UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q


(Mark
One)





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





For
      the quarterly period ended September 30,
2008





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





For the
transition period from ____________ to ______________





Commission
file number: 333-139117





EPAZZ,
Inc.


(Exact
name of registrant as specified in its charter)





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





50
N Brockway St. Suite 3-5


Palatine, IL
60067


(Address
of principal executive offices)





(312)
955-8161


(Registrant's
telephone number)





445
East Ohio, Suite 250


Chicago, IL
60611


(Former
address of principal executive offices)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes  x    No   ̈





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





Large
accelerated filer   ̈                                                    Accelerated
filer    ̈


Non-accelerated
filer   ̈                                                      Smaller
reporting company  x





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


Yes    ̈ No   x





The
number of shares of the issuer’s common stock outstanding as of November 18,
2008 was 39,482,940 shares of common stock, par value $0.001 per
share.









PART
I. FINANCIAL INFORMATION





ITEM 1. FINANCIAL
STATEMENTS





EPAZZ,
INC.


CONSOLIDATED
BALANCE SHEETS


As
of September 30, 2008 and December 31, 2007


(unaudited)





September
      30,
              2008
            
            
            December 31,
              2007ASSETSCurrent
      AssetsCash
            
            $
            13,440
            
            
            $
            3,016Accounts
      receivable
            
            
            44,499
            
            
            
            –Deferred
      financing costs
            
            
            4,475
            
            
            
            –Total
      current assets
            
            
            62,414
            
            
            
            3,016Property
      and equipment, net of accumulated depreciation of $11,313 and
      10,984
            
            
            3,253
            
            
            
            1,678Deferred
      financing costs
            
            
            7,948
            
            
            
            –Intangible
      assets, net of accumulated amortization of $27,723 and $0
            
            
            452,997
            
            
            
            –TOTAL
      ASSETS
            
            $
            526,612
            
            
            $
            4,694LIABILITIES
      AND STOCKHOLDERS’ DEFICITLIABILITIESCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
            
            $
            53,547
            
            
            $
            19,240Deferred
      revenue
            
            
            54,144
            
            
            
            –Current
      portion of notes payable
            
            
            374,311
            
            
            
            3,509Loans
      payable to related parties
            
            
            187,980
            
            
            
            92,235Total
      current liabilities
            
            
            669,982
            
            
            
            114,984Long-term
      notes payable, net of current portion
            
            
            146,979
            
            
            
            2,070Long-term
      line of credit
            
            
            100,000
            
            
            
            100,000TOTAL
      LIABILITIES
            
            
            916,961
            
            
            
            217,054STOCKHOLDERS’
      DEFICITCommon
      stock, Series A, $0.01 par value, 60,000,000 shares authorized, 39,482,940
      shares issued and outstanding
            
            
            394,829
            
            
            
            394,829Common
      stock, Series B, $0.01 par value, 60,000,000 shares authorized, 2,500,000
      shares issued and outstanding
            
            
            25,000
            
            
            
            25,000Additional
      paid-in capital
            
            
            1,041,014
            
            
            
            1,041,014Accumulated
      deficit
            
            
            (1,851,192
            )
            
            
            (1,673,203
            )Total
      stockholders’ deficit
            
            
            (390,349
            )
            
            
            (212,360
            )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
            
            $
            526,612
            
            
            $
            4,694





See notes
to consolidated financial statements.




F-1


EPAZZ,
INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


Three
and Nine Months Ended September 30, 2008 and 2007


(unaudited)








Three
      Months Ended September 30,
              
              
              Nine Months Ended September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Revenue
              
              $
              85,484
              
              
              $
              –
              
              
              $
              95,209
              
              
              $
              –Operating
      expenses:Cost
      of revenue
              
              
              –
              
              
              
              415
              
              
              
              15,080
              
              
              
              415General
      & administrative
              
              
              129,597
              
              
              
              45,951
              
              
              
              190,248
              
              
              
              92,682Depreciation
      and amortization
              
              
              24,153
              
              
              
              104
              
              
              
              28,052
              
              
              
              517Total
      operating expenses
              
              
              153,750
              
              
              
              46,470
              
              
              
              233,380
              
              
              
              93,614Operating
      loss
              
              
              (68,266
              )
              
              
              (46,470
              )
              
              
              (138,171
              )
              
              
              (93,614
              )Other
      income (expense):Interest
      income
              
              
              33
              
              
              
              –
              
              
              
              989
              
              
              
              6Interest
      expense
              
              
              (23,751
              )
              
              
              (5,309
              )
              
              
              (40,807
              )
              
              
              (10,093
              )Total
      other income (expense)
              
              
              (23,718
              )
              
              
              (5,309
              )
              
              
              (39,818
              )
              
              
              (10,088
              )Net
      loss
              
              $
              (91,984
              )
              
              $
              (51,779
              )
              
              $
              (177,989
              )
              
              $
              (103,702
              )Basic
      and diluted net loss per common share
              
              $
              (0.00
              )
              
              $
              (0.00
              )
              
              $
              (0.00
              )
              
              $
              (0.00
              )Weighted
      average common shares outstanding
              
              
              41,982,940
              
              
              
              41,982,940
              
              
              
              41,982,940
              
              
              
              41,982,940


See notes
to consolidated financial statements.





