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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

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xANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
1934

|                                             |                                 
|-------------------------------------------- | --------------------------------
|For the fiscal year ended December
 31, 2008 | Commission File Number: 00031395



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VillageEDOCS, Inc.(Exact name of registrant as specified in its charter)

| |                                                                 |  |                                       | 
| | --------------------------------------------------------------- |  | ------------------------------------- | 
| | Delaware                                                        |  | 33-0668917                            | 
| | (State or other
 jurisdiction of incorporation or organization) |  | (I.R.S. Employer
 Identification No.) | 
| |                                                                 |  |                                       | 
| | 1401 N. Tustin Ave., Suite 230,
 Santa Ana, CA                  |  | 92705                                 | 
| | (Address of principal
 executive offices)                       |  | (Zip Code)                            | 
| |                                                                 |  |                                       | 
| | Registrants Telephone
 Number:                                 |  | (714) 734-1030                        | 

Securities registered
under Section 12(b) of the Exchange Act:

| |                     |  |                                           | 
| | ------------------- |  | ----------------------------------------- | 
| | Title of each class |  | Name of each exchange on which registered
| | NONE                |  | N/A                                       | 

Securities registered
under Section 12(g) of the Exchange Act:

Common Stock, $0.0001 par value
(Title of each class)

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Indicate by check mark if the registrant is a
well-known seasoned issuer (as defined in Rule 405 of the Securities
Act).

YESo
        NOx


Indicate by check mark whether the registrant (1)
filed all reports required to be filed by Section 13 or 15(d) of the Exchange
Act 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.

YESx
        NOo


Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.x

Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check One):

|Large Accelerated Filero | Accelerated Filero | Non-accelerated filero                             | Smaller reporting companyx
|------------------------ | ------------------ | -------------------------------------------------- | --------------------------
|                         |                    | (Do not check if a smaller
     reporting company) |                           

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

YESo
        NOx


There were 180,270,913 shares of the Registrants
common stock, $0.0001 par value, outstanding as of February 28, 2009.

State issuers revenues for its most recent fiscal
year: $15,176,393

State the aggregate market value of the voting stock
held by non-affiliates of the issuer as of June 30, 2008: $614,042.

DOCUMENTS INCORPORATED INTO THIS REPORT ON FORM 10-K
BY REFERENCE: None.





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VillageEDOCSFORM 10-K INDEX
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

| |          |            |  |                                                                                                                    |  |     
| | -------- | ---------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ----
| |          |            |  |                                                                                                                    |  | Page
| | PART I.  |            |  |                                                                                                                    |  |     
| |          |            |  |                                                                                                                    |  |     
| |          | Item 1.    |  | Business                                                                                                           |  | 4   
| |          |            |  |                                                                                                                    |  |     
| |          | Item
 1A.  |  | Risk Factors                                                                                                       |  | 12  
| |          |            |  |                                                                                                                    |  |     
| |          | Item
 1B.  |  | Unresolved Staff Comments                                                                                          |  | 25  
| |          |            |  |                                                                                                                    |  |     
| |          | Item 2.    |  | Properties                                                                                                         |  | 26  
| |          |            |  |                                                                                                                    |  |     
| |          | Item 3.    |  | Legal Proceedings                                                                                                  |  | 26  
| |          |            |  |                                                                                                                    |  |     
| |          | Item 4.    |  | Submission of Matters to a Vote of
 Security Holders                                                               |  | 27  
| |          |            |  |                                                                                                                    |  |     
| | PART II. |            |  |                                                                                                                    |  |     
| |          |            |  |                                                                                                                    |  |     
| |          | Item 5.    |  | Market for Registrants Common
 Equity and Related Stockholder Matters, and Issuer Purchases of Equity
 Securities |  | 28  
| |          |            |  |                                                                                                                    |  |     
| |          | Item 6.    |  | Selected Financial Data                                                                                            |  | 29  
| |          |            |  |                                                                                                                    |  |     
| |          | Item 7.    |  | Managements Discussion and Analysis
 of Financial Condition and Results of Operation                              |  | 29  
| |          |            |  |                                                                                                                    |  |     
| |          | Item
 7A.  |  | Quantitative and Qualitative
 Disclosures About Market Risk                                                        |  | 46  
| |          |            |  |                                                                                                                    |  |     
| |          | Item 8.    |  | Financial Statements and
 Supplementary Data                                                                       |  | 46  
| |          |            |  |                                                                                                                    |  |     
| |          | Item 9.    |  | Changes In and Disagreements with
 Accountants on Accounting and Financial Disclosure                              |  | 46  
| |          |            |  |                                                                                                                    |  |     
| |          | Item
 9A.  |  | Controls and Procedures                                                                                            |  | 46  
| |          |            |  |                                                                                                                    |  |     
| |          | Item
 9B.  |  | Other Information                                                                                                  |  | 48  
| |          |            |  |                                                                                                                    |  |     
| | PART III |            |  |                                                                                                                    |  |     
| |          |            |  |                                                                                                                    |  |     
| |          | Item
 10.  |  | Directors, Executive Officers, and
 Corporate Governance                                                           |  | 49  
| |          |            |  |                                                                                                                    |  |     
| |          | Item
 11.  |  | Executive Compensation                                                                                             |  | 54  
| |          |            |  |                                                                                                                    |  |     
| |          | Item
 12.  |  | Security Ownership of Certain
 Beneficial Owners and Management and Related Stockholder Matters                    |  | 60  
| |          |            |  |                                                                                                                    |  |     
| |          | Item
 13.  |  | Certain Relationships and Related
 Transactions and Director Independence                                          |  | 62  
| |          |            |  |                                                                                                                    |  |     
| |          | Item
 14.  |  | Principal Accountant Fees and
 Services                                                                            |  | 64  
| |          |            |  |                                                                                                                    |  |     
| | PART
 IV |            |  |                                                                                                                    |  |     
| |          | Item
 15.  |  | Exhibits and Financial Statement
 Schedules                                                                        |  | 65  
| |          |            |  |                                                                                                                    |  |     
| |          | Signatures |  |                                                                                                                    |  | 72  

