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Will Spin-Offs Provide Stability for Epazz, Inc. (OTCQB: EPAZ) Shares?

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With their spin-off of Cooling Technology Solutions, Inc. (“Project Flex”) fast approaching Epazz, Inc. (OTCQB: EPAZ) is once again seeing some strong volume with more than 11.4 million shares of the provider of cloud based business software already moving hands within the first hour of today’s session. While EPAZ has been among the more actively traded companies thus far that volume hasn’t done much for the company’s share price as it remains right at the 0.0014 mark, the same price it opened when the bell rang this morning.

EPAZ actually acknowledged their ongoing struggle to push that share price higher in a press release today, saying they were aware of shareholders’ frustrations with the performance of the stock over the last few months. In that release EPAZ reasoned that their struggle to elevate the company’s share price may be due to the possibility that over 100 million shares have been shorted in the month of August. Of course at the close of July the company also issued a press release that reported their awareness of shareholders’ frustration with the performance of the stock and stated that “there is data that leads to the possibility that over 100 million shares have been shorted in the month of July alone.”

It’s difficult to see how this awareness would provide any consolation to current shareholders but EPAZ isn’t letting this hold them back from expressing optimism about their initial spin-off, Cooling Technology Solutions, Inc. and the company approved 1-10 stock dividend for shareholders of EPAZ. The company said the spin-off will be above 0.0100 per share but some may question how long it will remain that high considering that “Project Flex,” a patent pending new technology that “will change the way cooling technology is used” is still in its infancy stage. In fact, the “dorm room sized refrigerator” has yet to be developed and there has been little insight into how long it will take before it can actually be brought to market.

The spin-off of Cooling Technology Solutions, Inc. is part of EPAZ’s bigger vision of becoming a holding company; something they believe will provide greater value to shareholders. In a press release from August 6, 2013 EPAZ said they were moving forward with a second spin-off, Project Human Mobile Power, which intends to develop “a mobile power device that allows iPhone and other smartphone users to power up their phone on the go without needing an outlet or a second battery.”

While EPAZ’s intended spin-offs are front and center the company’s revenues continue to come from their other offerings which include BoxesOS™ v3.0, a complete business web-based software package for small to mid-size businesses, Fortune 500 enterprises, government agencies, and higher education institutions. BoxesOS is described as providing many of the web-based applications organizations would have to otherwise buy separately. Epazz’s other products are AgentPower™, a workforce management software, and AutoHire™, an applicant tracking system.

Additionally EPAZ counts IntelliSys, Inc., Professional Resource Management, Inc., Desk Flex, Inc., K9 Bytes, Inc., and MS Health, Inc. as wholly-owned subsidiaries.

Unfortunately what EPAZ doesn’t count is much in the way of revenues from these offerings despite some reports that suggest growth. A few weeks ago EPAZ announced that their client base had grown by more than 500% during the last three years and they expect those numbers to continue to grow as renewal rates are very high by market standards and new customers are being reached every month. This release came two weeks after EPAZ reported “its revenues last year totaled $1,193,217, a 1,000 percent increase compared to when the Company first began publicly trading just a few years ago, and they continue to grow at record setting levels.”

When looking at the company’s most recent quarterly filing and the revenues generated during the three months ended June 30, 2013 compared to the same period one year earlier there is actually a substantial loss in revenues. The most recent three-month frame produced revenues of $279,119, a big drop from the $432,890 generated in 2012. As disappointing as the drop in revenue may be, what might really upset shareholders in the net operating loss reported for the most recent period, $1,509,795. The biggest factor in operating expenses that led to this loss was salaries and wages which came in at $1,555,081, this compared to salaries and wages of $67,697 for the three months ended June 30, 2012. EPAZ said the increase in salaries and wages “is due primarily to the increase in stock based compensation of $1,430,500 pursuant to the issuance of a total of 746,026,316 shares of Class A Common Stock and 5,000,000 shares of Convertible Class B Common Stock granted amongst Shaun Passley, CEO and Fay Passley, in addition to increased cash compensation to our officers and employees.”

As it stands EPAZ is in the process of making moves and creating plenty of interest with their intention to spin-off business that sit under their umbrella but it is critical that these spin-offs are able to generate revenues and prove themselves to be a worthy investment. Right now shares of EPAZ are moving between the 0.0014 – 0.0015 level, a tick above their 50-day moving average of 0.0013 but that share price has seen considerable volatility over the past few months, sinking to a 52-week low of 0.0006 in early July, bouncing to a high of 0.0022 later that month, falling to 0.0008 in late August and now back around the 0.0015 mark today.

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