F-2





EPAZZ,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


For
the Nine Months Ended September 30, 2008 and 2007


(unaudited)








2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (177,989
            )
            
            $
            (103,702
            )Adjustments
      to reconcile net loss to cash used in operating
activities:Depreciation
      and amortization
            
            
            28,052
            
            
            
            517Amortization
      of deferred financing costs
            
            
            1,677
            
            
            
            –Changes
      in:Accounts
    receivable
            
            
            (31,741
            )
            
            
            –Accounts payable and accrued
      liabilities
            
            
            34,307
            
            
            
            7,717Deferred revenue
            
            
            4,355
            
            
            
            –Net
      cash used in operating activities
            
            
            (141,339
            )
            
            
            (95,468
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of fixed assets
            
            
            (1,904
            )
            
            
            (1,242
            )Purchase
      of DFI and PRMI, net of cash received of $1,311
            
            
            (218,689
            )
            
            
            –Net
      cash used in investing activities
            
            
            (220,593
            )
            
            
            (1,242
            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from notes payable, net of financing costs
            
            
            282,000
            
            
            
            –Repayment
      of notes payable
            
            
            (5,389
            )
            
            
            (2,252
            )Proceeds
      from borrowings on line of credit
            
            
            –
            
            
            
            90,000Proceeds
      from loans payable to related parties
            
            
            152,381
            
            
            
            64,234Repayment
      of loans payable to related parties
            
            
            (56,636
            )
            
            
            (1,800
            )Net
      cash provided by financing activities
            
            
            372,356
            
            
            
            150,182NET
      CHANGE IN CASH
            
            
            10,424
            
            
            
            53,472CASH
      AT BEGINNING OF PERIOD
            
            
            3,016
            
            
            
            5,381CASH
      AT END OF PERIOD
            
            $
            13,440
            
            
            $
            58,853Supplemental
      Disclosures:Interest
      paid
            
            $
            12,576
            
            
            $
            –Income
      tax paid
            
            
            –
            
            
            
            –Non-cash
      investing and financing activities:Note
      payable for acquisition
            
            $
            225,000
            
            
            
            –




See notes
to consolidated financial statements.




F-3




EPAZZ,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





NOTE 1 –
BASIS OF PRESENTATION AND CONSOLIDATION





The
accompanying unaudited interim financial statements of Epazz, Inc., an Illinois
corporation, have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission, and should be read in conjunction with the
audited financial statements and notes thereto contained in Epazz’s Annual
Report filed with the SEC on Form 10-KSB for the year ended December 31,
2007.  In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the interim periods presented have
been reflected herein.  The results of operations for interim periods
are not necessarily indicative of the results to be expected for the full
year.  Notes to the financial statements which would substantially
duplicate the disclosure contained in the audited financial statements for the
fiscal year 2007, as reported in the 10-KSB, have been omitted.





Basis of
Consolidation





The
consolidated financial statements include the accounts of Epazz and its
subsidiaries. Intercompany transactions and balances have been
eliminated.





Management
Estimates





The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, as well as certain financial statement
disclosures. While management believes that the estimates and assumptions
used in the preparation of the financial statements are appropriate, actual
results could differ from these estimates.





Intangible
Assets





Intangible
assets are amortized using the straight-line method over their estimated period
of benefit of five years.  We evaluate the recoverability of
intangible assets periodically and take into account events or circumstances
that warrant revised estimates of useful lives or that indicate that impairment
exists.  All of our intangible assets are subject to
amortization.  No material impairments of intangible assets have been
identified during any of the periods presented.





Revenue
Recognition





All
revenue is recognized when persuasive evidence of an arrangement exists, the
sale is complete, the price is fixed or determinable and collectability is
reasonably assured.  Revenue from maintenance arrangements are
recorded as deferred revenue and recognized as revenue ratably over the billing
coverage period.





Reclassifications





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








NOTE 2 –
GOING CONCERN





As of
September 30, 2008, Epazz had an accumulated deficit of $1,851,192 and a working
capital deficit of $607,568.  In addition, Epazz has generated limited
cash from operations and had no cash reserve
dedicated to fund expenditures.  Epazz is currently in default on
payments related to a $296,100 note.  These factors create a
substantial doubt as to Epazz's ability to continue as a going
concern.





F-4




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








NOTE 3 –
ACQUISITION





On June
18, 2008, Epazz purchased all of the issued and outstanding common stock of Desk
Flex, Inc., an Illinois corporation (“DFI”), and Professional Resource
Management, Inc., an Illinois corporation (“PRMI”) for an aggregate purchase
price of $445,000.  The purchase price was payable as
follows:





a)
            $10,000
      originally paid by Epazz as a deposit in connection with the parties’
      entry into a letter of intent;





b)
            Epazz
      paid $210,000 in cash; and





c)
            Epazz
      provided a 7% promissory note in the amount of $225,000, described in
      greater detail in Note 7.





As a
result, DFI and PRMI became wholly-owned subsidiaries of Epazz.





The
acquisition has been accounted for in accordance with the provisions of
Statement of Financial Standards No. 141, “Business Combinations.” The
total purchase price was allocated to the net tangible assets based on the
estimated fair values. No goodwill was recorded as there was no excess of the
purchase price over the net identifiable assets. The preliminary allocation of
the purchase price was based upon valuation data as of June 18, 2008 and
the estimates and assumptions are subject to change.  The initial
purchase price allocation may be adjusted within one year of the effective date
of the acquisition for changes in estimates of the fair value of assets acquired
and liabilities assumed based on the results of the purchase price allocation
process. The preliminary allocation of the purchase price is as
follows:





Assets:Cash
      and equivalents
            
            $
            1,311Accounts
      receivable
            
            
            12,758Intangible
      assets
            
            
            480,720Liabilities:Deferred
      revenue
            
            
            (49,789
            )Total
      purchase price
            
            $
            445,000





F-5




The
following unaudited pro forma information assumes the acquisition of DFI and
PRMI occurred as of the beginning of each period. The pro forma results are not
necessarily indicative of what actually would have occurred had the acquisition
been in effect for the period presented.





As Reported
            
            
            Pro-FormaThree
      months ended September 30, 2007Revenues
            
            $
            –
            
            
            $
            105,786Net
      Loss
            
            
            (51,779
            )
            
            
            (49,994
            )Loss
      Per Share
            
            
            (0.00
            )
            
            
            (0.00
            )Nine
      months ended September 30, 2008Revenues
            
            $
            95,209
            
            
            $
            262,954Net
      Loss
            
            
            (177,989
            )
            
            
            (245,157
            )Loss
      Per Share
            
            
            (0.00
            )
            
            
            (0.00
            )Nine
      months ended September 30, 2007Revenues
            
            $
            –
            
            
            $
            348,833Net
      Loss
            
            
            (103,702
            )
            
            
            (276,246
            )Loss
      Per Share
            
            
            (0.00
            )
            
            
            (0.00
            )








NOTE
4 – INTANGIBLE ASSETS





Intangible
assets consisted of the following at September 30, 2008:





Description
            Life
            
            AmountTechnology-based
      intangible assets
            5
      years
            
            $
            480,720Less:
      accumulated amortization
            
            
            
            (27,723
            )Intangible
      assets, net
            
            
            $
            452,997








NOTE 5 –
LOANS PAYABLE TO RELATED PARTIES





During
the nine months ended September 30, 2008, we borrowed an additional $152,381
from our Chief Executive Officer and other related parties. At September 30,
2008, the total principal outstanding was $187,980, and we had accrued interest
payable of $33,165 related to these loans.  The notes bear interest at
15% per year.