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PART I

ITEM 1.DESCRIPTION
OF BUSINESS

IMPORTANT
NOTIFICATIONS
 This
Annual Report on Form 10-K includes forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. All
statements that do not directly and exclusively relate to historical facts
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. You are cautioned not to put undue
reliance on any forward-looking statements. For these statements, we claim the
protection of the safe harbor for forward-looking statements contained in
Section 21E of the Exchange Act. For important additional and specific
information regarding these statements, we strongly urge you to refer to Item
1A Risk Factors as well as the caption entitled CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
that can be found in Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operation of this Annual Report
on Form 10-K. The Companys Internet website address is
www.villageedocs.com. The Companys annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto,
are available free of charge on the Companys website as soon as reasonably
practical after such reports are electronically filed with, or furnished to,
the U.S. Securities and Exchange Commission. Unless otherwise indicated by the context, we, our
or the Company means the parent company, VillageEDOCS, Inc. and our
wholly-owned subsidiaries, GoSolutions, Inc., MessageVision, Inc., Decision
Management Company, Inc. dba Questys Solutions, and Tailored Business Systems,
Inc. Between April 2005 and November 2007, we operated Phoenix Forms, Inc. dba
Resolutions, an electronic forms business that we discontinued and sold
effective December 1, 2007.


BUSINESS OVERVIEW

General

VillageEDOCS, Inc. is a
global outsource provider of business process solutions that simplify,
facilitate and enhance critical business processes. Our mission is to provide
solutions that facilitate the movement of business critical information between
business enterprises and their trading partners. Our strategy is to further
develop innovative solutions to existing services to expand our ability to
benefit our enterprise clients and increase the breadth and size of the markets
we satisfy today. Our acquisition growth strategy is focused on acquiring intellectual
and technology assets that continue to accelerate the expansion of our client
solutions.

Clients use our Software as
a Service (SaaS) hosted services and customer premise solutions for a
spectrum of business-critical communications and business processes, including
just-in-time manufacturing, receivables, invoice delivery, securities filings,
insurance and healthcare transactions, electronic document management, document
capture and automation, utility and tax billing, electronic payment capture, general
ledger, marketing campaigns, and printing of documents and other applications.

Our target markets include
financial services, healthcare, manufacturing, and local government, and we
served approximately 1,500 active clients, including approximately 25,000
individual users, as of December 31, 2008. We have a multi-channel sales
approach, selling directly to clients through our telesales and field sales and
tele-marketing professionals and indirectly through strategic partners.

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We are incorporated in the
State of Delaware and have been in business since 1995. Our corporate
headquarters are located at 1401 N. Tustin Road, Suite #230, Santa Ana, CA
92705, and our telephone number is (714) 734-1030. As of February 28, 2009, we
had 78 employees, and we service clients throughout the world.

Industry
Background

A business enterprises
success is dependent upon the ability to communicate with an ever-expanding
number of prospects, clients and trading partners. Business enterprises are
challenged to support an increasing number of communication methods while
required to meet more stringent compliance and regulation. Todays global
competition and markets effectively require business enterprises to have
increased speed of communication, accuracy, security management, and control of
business processes.

Business enterprises are
increasingly outsourcing their inter-enterprise business processes to services
like ours. We offer a wide spectrum of business process solutions, a scalable
platform and proven expertise.

Business
Services

We market a complete set of
business communications services and solutions that enable business enterprise
clients to increase competitiveness and efficiency through the automation of
labor- and paper-intensive business processes and solutions that capture client
data, shape it into useful information, and deliver it through efficient and
secure channels to and from trading partners and their constituents. We believe
that our communications technologies-based services improve and enhance data
delivery and critical business communications for national and global
enterprises. We believe our hosted SaaS solutions enable organizations to pay
as they utilize services, outsourcing the friction points of business document
processing, communications, and messaging, while retaining control of business
information, processes, and services. Examples of the information we move for
our clients include medical reports, orders, invoices, employment
verifications, and insurance documents. We employ a hosted application model
that provides low operational cost, high ratio of recurring to non-recurring
revenue, and the ability to introduce new service offerings rapidly.

Operating
Segments

We conduct our business
through four wholly-owned subsidiaries. Decision Management Company, Inc. dba
Questys Solutions (QSI, Questys) operates our electronic content management
and workflow solutions business. GoSolutions, Inc. (GoSolutions, GSI),
operates our enhanced voice and data communications services. MessageVision,
Inc. (MessageVision, MVI) operates our Internet-based document delivery
services. Tailored Business Systems, Inc. (TBS) operates our government
accounting products and services business.

Segment revenue and profit
information for MessageVision, TBS, Questys and GoSolutions is presented in
Note 12 of the Companys 2008 Consolidated Financial Statements, included as
Exhibit 99.1 to this report. See Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations for additional financial data
and commentary on recent financial results for operating segments.

Questys
Solutions  Electronic Content Management and Workflow

Questys (6% of consolidated
revenues in 2008), which we acquired in August 2008, provides document management,
archiving, and workflow solutions.

Established in 1981 and
headquartered in Santa Ana, California from the date of acquisition, Questys
offers products and services for the provision of enterprise-class electronic
document management solutions that include content management, document imaging
and capture, electronic forms, business process workflow, records management
and archiving modules.

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As of February 28, 2009,
Questys had approximately 350 active clients.

Questys solutions are
designed to allow commercial and government clients to take control of the
administration and monitoring of document life cycle stages (Capture, Create,
Classify, Share & Protect, Retain, Archive and Destroy) of critical
business documents and records. We believe that improved access to information
helps increase process efficiencies and greater governance, risk management,
and compliance for our customers.

