues are between $350,000 and $380,000, $10,012 is earned if revenues are between $380,000 and $395,000, or $13,350 is earned if revenues are greater than $395,000 during each relevant year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 34,127    |   |   |   | 20,210  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |      |   |   |   |    |   |
| Unsecured term loan between Epazz and Bank of America, originating on June 15, 2011 bearing interest at 9.5% matures on June 17, 2016. Payments of $1,559 are due monthly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   | 77,960    |   |   |   | 90,193  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |      |   |   |   |    |   |
| Unsecured promissory note between Epazz and Newtek Finance for $185,000 originating on September 30, 2010 bearing interest at 6% matures on September 30, 2020. Payments of $2,054 are due monthly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 161,177   |   |   |   | 168,106 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |      |   |   |   |    |   |
| The Company raised funds paid pursuant to an asset purchase agreement with K9 Bytes, Inc., a Florida corporation, on October 26, 2011, through a $235,000 Small Business Association (“SBA”) loan from a third party lender (the “Third Party Lender” and the “SBA Loan”). The SBA Loan has a term of ten (10) years; maturing on October 26, 2021, bearing interest at the prime rate plus 2.75% per annum, adjusted quarterly; is payable in monthly installments (beginning in December 2011) of $2,609 per month; is guaranteed by the Company and personally guaranteed by Shaun Passley, the Company’s Chief Executive Officer; and is secured by all of the assets of K9 Bytes, Inc., the Illinois corporation and wholly-owned subsidiary formed to house the acquired assets and the Company, 100% of the outstanding capital of the K9 subsidiary, and a life insurance policy on Mr. Passley’s life in the amount of $235,000. A total of approximately $10,000 of the amount borrowed under the SBA Loan was used to pay closing fees in connection with the loan, $169,250 was used to pay K9 Bytes the cash amount due pursuant to the terms of the Purchase Contract and the remainder of such loan amount was made available for working capital for the Company and the wholly-owned subsidiary, K9 Bytes, Inc. |   |   | 225,012   |   |   |   | 235,928 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |      |   |   |   |    |   |
| Total long term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   | 1,137,985 |   |   |   | 574,633 |   |
| Less: current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 153,569   |   |   |   | 75,565  |   |
| Long term debt, less current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | $      | 984,416   |   |   | $      | 499,068 |   |

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----

----

----

----

| ·   | Single sign-on: Provides a powerful single-sign-on with security procedure to protect 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. |
|--------------------|--------------------------------------------------------------|

----

----

| ·   | Planning and Scheduling; |
|--------------------|--------------------------|

| ·   | Agent Adherence; |
|--------------------|------------------|

| ·   | Agent Performance; |
|--------------------|--------------------|

| ·   | ACD Group Performance; |
|--------------------|------------------------|

| ·   | Real-Time Agent Status; and |
|--------------------|-----------------------------|

| ·   | Info Screen. |
|--------------------|--------------|

----

| ·   | The Alarm/Event Journal records all alarms and status changes and has the flexibility to query history based on tag names and time ranges. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Smart Server provides communication with process control and automatic collections of data. It is designed to normalize data, accumulate and summarize statistics for the plant management and maintenance systems. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Rapid application development tools dramatically reduce system development time. Development tools are included with all applications. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Fixed asset and rotating equipment. |
|--------------------|-------------------------------------|

| ·   | Preventive scheduling and predictive reports and charts. |
|--------------------|----------------------------------------------------------|

| ·   | Work order management. |
|--------------------|------------------------|

| ·   | Inventory and purchasing. |
|--------------------|---------------------------|

| ·   | Manufacture and vendor records. |
|--------------------|---------------------------------|

| ·   | Parts inventory. |
|--------------------|------------------|

| ·   | Ability to track maintenance costs by center, department, and location. |
|--------------------|-------------------------------------------------------------------------|

| ·   | Ability to customize user interface sorting by location, equipment type, department, cost center, manufacturer or vendor. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| ·   | Ability to customize reports using MS Excel compatible spreadsheets to accommodate users’ specific needs. |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

----

----

|                          |   | For the Three Months Ended |    |   |       |   |
|-------------------------------|--------|----------------------------|---------|--------|------------|--------|
|                          |   | June 30,                   |    |   | Increase / |   |
|                          |   | 2012                       |    |   | 2011       |   |   | (Decrease) |   |
|                          |   |                       |    |   | (Restated) |   |   |   |   |
| Revenues                      |   | $                          | 432,890 |   |       | $      | 235,707 |   |   | $ | 197,183 |   |
|                          |   |                       |    |   |       |   |   |   |   |   |   |   |
| General and administrative    |   |                       | 259,828 |   |       |   | 177,438 |   |   |   | 82,390 |   |
| Depreciation and amortization |   |                       | 75,167  |   |       |   | 32,604 |   |   |   | 42,563 |   |
| Bad debts (recoveries)        |   |                       | (42,847 | )      |       |   | - |   |   |   | (42,847 | ) |
|                          |   |                       |    |   |       |   |   |   |   |   |   |   |
| Total Operating Expenses      |   |                       | 292,148 |   |       |   | 210,042 |   |   |   | 82,106 |   |
|                          |   |                       |    |   |       |   |   |   |   |   |   |   |
| Net Operating Income (Loss)   |   |                       | 140,742 |   |       |   | 25,665 |   |   |   | (198,506 | ) |
|                          |   |                       |    |   |       |   |   |   |   |   |   |   |
| Interest income               |   |                       | 33      |   |       |   | 12 |   |   |   | 21 |   |
| Interest expense              |   |                       | (42,854 | )      |       |   | (13,882 | ) |   |   | (28,972 | ) |
| Total other income (expense)  |   |                       | (42,821 | )      |       |   | (13,870 | ) |   |   | (28,951 | ) |
|                          |   |                       |    |   |       |   |   |   |   |   |   |   |
| Net Income (Loss)             |   | $                          | 97,921  |   |       | $      | 11,795 |   |   | $ | 86,126 |   |