NOTE 6 –
LINE OF CREDIT





On June
5, 2007, Epazz obtained a line of credit of $100,000 from a bank.  The
outstanding balance on the line of credit bears interest at prime plus 4.5%
(9.5% at September 30, 2008) and expires on July 5,
2010.  Interest is due monthly.  Combined equal installments
of principal and interest are to be paid monthly beginning July 5, 2010 until
June 5, 2014.








NOTE 7 –
LONG-TERM NOTES PAYABLE





On June
4, 2008, Epazz issued a note payable in the amount of $296,100.  The
loan is unsecured and bears interest at 10% and is payable in monthly payments
of $6,291 until maturity of June 4, 2013.  In connection with the
loan, Epazz paid $14,100 in financing costs that are being amortized over the
life of the loan using the effective interest method.  As of November
19, 2008, Epazz was not current in its $6,291 monthly payments for August,
September, October and November 2008.  As a result, Epazz reclassified
the entire balance of the note to current liabilities on the balance
sheet.




As part
of the acquisition of DFI and PRMI on June 18, 2008, Epazz provided a 7%
promissory note in the amount of $225,000.  The promissory note bears
interest at the rate of 7% per annum, and all past due principal and
interest bear interest at the rate of twelve percent (12%) per annum until paid
in full.  The principal amount of the note is due on June 18,
2011.  The note is payable in monthly installments of $6,947 until
such time as this note is paid in full.  Additionally, Epazz agreed to
secure the payment of the note with a security interest over all of the tangible
and intangible assets of DFI and PRMI, and the outstanding stock of both
companies until the note is repaid.




F-6




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





CERTAIN
STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q (THIS "FORM 10-Q"), CONSTITUTE
"FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY ALL, OF SUCH
FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD", OR "ANTICIPATES", OR
THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR
BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
EPAZZ, INC. AND ITS WHOLLY OWNED SUBSIDIARIES DESK FLEX, INC. AND PROFESSIONAL
RESOURCE MANAGEMENT, INC. (COLLECTIVELY, "THE COMPANY", "EPAZZ", "WE", "US" OR
"OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. REFERENCES
IN THIS FORM 10-Q, UNLESS ANOTHER DATE IS STATED, ARE TO SEPTEMBER 30,
2008.





Business
Overview




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





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





Recent
Events:





On or
about June 18, 2008, the Company entered into a Stock Purchase Agreement (the
“Purchase Agreement”) with Desk Flex, Inc., an Illinois corporation (“DFI”),
Professional Resource Management, Inc., an Illinois corporation (“PRMI” and
collectively with DFI, the “Target Companies”) and Arthur A. Goes, an individual
and the sole stockholder of the Target Companies.  The Purchase
Agreement consummated the transactions contemplated by the February 25, 2008,
non-binding letter of intent (the “Letter of Intent”) the Company entered into,
to acquire 100% of the outstanding shares of the Target
Companies.  Pursuant to the Purchase Agreement, the Company agreed to
purchase 100% of the outstanding shares of the Target Companies for an aggregate
purchase price of $445,000 (the “Purchase Price”).  The Purchase Price
was payable as follows:





(a)
            Mr.
      Goes retained the $10,000 originally paid by the Company in connection
      with the parties’ entry into the Letter of
  Intent;





(b)
            The
      Company paid Mr. Goes $210,000 in cash (the “Cash Consideration”) at the
      Closing (as defined below) of the Purchase Agreement;
  and(c)
            The
      Company provided Mr. Goes with a 7% Promissory Note in the amount of
      $225,000 (the “Note”), described in greater detail
  below.





-2-




Additionally,
the Company agreed to assume an aggregate of approximately $15,475 in
outstanding liabilities of DFI and PRMI in connection with the
Closing.





The
Purchase Agreement closed on June 18, 2008 (“Closing”), at which time Mr. Goes
delivered to the Company, 2,000 shares of DFI stock, representing 100% of the
issued and outstanding shares of DFI, and 1,000 shares of PRMI stock,
representing 100% of the issued and outstanding shares of PRMI.  Also
at Closing, the Company delivered the Cash Consideration and the Note to Mr.
Goes.  As a result of the Closing, DFI and PRMI became wholly-owned
subsidiaries of the Company.





The Note
bears interest at the rate of seven percent (7%) per annum, and all past due
principal and interest (which failure to pay such amounts after a fifteen (15)
day cure period, shall be defined herein as an “Event of Default”) bear interest
at the rate of twelve percent (12%) per annum until paid in full.  The
Note, however, additionally provides that the Company shall have two additional
fifteen (15) day cure periods during the term of the Note resulting in two
thirty (30) day cure periods before an Event of Default occurs.  The
principal amount of the Note is due on June 18, 2011.  The Note is
payable in monthly installments of $6,947.35 (each a “Monthly Payment”), with
the first such Monthly Payment due on September 18, 2008, until such time as
this Note is paid in full.  Provided, however, that if the total
amount due under the Note is less than any Monthly Payment, the Company shall
only be obligated to pay the remaining balance of the Note.  The Note
may be prepaid at any time without penalty.  As of the date of this
report, the Company is current with all of its required Monthly
Payments.