Solutions are delivered in
both an on-premise model and a SaaS model that delivers document and content
management and workflow solutions in a completely web-based environment. The
SaaS hosted model eliminates software installations, hardware maintenance and
prolonged costs associated with technology and infrastructure change.

The Questys SaaS and product
offerings are as follows:

| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Document Management and
 Content Management to scan paper documents, import electronic files and
 email, perform OCR, edit, and store information in electronic format for
 secure storage and retrieval;     
| |   |                                                                                                                                                                                                               
| |  | Workflow to simplify the
 process of bringing tasks, employees, and records together to improve
 efficiency;                                                                                                  
| |   |                                                                                                                                                                                                               
| |  | Document Capture to
 intuitively recognize patterns of text in documents that eliminate the
 errors, time and cost that come with manual data entry and filing; and                                           
| |   |                                                                                                                                                                                                               
| |  | Legislative Agenda
 Management to automate the municipal government agenda process by creating
 staff reports, agendas and packets and facilitating real-time roll-call, vote
 tabulation and meeting minutes.

Net sales to external
customers for the fiscal year ended December 31, 2008 (from date of
acquisition) were $979,553. Net income for the fiscal year ended December 31,
2008 (from date of acquisition) was $16,695.

GoSolutions
 Enhanced Voice and Data Communications Services

GoSolutions (40% of consolidated
revenues in 2008), which we acquired in May 2006, offers next generation
communications services to enterprise customers through its hosted suite of
enhanced telephony applications. GoSolutions develops, licenses and delivers
technology to address the expanding needs of the telecommunications market.

As of February 28, 2009, GSI
had over 23,000 active users. GSI has two wholly-owned subsidiaries: Go Solo
Technologies, Inc. and GoSolutions Canada, Inc., which has no significant
operations. During 2008, independent representatives of two customers accounted
for 60% and 25%, respectively, of GSIs consolidated net sales.

GSI offers a portfolio of
progressive, Telco-grade calling services including basic voicemail, enhanced
voicemail (which includes speech navigation and Web/phone message access),
unified communications, audio and Web conferencing solutions. All GSIs
applications can be bundled with traditional voice and data products to provide
the enhanced features found with VoIP offerings. GSI has created a voicemail
platform that enables companies to start out with the basics and add enhanced
features as they grow. In addition to the features of GoSolutions Basic
Voicemail, GoSolutions Enhanced Voicemail solution offers subscribers a
virtual attendant with Find Me call routing capable of ringing up to 9 numbers.
Privacy features allow callers to hear whos calling and either accept the call
or transfer the caller to voicemail. A Web interface is available to check
messages online. Enhanced Voicemail subscribers enjoy an enhanced professional
image and the confidence of never missing another call or potential
opportunity. Enhanced Voicemail is offered with a generic brand. Private
branding and custom branding options are also available.

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GSIs flagship product,
Unified Communications, is a communications suite that enables subscribers to
have a unified inbox. All voice, fax, and email messages are centrally located
and accessible via the phone or the Web. Users receive all their messages by
consolidating them into the most widely used email application available, MS
Outlook. In addition, users can use GSIs speech recognition system to send and
receive voicemail and email over the phone. GSI has combined flexible
technology in conjunction with a custom IVR application to deliver a corporate
directory product. Proprietary speech recognition technology directs a caller
to a main line to access other sub accounts (users or departments) by name. Out
of office attendant is included with this solution. GSI offers both audio and
Web conferencing services. A custom-branding option is available. We intend to
use GSIs service platform to deliver new services obtained through future
development or acquisitions.

Net sales to external
customers for the fiscal years ended December 31, 2008 and 2007 were $6,059,154
and $6,222,458, respectively. Net income for the fiscal years ended December
31, 2008 and 2007 was $1,134,016 and $1,005,091, respectively.

MessageVision
- Electronic Document Delivery Services

MessageVision (18% of
consolidated revenues in 2008) is a California corporation formed in 2004 to
operate the historical business of VillageEDOCS, an Internet-based electronic
document delivery service.

We believe that
MessageVision provides superior flexibility, availability, reliability,
scalability, and security to enterprises. Virtually all industry segments
produce documents that require extreme attention to content, format, security,
and accuracy prior to delivery to the recipient. One feature that MVIs service
provides is the ability for a user to send an electronic fax document to an
individual or to a broadcast list of thousands through a web browser, e-mail
package, Microsoft Windows-based application, Enterprise Resource Planning or
Customer Relationship Management system, or a proprietary corporate information
system. In addition, MVI provides inbound fax services that enable our
clients to receive fax documents electronically. Once received electronically,
documents may be stored digitally, printed, forwarded, sent to a fax machine,
deleted with a single click, or annotated using popular desktop software. The
service also fulfills the reliability and capacity considerations normally
applied to production applications. When a fax is received by the service, it
can be sent directly to an individuals email, central administrator for
further distribution, or to back office applications for processing. Users are
assigned a personal toll or toll-free number.

Another example of MVIs
service is the ability to capture information from any predefined output
format, standard interface, data stream (i.e., API, Barcode, Print, Spool,
Control File, etc.) or directly from the actual document.

Our integration tools
automatically extract data values to automate business processes such as
creating and distributing forms, addressing and re-routing faxes and email
transmissions, and archiving data for immediate retrieval.

As of February 28, 2009, MVI
had approximately 350 active clients.