----

|                          |   | For the Six Months Ended |     |   |       |   |
|-------------------------------|--------|--------------------------|----------|--------|------------|--------|
|                          |   | June 30,                 |     |   | Increase / |   |
|                          |   | 2012                     |     |   | 2011       |   |   | (Decrease) |   |
|                          |   |                     |     |   | (Restated) |   |   |   |   |
| Revenues                      |   | $                        | 547,367  |   |       | $      | 450,290 |   |   | $ | 97,077 |   |
|                          |   |                     |     |   |       |   |   |   |   |   |   |   |
| General and administrative    |   |                     | 484,093  |   |       |   | 330,933 |   |   |   | 153,160 |   |
| Depreciation and amortization |   |                     | 122,641  |   |       |   | 59,644 |   |   |   | 52,997 |   |
| Bad debts (recoveries)        |   |                     | (35,072  | )      |       |   | - |   |   |   | (35,072 | ) |
|                          |   |                     |     |   |       |   |   |   |   |   |   |   |
| Total Operating Expenses      |   |                     | 571,662  |   |       |   | 390,577 |   |   |   | 181,085 |   |
|                          |   |                     |     |   |       |   |   |   |   |   |   |   |
| Net Operating Income (Loss)   |   |                     | (24,295  | )      |       |   | 59,713 |   |   |   | (84,008 | ) |
|                          |   |                     |     |   |       |   |   |   |   |   |   |   |
| Interest income               |   |                     | 38       |   |       |   | 27 |   |   |   | 11 |   |
| Interest expense              |   |                     | (83,929  | )      |       |   | (18,594 | ) |   |   | (65,335 | ) |
| Total other income (expense)  |   |                     | (83,891  | )      |       |   | (18,567 | ) |   |   | (65,324 | ) |
|                          |   |                     |     |   |       |   |   |   |   |   |   |   |
| Net Income (Loss)             |   | $                        | (108,186 | )      |       | $      | 41,146 |   |   | $ | (149,332 | ) |

----

|                                 |   | June 30, 2012 |       |   | December 31, 2012 |   |
|--------------------------------------|--------|---------------|------------|--------|-------------------|--------|
| Total Assets                         |   | $             | 1,602,370  |   |              | $      | 1,035,222 |   |
|                                 |   |          |       |   |              |   |   |   |
| Total Liabilities                    |   | $             | 2,227,251  |   |              | $      | 1,571,917 |   |
|                                 |   |          |       |   |              |   |   |   |
| Accumulated (Deficit)                |   | $             | (2,316,253 | )      |              | $      | (2,208,067 | ) |
|                                 |   |          |       |   |              |   |   |   |
| Stockholders’ Equity (Deficit) |   | $             | (624,881   | )      |              | $      | (536,695 | ) |
|                                 |   |          |       |   |              |   |   |   |
| Working Capital (Deficit)            |   | $             | (1,015,690 | )      |              | $      | (886,834 | ) |

----

----

----

----

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|    |                                                                                                                                                                                 |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1     | Articles of Amendment (June 25, 2012)(1)                                                                                                                                             |
|    |                                                                                                                                                                                 |
| 10.1    | July 2, 2012 – Securities Purchase Agreement With Asher (1)                                                                                                                    |
|    |                                                                                                                                                                                 |
| 10.2    | July 2, 2012 – Promissory Note With Asher (1)                                                                                                                                  |
|    |                                                                                                                                                                                 |
| 10.3    | July 24, 2012 – Securities Purchase Agreement With Asher (1)                                                                                                                   |
|    |                                                                                                                                                                                 |
| 10.4    | July 24, 2012 – Promissory Note With Asher (1)                                                                                                                                 |
|    |                                                                                                                                                                                 |
| 31.1    | Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
|    |                                                                                                                                                                                 |
| 32.1    | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                            |
|    |                                                                                                                                                                                 |
| 101.INS | XBRL Instance Document.**                                                                                                                                                            |
|    |                                                                                                                                                                                 |
| 101.SCH | XBRL Schema Document.**                                                                                                                                                              |
|    |                                                                                                                                                                                 |
| 101.CAL | XBRL Calculation Linkbase Document.**                                                                                                                                                |
|    |                                                                                                                                                                                 |
| 101.DEF | XBRL Definition Linkbase Document.**                                                                                                                                                 |
|    |                                                                                                                                                                                 |
| 101.LAB | XBRL Labels Linkbase Document.**                                                                                                                                                     |
|    |                                                                                                                                                                                 |
| 101.PRE | XBRL Presentation Linkbase Document.**                                                                                                                                               |

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|                   |                                                                                                                                   |
|------------------------|----------------------------------------------------------------------------------------------------------------------------------------|
|                   | EPAZZ, INC.                                                                                                                            |
|                   |                                                                                                                                   |
| DATED: August 20, 2012 | By: /s/ Shaun Passley                                                                                                                  |
|                   | Shaun Passley                                                                                                                          |
|                   | Chief Executive Officer (Principal Executive Officer), President, Chief Financial Officer (Principal Accounting Officer), and Director |

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