Additionally,
the Company agreed to secure the payment of the Note with a Uniform Commercial
Code Security Interest filing, which the Company agreed to file, but which
filing has not occurred to date, at Mr. Goes’ request, at the Company’s expense,
to grant Mr. Goes a security interest over all of the Target Companies’ tangible
and intangible assets, and the outstanding stock of both of the Target Companies
until the Note is repaid.  Pursuant to such requirement of the Note,
at the Closing, the Company entered into a Security Agreement with Mr. Goes,
whereby the Company granted Mr. Goes a security interest in all inventory,
equipment, appliances, furnishings and fixtures, stock certificates and
intellectual property now or hereafter owned by the Target
Companies.  Pursuant to the Security Agreement, the Company also
assigned to Mr. Goes a security interest in all of its right, title, and
interest to any trademarks, trade names, contract rights, and leasehold
interests in which it now has or hereafter acquires to secure repayment of the
Note.





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




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





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





-3-




Our
Products




After the
acquisition of the Target Companies which are now wholly owned subsidiaries of
the Company (described in detail above), the Company offers three primary
product lines under three different Company names.  The EPAZZ BoxesOS
v3.0 product is offered through EPAZZ, Inc., the Desk/Flex Software product is
offered through Desk Flex, Inc. and the Agent Power product is offered through
Professional Resource Management, Inc.





EPAZZ BoxesOS
v3.0





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




Services
include:




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





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





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





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





· Email
      Management: Email server and web
client.





· Instant
      Messenger Services: Instant messaging and
  alerts.





· Customer
      Relationship Management: Prospective students and
  alumni.





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





· Administrative
      Support Services: Online payment
services.





· Business
      Services: Facility Management and Online
  Bookstore.




BoxesOS
software provides:




Web Portal
Component





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





Administrative Content
Management





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




-4-




Work Hub





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





Central
Repository





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





ViewPoint





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





Learning Management
System




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




Single
Sign-on




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





-5-




Pathways Real-time
Integration





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





Desk Flex
Software





DFI
developed the Desk/Flex Software (“Desk/Flex”) to enhance the value of
businesses’ real estate investments and modernize their office
space.  Desk/Flex lets businesses make better use of office space
restrictions by enabling employees to instantly access their workstation tools
from multiple areas in and outside of the office.  Desk/Flex lets
employees reserve space in advance or claim space instantly. It adjusts the
telephone switch (Private Branch Exchange or “PBX”) so that calls ring at the
'desk du jour', or go directly to voice mail when a worker is not checked
in.





Key
Features of Desk/Flex include:





Quick and Easy Check-In -
Check-in and Check-out to a workstation takes less than 8 seconds, and advance
reservations take only a few seconds more.





Point-and-Click Floor Maps -
Desks that are available are identified by green dots. Those that are in use are
identified by red. An employee needs only to click or touch (using an optional
touch-screen) a green dot to select his or her desk.





PBX Interaction - Desk/Flex
connects to an employee’s Nortel, Avaya or Cisco PBX to ensure that the employee
has phone access at his or her desk; the message waiting light becomes
operational; outside calls can be made only after checking in; and an employee
is automatically checked out overnight if he or she leaves a workstation without
checking out.





Web Browser and Local "Kiosk"
Access - On site, the Desk/Flex kiosk(s) makes it easy to select a vacant
desk near a co-worker or centrally located at the office. Even before leaving
home a worker with access to the company intranet can reserve a desk or locate a
co-worker at any desk in the company’s office via a web browser.





Advance Reservations -
Workers can easily choose and reserve workspaces ahead of time for a particular
date or range of dates.





Occupancy Reports -
Management reports allow accurate measures of occupancy in total or by type of
desk so the total number or mix of desks can be adjusted to meet client demand
and save more office space expense in future months.





Desk/Flex
is responsive to office size and needs, servicing small to large businesses.
Desk/Flex can be configured to administer a single site or multiple sites
locally or remotely.  Desk/Flex has full integration capabilities with
both Nortel and Avaya, which combined represent the majority of the
telecommunications and inbound automatic call distributor (“ACD”)
market.




Agent Power
Software





Agent
Power Software (“Agent Power”) is PRMI’s proprietary software
line.  PRMI believes Agent Power provides vital information and tools
for call centers to help improve their workforce management. Historical,
real-time, and forecast information is available at the touch of a button to
plan, control, and monitor a business’s call center. Coordinated stand-alone
modules allow a company to develop employee schedules, track queue and agent
performance, communicate this information with the company’s agents and improve
workforce management.




-6-




Agent
Power is a suite of six (6) applications. Each can operate on a stand-alone
basis, or can work in conjunction with the other applications.  The
applications feature the following workforce management components:





§
            Planning
      and Scheduling;§
            Agent
      Adherence;§
            Agent
      Performance;§
            ACD
      Group Performance;§
            Real-Time
      Agent Status; and§
            Info
      Screen.





All
modules of Agent Power have full integration capabilities with Nortel, Avaya,
and ROLM ACDs, and the Planning and Scheduling module works with any modern ACD
system.





PLAN
OF OPERATION





During
the next twelve months, we plan to work towards further development of our
BoxesOS software, and hope to expand our customer base for our Desk/Flex and
Agent Power software packages, funding permitting. We
believe we can satisfy our cash requirements for the next three months with our
current cash on hand and revenues generated from our operations. As such,
continuing operations and completion of our plan of operation, including making
the Monthly Payments on our Note with Mr. Goes, as described above, are subject
to generating adequate revenue. We cannot assure investors that adequate
revenues will be generated. In the absence of our projected revenues, we may be
unable to proceed with our plan of operations. Even without significant revenues
within the next several months, we still anticipate being able to continue with
our present activities, but we may require financing to potentially achieve our
goal of profit, revenue and growth.




We
anticipate needing to raise $100,000 in additional funds to continue our
business operations for the next 12 months, including administrative and other
costs, and the significant funds we will need to raise to make the Monthly
Payments on our Note with Mr. Goes and the June 2008 Note (described below),
which there can be no assurance will be raised. In the event we are not
successful in reaching our initial revenue targets, additional funds may be
required, and we would then not be able to proceed with our business plan for
the development and marketing of our various products offered through the
Company, including its subsidiaries. Should this occur, we would likely seek
additional financing to support the continued operation of our business. We
anticipate that, depending on market conditions and our plan of operations, we
will incur operating losses in the foreseeable future. We base this expectation,
in part, on the fact that we may not be able to generate enough gross profit
from sales to cover our operating expenses.





RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008, AS COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 2007





For the
three months ended September 30, 2008 we had revenue of $85,484, compared to
revenue of $0 for the three months ended September 30, 2007. The increase in
revenues is attributable to the Company’s acquisition of DFI and PRMI, and
revenues associated with our purchased Desk/Flex and Agent Power product
lines.





We had
cost of revenue expense of $0 for the three months ended September 30, 2008,
compared to $415 for the three months ended September 30, 2007, a decrease of
$415 from the prior period.  This decrease in cost of revenue is
attributable to the fact that the Company had expenses associated with the
development of its BoxesOS software during the three months ended September 30,
2007; while the Company had no such expenses during the three months ended
September 30, 2008, as its Desk/Flex and Agent Power product lines are already
developed.





General
and administrative expenses increased by $83,646 or 182% to $129,597 for the
three months ended September 30, 2008 compared to general and administrative
expenses of $45,951 for the three months ended September 30,
2007.  This increase in general and administrative expenses was mainly
due to increased legal, accounting and filing expenses associated with our
status as a public reporting company during the three months ended September 30,
2008, compared to the three months ended September 30, 2007, when we were not a public
reporting company, as well as increased expenses associated with the operations
of DFI and PRMI, which were not present during the prior period.





-7-




We had
depreciation and amortization expense of $24,153 for the three months ended
September 30, 2008 compared to $104 for the three months ended September 30,
2007, an increase of $24,099 from the prior period.  This increase in
depreciation and amortization expenses is mainly attributable to amortization of
the technology-based intangible assets associated with the purchase of DFI and
PRMI which occurred in June 2008.





Total
operating expenses for the three months ended September 30, 2008 were $153,750,
compared to $46,470 for the three months ended September 30, 2007, an increase
of $107,280 or 231% from the prior period. Operating expenses increased for the
three months ended September 30, 2008 compared to the three months ended
September 30, 2007 as a result of the $83,646 or 182% increase in general and
administrative expenses and the $24,099 increase in depreciation and
amortization expenses for the three months ended September 30, 2008 compared to
the three months ended September 30, 2007.





We had an
operating loss of $68,266 for the three months ended September 30, 2008,
compared to an operating loss of $46,470 for the three months ended September
30, 2007, an increase in operating loss of $21,796 or 46.9% from the prior
period.  The increase in operating loss was due to a $107,280 or 231%
increase in total expenses which was not sufficiently offset by the $85,484
increase in revenue for the three months ended September 30, 2008, compared to
the three months ended September 30, 2007.





Interest
expense was $23,751 for the three months ended September 30, 2008 compared to
$5,309 for the three months ended September 30, 2007, an increase of $18,442 or
347% from the prior period. Interest expense increased for the three months
ended September 30, 2008 due to increased borrowings from our Chief Executive
Officer, Shaun Passley, which bear interest at the rate of 15% per annum
compared to the three months ended September 30, 2007, and interest expense
associated with our borrowings under the Note and June 2008 Note (both described
below), which were outstanding as of September 30, 2008, but not as of September
30, 2007.





We had a
net loss of $91,984 for the three months ended September 30, 2008 compared to a
net loss of $51,779 for the three months ended September 30, 2007, an increase
in net loss of $40,205 or 77.6% from the prior period, which was mainly due to
the $107,708 increase in operating expenses and the $18,014 increase in interest
expense which was not sufficiently offset by the $85,484 increase in revenues
for the three months ended September 30, 2008, compared to the three months
ended September 30, 2007





RESULTS
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008, AS COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 2007





For the
nine months ended September 30, 2008 we had revenue of $95,209, compared to
revenue of $0 for the nine months ended September 30, 2007.   The
increase in revenues is attributable to the Company’s acquisition of DFI and
PRMI, and revenues associated with our purchased Desk/Flex and Agent Power
product lines.





We had
cost of revenue expense of $15,080 for the nine months ended September 30, 2008,
compared to $415 for the nine months ended September 30, 2007, an increase of
$14,665 from the prior period.  This increase in cost of revenue is
attributable to increased expenses associated with development of new software
products during the nine months ended September 30, 2008, which expenses were
not present due to decreased software development during the nine months ended
September 30, 2007.





General
and administrative expenses increased by $97,566 or 105% to $190,248 for the
nine months ended September 30, 2008 compared to general and administrative
expenses of $92,682 for the nine months ended September 30,
2007.  This increase in general and administrative expenses was due to
increased legal, accounting and filing expenses associated with our status as a
public reporting company during the nine months ended September 30, 2008,
compared to the nine months ended September 30, 2007, when we were not a public
reporting company, as well as increased expenses associated with the operations
of DFI and PRMI, which were not present during the prior period.




-8-




We had
depreciation and amortization expense of $28,052 for the nine months ended
September 30, 2008 compared to $517 for the nine months ended September 30,
2007, an increase of $27,535 from the prior period.  This increase in
depreciation and amortization expenses is mainly attributable to amortization of
the technology-based intangible assets associated with the purchase of DFI and
PRMI which occurred in June 2008.





Total
operating expenses for the nine months ended September 30, 2008 were $233,380,
compared to $93,614 for the nine months ended September 30, 2007, an increase of
$139,766 or 149% from the prior period. Operating expenses increased for the
nine months ended September 30, 2008 compared to the nine months ended September
30, 2007 as a result of the $97,566 or 105% increase in general and
administrative expenses and the $27,535 increase in depreciation and
amortization expenses for the nine months ended September 30, 2008, compared to
the nine months ended September 30, 2007.





We had an
operating loss of $138,171 for the nine months ended September 30, 2008,
compared to an operating loss of $93,614 for the nine months ended September 30,
2007, an increase in operating loss of $44,557 or 47.6% from the prior
period.  The increase in operating loss was due to a $139,766 or 149%
increase in total operating expenses, which was not sufficiently offset by the
$95,209 increase in revenue for the nine months ended September 30, 2008,
compared to the nine months ended September 30, 2007.