We use proprietary,
internally-developed document processing and transmission systems to create and
send or receive documents for our clients. We provide easy to deploy
Internet-based fax services that integrate with existing Internet-connected
systems within companies where invoices, statements, purchase orders, ticket
confirmations, and other key documents originate. A typical application is
characterized by the need to deliver time sensitive, personalized documents to
a disparate group of recipients in multiple formats and delivery methods. Our
services are designed for use by a wide range of industries and enterprise
sizes using such diverse platforms as Microsoft Windows XP, UNIX, and IBM
iSeries (AS/400). Our clients currently include financial services companies,
healthcare companies, manufacturing companies, E-commerce providers,
application service providers, food service corporations, value added
resellers, weather reporting services, public relations firms, and direct
marketing organizations. Businesses using Oracle and SAP environments, among
others, can use our service to become fax-enabled without traditional capital
expenditures and ongoing maintenance costs. We offer our clients the
flexibility to send Microsoft Office, IBM PCL, Adobe PDF, next-generation HTML,
and other types of documents through our Internet fax service. In addition, our
service is compatible with virtually any foreign language including
character-based Pacific Rim, Middle and Far Eastern languages. In addition, we
offer our clients robust activity reporting and job control functions that are
not offered by many of our competitors. We offer workflow, archiving and
document management solutions that provide electronic document presentation
functions that enable our clients to automatically generate and deliver presentation-quality
documents from enterprise systems such as ERP, CRM, and E-Commerce and to
populate a database with data from a document that has either been scanned or
received as a fax.

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MVI charges our clients a
fee primarily based upon either the number of pages delivered and received, or
upon the number of minutes expended, for the delivery or receipt of our
clients documents during the month. In some cases, we charge one-time and
annual perpetuation fees for custom-developed client solutions. Our net
revenues are impacted by the number of effective business days in any period.

Net sales to external
customers for the fiscal years ended December 31, 2008 and 2007 were $2,761,147
and $2,956,857, respectively. Net income for the fiscal years ended December
31, 2008 and 2007 was $283,906 and $318,334, respectively.

Tailored
Business Systems, Inc. - Government Accounting Products and Services

TBS (35% of consolidated
revenues in 2008) is a Georgia corporation established in 1973. The Company
acquired TBS in February 2004. TBS is engaged in the business of creating,
maintaining, training, customizing and supporting computer application programs
primarily for the use of city and county governments, the sale of online
payment solutions, the sale and installation of computer equipment and
supplies, the printing and ordering of forms, the furnishing of consulting
services, and the implementation of internal computer networks in communication
with IBM iSeries servers. We generate revenues from TBS established client
base in the form of volume printing, billing, and fulfillment services as well
as online services, maintenance and training. We have achieved a dominant share
of the Georgia market for small to medium government entities, enjoying
two-thirds of the city, municipal and county government market in that state.
Our goals include expanding our business model to governmental entities
regionally and, eventually, nationwide. In addition, we intend to expand
revenue both from printing and from subscription-based hosted solutions.

As of February 28, 2009, TBS
had approximately 500 active clients.

We charge for our
proprietary software and for general-purpose hardware used in providing
in-house solutions. When a client elects to use the hosted Application Service
Provider service, we charge a monthly fee per user for the use of the Internet
based services. For our online payment services, charges are usage-based. In
addition to our application offerings, we charge for consulting, installation,
implementation, support, annual maintenance and training. We charge separately
for printing and forms jobs based on the specific nature of the requirements.
For printing, it is generally per mailing and for forms on a per page basis. We
deliver an efficient, economical and secure environment for our municipal
clients. Our net revenues vary quarterly based on the budget and property tax
assessment cycles of our local government clients.

Net sales for the fiscal
years ended December 31, 2008 and 2007 were $5,376,539 and $5,001,343,
respectively. Net income for the fiscal years ended December 31, 2008 and 2007
was $491,532 and $511,848, respectively.

Products
and Services Development

Our financial model is
focused upon growth of recurring revenue streams from our SaaS solutions and governmental
billing and printing services. While we also sell software that is deployed at
our customers sites, we believe that the historical predictability of the
revenues and resulting operating cash flows we achieve from recurring sources
are desirable in that they allow us to operate with a reasonable degree of
financial leverage.

The Company actively and
continually engages in development of additional products and services to offer
to our existing and potential new clients.

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Our ability to sustain our
development activities is dependent upon the availability of sufficient funds
from operations or other sources such as proceeds received by the Company from
the sale of common stock, bank lines of credit or other credit facilities.

Competition

Many of our existing
competitors, as well as a number of potential new competitors, have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than the
Companys subsidiaries. Our solutions compete primarily against traditional fax
machine and fax server manufacturers, providers of electronic document
management software and services, and providers of accounting software and
related services to small government entities. These competitors are generally
larger, well established companies, including Captaris, Inc., a subsidiary of
Open Text Corporation, Premiere GlobalServices, Inc., Easylink Services
Corporation, Epicor Software, Lawson Software, and EMCs Documentum subsidiary,
among others. Such competitors may be able to undertake more extensive
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to potential employees and distribution partners. In
addition, our clients may be able to replace several of the services we offer
with internally developed or managed products. We believe that the principal
competitive factors common to our businesses include financial stability,
pricing, reputation for reliability and security of service, effectiveness of
customer support, service and software ease-of-use, customized design,
scalability of service, product performance, price, product knowledge, timely
delivery, and product maintenance. We believe that GSI and MVI can compete
effectively because we offer our clients certain capabilities that much of the
competition does not offer, such as ease of deployment, custom integration,
private-labeling, intelligent document routing, enhanced delivery tracking,
time-released training messaging, integrated distribution lists, call transfer
functionality, and electronic document presentation. We believe QSI and TBS can
compete effectively because we provide affordable and reliable full-service
solutions that are suitable to the needs of local governments and small to
medium sized enterprises. However, there can be no assurance that our
competitors will not develop and market similar products and services that are
equal or superior to ours, or that achieve greater market acceptance than our
offerings. For more information regarding competitive factors, please refer to
Item 1A, Risk
Factors, in this annual report.