Interest
expense was $40,807 for the nine months ended September 30, 2008 compared to
$10,093 for the nine months ended September 30, 2007, an increase of $30,714 or
304% from the prior period. Interest expense increased for the nine months ended
September 30, 2008 due to increased borrowings from our Chief Executive Officer,
Shaun Passley, which bear interest at the rate of 15% per annum during the nine
months compared to the nine months ended September 30, 2007, and our borrowings
under the Note and June 2008 Note (both described below), which were outstanding
as of September 30, 2008, but not as of September 30, 2007, and the fact that
the bank line of credit was outstanding for nine full months during the nine
months ended September 30, 2008, compared to less than four months during the
nine months ended September 30, 2007.





We had a
net loss of $177,989 for the nine months ended September 30, 2008 compared to a
net loss of $103,702 for the nine months ended September 30, 2007, an increase
in net loss of $74,287 or 72% from the prior period.  Net loss
increased mainly due to the $139,766 or 149% increase in operating expenses and
the $30,714 or 304% increase in interest expense which was not sufficiently
offset by the $95,209 increase in revenues for the nine months ended September
30, 2008, compared to the nine months ended September 30, 2007.





LIQUIDITY
AND CAPITAL RESOURCES





We had
total current assets of $62,414 as of September 30, 2008, consisting of cash of
$13,440, accounts receivable of $44,499 and deferred financing costs of
$4,475.





We had
non-current assets of $464,198 as of September 30, 2008, consisting of property
and equipment, net of accumulated depreciation of $3,253; non-current deferred
financing costs of $7,948, in connection with the June 2008 Note; and intangible
assets, net of accumulated amortization of $452,997.  The intangible
assets are technology-based assets acquired with the purchase of DFI and
PRMI.





We had
total current liabilities of $669,982 as of September 30, 2008, consisting of
$53,547 of accounts payable and accrued liabilities, $54,144 of deferred
revenues, $374,311 of current portion of notes payable in connection with
payments due on the Note and June 2008 Note, and $187,980 of loans payable to
related parties, which loans were due to our Chief Executive Officer and various
other related parties.





We had
negative working capital of $607,568 and a total accumulated deficit of
$1,851,192 as of September 30, 2008.





We had
long-term note payable, net of current portion of $146,979, which represented
payments due on the Note, described below, and long-term line of credit of
$100,000 as of September 30, 2008, which line of credit is described
below.




-9-




We had
net cash used in operating activities of $141,339 for the nine months ended
September 30, 2008, which was mainly due to $177,989 of net loss and $31,741 of
change in accounts receivable, offset by $34,307 of change in accounts payable
and accrued liabilities and $28,052 of depreciation and
amortization.





We had
$220,593 of net cash used in investing activities for the nine months ended
September 30, 2008, which was mainly in connection with the $218,689 cash
portion of the purchase price of DFI and PRMI, net of cash received of $1,311
and purchase of fixed assets of $1,904.





We had
$372,356 of net cash provided by financing activities during the nine months
ended September 30, 2008, which represented $282,000 of proceeds from notes
payable, and $152,381 of proceeds from loans payable to related parties, offset
by $56,636 of repayment of loans payable to related parties and $5,389 of
repayment of notes payable.





On June
5, 2007, we obtained a line of credit of $100,000 from a bank.  The
outstanding balance on the line of credit bears interest at prime plus 4.5%
(9.5% as of the filing of this report, with the prime rate at 5% as of October
1, 2008), resetting every January 1, April 1, July 1, and October 1, that the
line of credit is outstanding, and expiring on July 5, 2010.  Interest
is due monthly.  Combined equal installments of principal and interest
are to be paid monthly beginning July 5, 2010 until June 5, 2014.  We
agreed pursuant to the line of credit to pay a late fee equal to 4% of any
payment due under the line of credit which is more than fifteen days
late.  As of the date of this report, the entire $100,000 has been
borrowed under the line of credit.





We also
borrow from our Chief Executive Officer, Shaun Passley and other related parties
periodically under verbal agreements.  The loans bear interest at 15%
per year.  During the nine months ended September 30, 2008, we
borrowed an additional $152,381 from our Chief Executive Officer and other
related parties.  At September 30, 2008, the total principal
outstanding was $187,980, and we had accrued interest payable of $33,165 related
to these loans.





In June
2008, the Company provided Arthur A. Goes a Promissory Note in the amount of
$225,000 (the “Note”) in connection with the Stock Purchase Agreement entered
into with Desk Flex, Inc., Professional Resource Management, Inc. and Mr.
Goes.  The Note bears interest at the rate of seven percent (7%) per
annum, and all past due principal and interest (which failure to pay such
amounts after a fifteen (15) day cure period, shall be defined herein as an
“Event of Default”) bear interest at the rate of twelve percent (12%) per annum
until paid in full.  The Note, however, additionally provides that the
Company shall have two additional fifteen (15) day cure periods during the term
of the Note resulting in two thirty (30) day cure periods before an Event of
Default occurs.  The principal amount of the Note is due on June 18,
2011.  The Note is payable in monthly installments of $6,947.35 (each
a “Monthly Payment”), with the first such Monthly Payment due on
September 18, 2008, until such time as this Note is paid in
full.  Provided, however, that if the total amount due under the Note
is less than any Monthly Payment, the Company shall only be obligated to pay the
remaining balance of the Note.  The Note may be prepaid at any time
without penalty.  As of the date of this report, the Company is
current with all such Monthly Payments.





On June
4, 2008, the Company issued a note payable in the amount of $296,100 due to Star
Financial Corporation (the “June 2008 Note”).  The loan is unsecured
and bears interest at 10% and is payable in monthly payments of $6,291 until
maturity on June 4, 2013.  In connection with the loan, the Company
paid $14,100 (5%) in financing costs that are being amortized over the life of
the loan using the effective interest method.  The majority of the
funds borrowed pursuant to the June 2008 Note were used to pay the seller the
$210,000 payment in connection with the purchase of DFI and PRMI, as described
above.  As of the date of this report, the Company is not current in
its $6,291 monthly payments for August, September, October and November
2008.





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




-10-




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




Critical
Accounting Policies





Our
discussion and analysis of our financial condition and results of operations is
based upon our unaudited financial statements, which have been prepared in
accordance with accounting principals generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of any contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to
uncollectible receivable, investment values, income taxes, the recapitalization
and contingencies. We base our estimates on various assumptions that we believe
to be reasonable under the circumstances, the results of which form the basis
for making judgments about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.




Recently issued accounting
pronouncements. The Company does not expect the adoption of any recently
issued accounting pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash flows.





ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK





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





ITEM 4. CONTROLS AND
PROCEDURES





(a)
Evaluation of disclosure controls and procedures. Our Chief Executive Officer
and Principal Financial Officer, after evaluating the effectiveness of our
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by
this Quarterly Report on Form 10-Q (the "Evaluation Date"), has concluded that
as of the Evaluation Date, our disclosure controls and procedures were not
effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. The disclosure controls and procedures were
not effective due to the adjusting entries proposed by our auditors related to
the acquisition of DFI and PRMI.  We are currently working to add the
appropriate accounting personnel to correct this.





(b)
Changes in internal control over financial reporting. There were no changes in
our internal control over financial reporting during the fiscal quarter covered
by this report that materially affected, or were reasonably likely to materially
affect, our internal control over financial reporting.





-11-




PART II - OTHER
INFORMATION





ITEM 1. LEGAL
PROCEEDINGS





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





ITEM 1A. RISK
FACTORS





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




RISKS
RELATED TO OUR BUSINESS





We
owed approximately $809,000 as of September 30, 2008, to repay outstanding loans
and notes payables and we will need to raise additional funds in the future to
repay these obligations and continue our operations and these funds may not be
available on acceptable terms or at all. Failure to raise additional funds could
require us to substantially reduce or terminate our operations.





As of
September 30, 2008, we owed approximately $521,000 in outstanding notes payable,
which included approximately $138,000 which is due in the next 12 months, not
including any interest due on such Note and June 2008 Note, described
above.  We also owed $100,000 on our line of credit and an additional
$187,980 to our Chief Executive Officer as of September 30, 2008.  We
anticipate raising additional funds through public or private financing,
strategic relationships or other arrangements in the near future to support our
business operations; however we currently do not have commitments from third
parties for additional capital. We currently anticipate that we will only be
able to continue our business operations for the next three (3) months with our
current cash on hand and will need approximately $100,000 to continue our
operations for the next 12 months, including any funds we will need to make the
Monthly Payments on our Note with Mr. Goes and the June 2008 Note, as described
above.   We cannot be certain that any such financing will be
available on acceptable terms, or at all, and our failure to raise capital when
needed could limit our ability to continue and expand our business. We intend to
overcome the circumstances that impact our ability to remain a going concern
through a combination of the commencement of additional revenues, of which
there can be no assurance, with interim cash flow deficiencies being addressed
through additional equity and debt financing. Our ability to obtain additional
funding throughout the 2008 year and thereafter will determine our ability to
continue as a going concern. There can be no assurances that these plans for
additional financing will be successful. Failure to secure additional financing
in a timely manner to repay our obligations and supply us sufficient funds to
continue our business operations and on favorable terms if and when needed in
the future could have a material adverse effect on our financial performance,
results of operations and stock price and require us to implement cost reduction
initiatives and curtail operations. Furthermore, additional equity financing may
be dilutive to the holders of our common stock, and debt financing, if
available, may involve restrictive covenants, and strategic relationships, if
necessary to raise additional funds, and may require that we relinquish valuable
rights.  In the even that we are unable to repay our current and
long-term obligations as they come due, we could be forced to curtail or abandon
our business operations, and/or file for bankruptcy protection; the result of
which would likely be that our securities would decline in value and/or become
worthless.





The
Note payable in connection with the acquisition of DFI and PRMI is secured by a
security interest in substantially all of the assets of DFI, PRMI and the
Company.





We
provided Mr. Goes, the seller of the DFI and PRMI with a 7% Promissory Note in
the amount of $225,000 (the “Note”) in connection with the Closing of the
purchase of DFI and PRMI. The Note bears interest at the rate of
seven percent (7%) per annum, and all past due principal and interest (which
failure to pay such amounts after a thirty (30) day cure period, shall be
defined herein as an “Event of Default”) bear interest at the rate of twelve
percent (12%) per annum until paid in full.  The principal amount of
the Note is due on June 18, 2011.  The Note is payable in monthly
installments of $6,947.35 (each a “Monthly Payment”), with the first such
Monthly Payment due on September 18, 2008, until such time as this Note is paid
in full.  As of the date of this report, the Company is current with
all Monthly Payments.  We agreed to secure the payment of the Note
with a Uniform Commercial Code Security Interest filing, which we agreed to
file, at Mr. Goes’ request, at our expense, to grant Mr. Goes a security
interest over all of DFI’s and PRMI’s tangible and intangible assets, and the
outstanding stock of DFI and PRMI until the Note is repaid.  Pursuant
to such requirement of the Note, at the Closing, we entered into a Security
Agreement with Mr. Goes, whereby we granted Mr. Goes a security interest in all
inventory, equipment, appliances, furnishings and fixtures, stock certificates
and intellectual property now or hereafter owned by DFI and
PRMI.  Pursuant to the Security Agreement, we also assigned to Mr.
Goes a security interest in all of our right, title, and interest to any
trademarks, trade names, contract rights, and leasehold interests in which we
now have or hereafter acquire to secure repayment of the Note.  If we
default on the repayment of the Note, Mr. Goes may enforce his security interest
over the assets of the DFI and PRMI and our assets which secure the repayment of
the Note, and we could be forced to curtail or abandon our current business
plans and operations. If that were to happen, any investment in the Company
could become worthless.