Marketing

We market our services to a
broad spectrum of prospective customers including independent agents, small to
medium-sized businesses and large enterprises and government organizations. Our
marketing efforts include enhancing brand awareness, search engines, and
selected trade shows. Currently, we have five primary methods to generate leads
and new revenue from our products and services: (i) selling direct through our
web sites; (ii) attracting business subscribers through various search engines;
(iii) promoting our solutions to small to mid-sized businesses through our web
sites targeting corporate, enterprise and governmental customers; (iv) selling
our solutions to small to medium sized enterprises and governmental
organizations through our direct sales force and tradeshows; and (v) offering
additional services to our existing customers. We are seeking opportunities to
extend the number of distribution channels to acquire paying customers.

In addition to growing our
business organically, we have used acquisitions to grow our customer base,
enhance our technology and acquire skilled personnel.

Outlook
and Strategy

We believe there is a growing
need for better ways to deliver, process, archive and manage electronic records
for regulatory compliance and legal reasons and for intelligent access in
support of day-to-day business operations. One example is Electronic discovery
(eDiscovery), a component of legal discovery involving information that is
converted into digital data or collected and processed in that form. In
addition many industries, such as healthcare and financial services, face
increasing governmental regulation mandating the way that electronic records
are managed.

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We intend to continue our
focus on obtaining growth from higher margin products and services at Questys,
GSI, MVI and TBS, as well as growth from acquisitions of companies that
consistently generate net income and positive cash flows. We believe that this
strategy offers the best opportunity for us to continue to generate positive
cash flows from operations and to achieve net income on a consistent basis.

During 2008, we pursued a
strategy of preparing VillageEDOCS for significant growth. One area that we
focused on was a significant reduction in general and administrative expenses,
primarily management staff, and maintaining level expenditures for the sales
and marketing team so that sufficient resources would be in place to drive our
planned growth. Our strategy for 2009 is to direct capital toward increasing
sales and marketing while holding down costs for general and administrative as
well as product and technology expenses.

Government
Regulation

Our offerings relate
principally to hosted SaaS solutions that involve the use of the Internet and
telecommunications infrastructure. Accordingly, we are subject to legal and
regulatory developments affecting either Internet or telecommunications
services in general. Due to the increasing popularity and use of the Internet,
a number of laws and regulations have been adopted at the international,
federal, state and local levels with respect to the Internet. Many of these
laws cover issues such as privacy, freedom of expression, pricing, on-line
products and services, taxation, advertising, intellectual property,
information security and the convergence of traditional telecommunications
services with Internet communications. Moreover, a number of laws and
regulations have been proposed and are currently being considered by federal,
state, local and foreign legislatures with respect to these issues. The nature
of any new laws and regulations and the manner in which existing and new laws
and regulations may be interpreted and enforced cannot be fully determined.

We are subject to a number
of foreign and domestic laws and regulations that affect companies conducting
business related to the Internet and telecommunications, addressing issues such
as privacy, data protection, freedom of expression, indecency, obscenity,
defamation, libel, pricing, online products and services, taxation, content,
advertising, copyrights and other intellectual property, information security
and technological convergence. We face risks from proposed legislation or new
interpretations of existing legislation that could occur in the future.

We provide our services
through data transmissions over public telephone lines and other facilities
provided by telecommunications companies (carriers). These transmissions and
carriers are subject to regulation by the U.S. Federal Communications
Commission (FCC), state public utility commissions and foreign governmental
authorities. However, as an Internet messaging services provider, we generally
are not subject to direct regulation by any governmental agency in the U.S.,
other than regulations applicable to businesses generally. This is not the case
in some international locations. Nevertheless, as Internet services and
telecommunications services converge or the services we offer expand, we may
face increased domestic or foreign regulation of our business in areas such as
delivery of broadband services, inter-carrier compensation and continued
regulation of competition.

The FCC is authorized to
take enforcement action against companies that send so-called junk faxes and
has held certain fax broadcasters liable for violating the Telephone Consumer
Protection Act of 1991 (TCPA), the Junk Fax Prevention Act of 2005 (Junk Fax
Act) and related FCC rules. Under certain circumstances, individuals may also
have a private cause of action for violations and seek to recover monetary
damages. It is our belief that businesses that merely transmit facsimile
messages on behalf of others may be found liable if they have a high degree of
involvement in transmitting junk faxes or have actual notice of illegal junk
fax transmissions and have failed to take steps to prevent such transmissions.
We take reasonable measures to ensure that our services are not used to
transmit unsolicited faxes and we do not believe that we have a high degree of
involvement or notice of the use of MVIs services to broadcast illegal junk
faxes. However, we also believe that fax transmitters may not be exempt from
liability in an absolute sense under the rules, we believe it is possible that
we could face FCC inquiry and enforcement, civil litigation or private causes
of action, which could result in financial penalties that would likely cause
material adverse effects to our operations.

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Future developments in laws
that govern online activities might inhibit the growth of the Internet, impose
taxes, mandate costly technical requirements, create uncertainty in the market
or otherwise have an adverse effect on the Internet. There is also substantial
uncertainty as to the applicability to the Internet of laws governing issues
such as property ownership, fraud, tort, copyrights and other intellectual
property issues, taxation, defamation, obscenity and privacy, none of which
contemplated the existence of the Internet. These developments could, in turn,
have a material adverse effect on our business, prospects, financial condition
and results of operations.

Research
and Development

The markets for our services
are evolving rapidly, requiring ongoing expenditures for research and
development and timely introduction of new services and service enhancements.
Our future success will depend, in part, on our ability to enhance our current
services, to respond effectively to technological changes, to sell additional services
to our existing customer base and to introduce new services and technologies
that address the growing needs of our target markets and existing clients.

Employees

As of February 28, 2009, VillageEDOCS, Inc. had five full-time
employees, three of whom are executive officers. Questys had sixteen full-time
employees. These employees include four engaged in sales and marketing, five in
customer service, four in product development, and three in implementation
services. GoSolutions had twenty eight full-time employees. These employees
include two engaged in sales and marketing, nine in customer service, three in
product development, ten in engineering and operations, and four in
administration. MessageVision had eight full-time employees. These employees include
one engaged in sales and marketing, five in engineering and operations, and two
in administration. TBS had twenty-one full-time employees, including two
engaged in sales and marketing, two in technology development, thirteen in
operations, and four in administration.