-12-




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





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





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





The
Company has yet to initiate significant sales or demonstrate that it can
generate sufficient sales to become profitable. The Company incurred significant
net losses since its inception in March 2000, including a net loss of $152,658
and $618,988 for the years ended December 31, 2007 and 2006,
respectively.  The Company had a net loss of $91,984 for the three
months ended September 30, 2008. As of September 30, 2008, the Company had an
accumulated deficit of $1,851,192 and negative working capital of $607,568. We
expect to continue to incur operating losses in the future. Furthermore, we
expect operating expenses to increase as we seek to update our products, build
relationships with future customers, build additional distribution channels for
our products, continue design and development projects, and increase
administrative activities to support our planned growth. We expect to need
approximately $100,000 to sustain our operations for the next 12 months. We
anticipate only being able to continue our operations for the next three months
if no additional funding is raised.  The extent of our
future operating losses and the timing of our profitability are highly
uncertain, we may never generate sufficient revenues to achieve or sustain
profitability.





-13-




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




There is
substantial doubt about our ability to continue as a going concern given our
recurring losses from operations, deficiencies in working capital and equity and
our failure to make payments related to a $296,100 note. This substantial doubt
could materially limit our ability to raise additional funds by issuing new debt
or equity securities or otherwise. If we fail to raise sufficient capital, we
will not be able to implement our business plan, we may have to liquidate our
business and you may lose your investment. You should consider our independent
registered public accountants’ comments when determining if an investment in us
is suitable.




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




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





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





We may
not be successful in achieving market acceptance of our products, including the
products of DFI and PRMI. Any failure or delay in diversifying our existing
product offerings could harm our business, results of operations and financial
condition.





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





-14-




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




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




●
      the potential delay in recognizing revenue from transactions due to
      revenue recognition rules which we must
follow;





●
      customer decisions to delay implementation of our
  products;





●
      any seasonality of technology
purchases;





●
      demand for our products, which may fluctuate
  significantly;





●
      the timing of new product introductions and product enhancements by both
      us and our competitors;





●
      changes in our pricing policy; and





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





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




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




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





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





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




●
      loss of clients;





●
      product liability suits against us;





●
      diversion of development resources;





●
      injury to our reputation; and





●
      increased maintenance and warranty
costs.





-15-




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





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





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





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




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




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





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




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




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





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





-16-




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





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




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




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





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





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





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





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





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




-17-




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





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




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




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





●
      the establishment of our brand;





●
      the development and performance to our planned product
      introductions;





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





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





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





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





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





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





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




-18-




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





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




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




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





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




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





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





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





-19-




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





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




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




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




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




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





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




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




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




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





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





-20-




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





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





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





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





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





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





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





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




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




We do not
have significant experience acquiring companies. However, in the future we may
acquire or make investments in companies, in addition to our recent acquisition
of DFI and PRMI, described above. If we acquire or make investments in
complementary companies, products, services and technologies, the acquisitions
and investments will involve a number of risks, including:




●
      we have limited experience acquiring or making investments in
      complementary companies, products, services and
    technologies;




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





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





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





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





-21-





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





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





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





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




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




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





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




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




RISKS
RELATED TO OUR CAPITAL STRUCTURE




There
is currently a limited public market for our securities. Moving forward, our
stock price may be volatile and illiquid.





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





(1)
            actual
      or anticipated variations in our results of operations;(2)
            our
      ability or inability to generate new revenues;(3)
            increased
      competition; and





-22-




(4)
            conditions
      and trends in the market for organizational
  software.





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





The
price of our common stock may be volatile.




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




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





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





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





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





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





●
      general economic conditions and
trends;





●
      major catastrophic events;





●
      sales of large blocks of our stock;
or





●
      recruitment or departures of key
personnel.





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





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




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




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





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





●
      the ability of the Company or its distributors to meet their sales
      objectives;





●
      market acceptance of our new applications and
  enhancements;




●
      our ability to control expenses;





-23-


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





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





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





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





The
President and Chief Executive officer of the Company has significant influence
over our company.




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





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




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





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





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





-24-




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




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




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





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





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





None.





ITEM 3. DEFAULTS UPON SENIOR
SECURITIES.





None.





ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS





None.





ITEM 5. OTHER
INFORMATION





None.





-25-




ITEM 6.
EXHIBITS





ExhibitNo.
            Description3.1(1)
            Articles
      of Incorporation (filed March 23, 2000)3.2(1)
            Articles
      of Amendment (filed April 5, 2005)3.3(1)
            Articles
      of Amendment (filed July 12, 2005)3.4(1)
            Articles
      of Amendment (filed March 2, 2006)3.5(1)
            Statement
      of Change of Registered Agent (filed January 12, 2006)3.6(1)
            Articles
      of Amendment (filed May 17, 2006)3.7(1)
            Amended
      and Restated By-Laws4.1(1)
            Specimen
      Stock Certificate10.1(2)
            Form
      of Subscription Agreement of July 2005 Private
  Placement.10.2(3)
            Promissory
      Note with Fay  Passley10.3(3)
            Promissory
      Note with L &  F  Lawn Service, Inc.10.4(3)
            Promissory
      Note with Shaun Passley10.5(5)
            Stock
      Purchase Agreement with DFI, PRMI and Arthur Goes10.6(5)
            Promissory
      Note between Epazz, Inc. and Arthur Goes10.7(5)
            Security
      Agreement with Arthur Goes10.8(6)
            June
      2008 Promissory Note with Star Financial Corporation16.1(4)
            Letter
      from Malone & Bailey, PC31*
            Certificate
      of the Chief Executive Officer and Chief Financial Officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200232*
            Certificate
      of the Chief Executive Officer and Chief Financial Officer pursuant to
      Section 906 of the Sarbanes-Oxley Act of
2002





* Filed
herewith.




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





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





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





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





(5)
            Filed
      as an Exhibit to our Form 8-K, filed with the Commission on June 24, 2008,
      and incorporated herein by
reference.





(6)
            Filed
      as an Exhibit to our Form 10-Q Quarterly Report, filed with the Commission
      on August 19, 2008, and incorporated herein by
  reference.





-26-








SIGNATURES





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





EPAZZ,
      INC.DATED:
      November 19, 2008
            By:/s/
      Shaun PassleyShaun
      PassleyChief
      Executive Officer (Principal Executive Officer)and
      Principal Financial Officer





-27-