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ITEM 1A. RISK FACTORS

We believe it
is important to communicate our expectations to our stockholders. There may be
events in the future, however, that we are not able to predict accurately or
over which we have no control. The risk factors listed in this section, as well
as any cautionary language in this report, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
make an investment decision with respect to our common stock, you should be
aware that the occurrence of any of the events described in these risk factors
and elsewhere in this report could have a material and adverse effect on our
business, results of operations and financial condition and that upon the
occurrence of any of these events, the trading price of our common stock could
decline and you could lose all or part of your investment.

The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us may also
adversely impact our business operations. If any of the following risks
actually occur, our business, financial condition, or operating results could
be negatively affected.

Risks Relating to Our Business

We have a limited operating history which makes financial forecasting
and evaluation of our business and prospects difficult and we have received an
opinion from our independent registered public accounting firm regarding
substantial doubt regarding our ability to continue as a going concern.

Our limited operating
history makes it difficult to forecast our future operating results. We were
founded and began operating in 1995, but did not report income from operations
until the quarter ended June 30, 2004, and have reported net losses through at
least December 31, 2008. We do not have a long history upon which to base
forecasts of future operating results, and any predictions about our future
revenues and expenses may not be as accurate as they would be if we had a
longer business history.

The likelihood
of our future success must be considered in light of such limited operating
history, as well as the problems, expenses, difficulties, complications and
delays frequently encountered in connection with any business. There can be no
assurance that our future revenues will ever be significant or that our
operations will ever be profitable.

In addition,
we cannot predict the consistency of our quarterly operating results. Factors
which may cause our operating results to fluctuate significantly from quarter
to quarter include:

| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | our ability
 to attract new and repeat customers;                                 
| |   |                                                                                   
| |  | our ability
 to keep current with the evolving requirements of our target market; 
| |   |                                                                                   
| |  | our ability
 to protect our proprietary technology;                               
| |   |                                                                                   
| |  | the ability
 of our competitors to offer new or enhanced products or services; and
| |   |                                                                                   
| |  | unanticipated
 delays or cost increases with respect to research and development. 

Because of
these and other factors, we believe that quarter-to-quarter comparisons of our
results of operations are not good indicators of our future performance. If our
operating results fall below the expectations of securities analysts and
investors in some future periods, then our stock price may decline.

The Report of
Independent Registered Public Accounting Firm on our December 31, 2008
consolidated financial statements includes an explanatory paragraph stating
that the recurring losses incurred from operations and a working capital
deficiency raise substantial doubt about our ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

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Our ability to operate is conditioned on our ability to obtain
additional financing.

Our ability to
satisfy our future capital requirements and implement our growth plans will
depend upon many factors, including the financial resources available to us,
the expansion of our sales and marketing efforts and the status of competition.
We believe that current and future available capital resources, including the
net proceeds from sale of our products and services, will be sufficient to fund
our operations at current levels for the foreseeable future. However, the exact
amount of funds that we will require will depend upon many factors, and it is
possible that we will require additional financing. There can be no assurance
that additional financing will be available to us on acceptable terms, or at
all. If additional funds are raised by issuing equity securities, further
dilution to the existing stockholders will result. If adequate funds are not
available, we may be required to delay, reduce or eliminate our programs or
obtain funds through arrangements with partners or others that may require us
to relinquish rights to certain of our products, technologies or other assets.
Accordingly, the inability to obtain such financing could have a material
adverse effect on our business, financial condition and results of operations.

We cannot predict whether we will be successful together with Questys
because the combined business model is unproven and markets in which they are
operating are developing.

The combined
business strategy is unproven, and it is too early to gauge reliably market
penetration rates for our services. There can be no assurance that we will be
successful in the offering of any additional services that are currently
planned. If the demand is lower than anticipated, or the cost to add a customer
is higher than anticipated, our business, prospects, financial condition and
results of operations would be materially and adversely affected.

GoSolutions currently depends on one large customer for the majority of
its revenue.

For 2008, 60%
of GoSolutions revenue (24% of consolidated net revenues) was derived from
independent representatives of Primerica Life Insurance Company (PLIC). PLIC
represents the majority of GoSolutions client base. PLIC is currently
endorsing GoSolutions flagship service, GoSolo,
and is under contract to do so only until July 2011.

Weakness in the financial markets and the economy in general

Weakness in
the financial markets and in the economy as a whole has adversely affected and
may continue to adversely affect segments of our customers, which has resulted
and may continue to result in decreased usage levels, customer acquisitions and
customer retention rates and, in turn, could lead to a decrease in our revenues
or rate of revenue growth.

Certain
segments of our customers - those whose business activity is tied to the health
of the credit markets and the broader economy, such as banks, brokerage firms
and those in the real estate industry - have been and may continue to be
adversely affected by the current turmoil in the credit markets and weakness in
the broader mortgage market and the general economy. To the extent our
customers businesses have been adversely affected by these economic factors
and their usage levels of our services decline, we have and may continue to
experience a decrease in usage-based revenue. In addition, continued weakness
in the economy has adversely affected and may continue to adversely affect our
customer retention rates and the number of our new customer acquisitions. These
factors have adversely impacted, and may continue to adversely impact, our
revenues and profitability.

Increased
numbers of credit and debit card declines as a result of decreased availability
of credit and/or a weakening economy could lead to a decrease in our revenues
or rate of revenue growth.

Substantially
all of GSIs subscribers pay for their services through credit and debit cards.
Weakness in the credit markets and in the U.S. and global economy has resulted
in and may continue to result in increased numbers of rejected credit and debit
card payments. We believe this has resulted in and may continue to result in
increased customer cancellations and decreased customer signups. This also has
required and may continue to require us to increase our reserves for doubtful
accounts and write-offs of accounts receivables. The foregoing may adversely
impact our revenues and profitability.

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We may have difficulty in retaining our customers, which may prevent
our long-term success.

We anticipate
that our sales and marketing and other costs of acquiring new subscriptions
outside of our existing client base will be substantial relative to the monthly
fees derived from subscriptions. Accordingly, we believe that our long-term
success depends largely on our ability to retain our existing customers, while
continuing to attract new ones. We continue to invest significant resources in
our network infrastructure and customer and technical support capabilities to
provide high levels of customer service. We cannot be certain that these
investments will maintain or improve customer retention. We believe that
competition from our competitors has caused, and may continue to cause, some of
our customers to switch to a competing service provider. In addition, some new
customers use our services only as a novelty and do not become consistent users
of the service and, therefore, may be more likely to discontinue their service.
These factors adversely affect our customer retention rates. Any decline in
customer retention rates could have a material adverse effect on our business,
prospects, financial condition and results of operations.

We are dependent on third party technologies and services.

We have
incorporated technology developed by third parties in our services to be
provided to our partners. We will continue to incorporate third-party
technology in future products and services. We have limited control over
whether or when these third-party technologies will be developed or enhanced.
In addition, our competitors may acquire interests in these third parties or
their technologies, which may render the technology unavailable to us. If a
third party fails or refuses to timely develop, license or support technology
necessary to our services, market acceptance of our services could be adversely
affected. In addition, we rely on, and will continue to rely on, services
supplied by third parties such as telecommunications, Internet access and
electrical power. If these services fail to meet industry standards for quality
and reliability, market acceptance of our services could be adversely affected.

Our business is dependent on a small number of telecommunications
carriers in each region and our inability to maintain agreements at attractive
rates with such carriers may negatively impact our business.

Our business
substantially depends on the capacity, affordability, reliability and security
of our telecommunications networks. Only a small number of carriers in each
region, and in some cases only one carrier, offer the telephone number and
network services we require. Certain of our telecommunications services are
provided pursuant to short-term agreements that the providers can terminate or
elect not to renew. As a result, any or all of our current carriers could
discontinue providing us with service at rates acceptable to us, or at all, and
we may not be able to obtain adequate replacements, which could materially and
adversely affect our business, prospects, financial condition, operating
results and cash flows.

A system failure or security breach could delay or interrupt service to
our customers, harm our reputation or subject us to significant liability.

Our operations
are dependent on our ability to protect our network from interruption by damage
from fire, earthquake, power loss, telecommunications failure, unauthorized
entry, computer viruses or other events beyond our control. There can be no
assurance that our existing and planned precautions of backup systems, regular
data backups, security protocols and other procedures will be adequate to
prevent significant damage, system failure or data loss. Also, despite the
implementation of security measures, our infrastructure may be vulnerable to
computer viruses, hackers or similar disruptive problems caused by our
subscribers, employees or other Internet users who attempt to invade public and
private data networks. Currently, a significant number of our users authorize
us to bill their credit or debit card accounts directly for all transaction
fees charged by us. We rely on encryption and authentication technology to effect
secure transmission of confidential information, including customer credit and
debit card numbers. Advances in computer capabilities, new discoveries in the
field of cryptography or other developments may result in a compromise or
breach of the technology used by us to protect transaction data. Any damage
system failure or security breach that causes interruptions or data loss in our
operations or in the computer systems of our customers or leads to the
misappropriation of our or our customers confidential information could result
in significant liability to us, cause considerable harm to us and our
reputation and deter current and potential customers from using our services.
Any of these events could have a material adverse effect on our business, prospects,
financial condition, operating results and cash flows.

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Our business is highly dependent on our billing systems.

A significant
part of our revenues depends on prompt and accurate billing processes. Customer
billing is a highly complex process, and our billing systems must efficiently
interface with third-party systems, such as those of credit card processing
companies. Our ability to accurately and efficiently bill our subscribers is
dependent on the successful operation of our billing systems and the
third-party systems upon which we rely, such as our credit card processor, and
our ability to provide these third parties the information required to process
transactions. In addition, our ability to offer new services or
alternative-billing plans may be dependent on our ability to customize our
billing systems. Any failures or errors in our billing systems or procedures
could impair our ability to properly bill our current customers or attract and
service new customers, and thereby could materially and adversely affect our
business, prospects, financial condition, operating results and cash flows.

Our customer contracts may not always limit our liability and may
sometimes contain terms that could lead to disputes in interpretation.

Our customer
contracts usually contain provisions limiting our liability with respect to
damages resulting from our products and services. We cannot assure you that
where we have limitation of liability provisions they will be enforceable in
all instances or would otherwise protect us from liability. Our customers may
dispute the interpretation of various provisions in their contracts. While we
have had relatively few disputes with our customers with regard to the terms of
their customer contracts, and any disputes to date have not been material, we
can give you no assurance that we will not have material disputes in the
future.

The
markets in which we operate are highly competitive, and we may be unable to
compete successfully against new entrants and established industry competitors
with significantly greater financial resources.

Competition in the
converging Internet and telecommunications industries is intense. We face
competition for products and services from both public and private companies,
as well as general voice mail providers, fax providers, paging companies,
Internet service providers, email providers and internet telephony companies.
Competitive pressures may impair our ability to achieve profitability. The
increased competition may also make it more difficult for us to successfully
enter into strategic relationships with major companies, particularly if the
goal is to have an exclusive relationship with a particular company. We compete
against other companies that provide one or more of the services that we currently
provide. In addition, these competitors may add services to their offerings to
provide enhanced telephony services comparable to those offered by the combined
companies. Future competition could come from a variety of companies both in
the Internet industry and the telecommunications industry. These industries
include major companies that have much greater resources than we have, have
been in operation for many years, and have large customer bases. These
companies may be able to develop and expand their communications and network
infrastructures more quickly, adapt more swiftly to new or emerging
technologies and changes in customer requirements, take advantage of
acquisition and other opportunities more readily, and devote greater resources
to the marketing and sale of their products and services than we may be able to
do. There can be no assurance that additional competitors will not enter
markets that we plan to serve or that we will be able to compete effectively.
Increased competition may result in price reductions, reduced gross margins and
loss of market share. We may be unable to attain, maintain or enhance our
competitive position against current and future competitors.

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Our
industry is subject to rapid technological change and we must adapt quickly to
compete effectively.

The markets in which we
compete are characterized by (i) rapidly changing technology in information
systems, networks, and information security software; (ii) evolving industry
standards and communications protocols; and (iii) frequent improvements in
products and services. Speech driven communications in particular have
experienced rapid changes. These changes can be attributable to frequent new
product introductions, continuing advances in technology, and changes in customer
requirements and preferences. To succeed, we must continually improve our
current products and services and develop and introduce new products and
services that are competitive in terms of price, performance, and quality.
These products must adequately address the information security requirements of
our customers and their evolving information systems and networks.

The introduction of new
technologies could render our existing products and services obsolete or
unmarketable or require us to invest in research and development at much higher
rates with no assurance of developing competitive products. Changes in
technologies or customer requirements also may cause the development cycle for
our new products and services to be lengthy and result in significant development
costs. We may not be able to counter challenges to our current products and
services, and our future products and service offerings may not keep pace with
the technological changes implemented by competitors, developers of operating
systems or networking systems, or persons seeking to breach information
security. Our products and services may not satisfy evolving preferences of
customers and prospects. Because of the complexity of our applications, which
operate on or use multiple platforms and communications protocols, we may
experience delays in introducing new products and service enhancements
primarily due to development difficulties or shortages of development
personnel. There can be no assurance that we will not experience lengthy delays
or other difficulties that could delay or prevent the successful development,
introduction or marketing of new products and services or service enhancements.
If we fail to develop and introduce new products or improve existing services
in a timely fashion, such failure may have a material adverse effect on our
business, prospects, financial condition and results of operations.

Our
failure to manage growth effectively could impair our business.

We believe that our
acquisitions will open new cross-marketing opportunities in each companys
respective customer base. This expansion of business could place a significant
strain on our management, financial resources, and other resources. There can
be no assurance that such expansion will occur.

We intend to
continue to grow by increasing our sales efforts and completing strategic
acquisitions. To effectively manage our growth, we must, among other things:

| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| | · | engage,
 train and manage a larger sales force and additional service personnel; 
| | · | expand the
 geographic coverage of our sales force;                              
| | · | expand our
 information systems;                                                 
| | · | identify and
 successfully integrate acquired businesses into our operations; and
| | · | administer
 appropriate financial and administrative control procedures.         

Our
anticipated growth will likely place a significant strain on our management,
financial, operational, technical, sales and administrative resources. Our
ability to manage future growth, if it occurs, will also depend upon the
capacity, reliability and security of our network infrastructure. Any failure
to effectively manage our growth or to promptly address and respond to these
circumstances may cause our business to suffer and our stock price to decline.

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We intend to acquire new and complementary businesses, products and
technologies and may be unable to complete these acquisitions or may not be
able to successfully integrate an acquired business in a cost-effective and
non-disruptive manner.

Our success
depends on our ability to continually enhance and broaden our product offerings
in response to changing technologies, customer demands and competitive
pressures. To this end, we have, from time to time, engaged in the process of
identifying, analyzing and negotiating possible acquisition transactions and we
expect to continue to do so in the future. We may choose to acquire new and
complementary businesses, products, technologies and/or services instead of
developing them ourselves. We may, however, face competition for acquisition
targets from larger and more established companies with greater financial
resources, making it more difficult for us to complete acquisitions. We cannot
provide any assurance that we will be successful in consummating future
acquisitions on favorable terms or that we will realize the benefits that we
anticipate from one or more acquisitions that we consummate. Integrating any
business, product technology or service we acquire could be expensive and
time-consuming and/or disrupt our ongoing business. Further, we are aware of
the numerous risks associated therewith, including but not limited to:

| |   |                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | diversion of
 managements attention from day-to-day operational matters and current
 products and customers;                                                                                     
| | · | lack of
 synergy, or the inability to realize expected synergies;                                                                                                                                 
| | · | failure to
 commercialize the new technology or business;                                                                                                                                         
| | · | failure to
 meet the expected performance of the new technology or business;                                                                                                                      
| | · | failure to
 retain key employees and customer or supplier relationships;                                                                                                                          
| | · | lower-than-expected
 market opportunities or market acceptance of any new products;                                                                                                               
| | · | unexpected
 reduction of sales of existing products and services by new products or
 services;                                                                                                    
| | · | inability to
 achieve the financial and strategic goals for the acquired and combined
 businesses;                                                                                                
| | · | difficulty
 in maintaining controls, procedures and policies during the transition and
 integration;                                                                                              
| | · | difficulty
 effectively integrating the acquired technologies or products with our
 current products and technologies, particularly where such products reside on
 different technology platforms;
| | · | difficulty
 managing geographically-dispersed operations;                                                                                                                                         
| | · | adverse
 effect on our relationships with partner companies or third-party providers
 of technology or products; and                                                                              
| | · | failure of
 our due diligence process to identify significant issues with product
 quality, product architecture, legal or tax contingencies, and product
 development, among other things.       

In addition,
as a successor we may be subject to certain liabilities of our acquisition
targets. We are, and will be, required to review goodwill and other intangible
assets for impairment in connection with past and future acquisitions. We may
be required to sustain significant exit or impairment charges if products or
services acquired in business combinations are unsuccessful, which may
materially increase operating expenses.

Our inability
to consummate one or more acquisitions on such favorable terms or our failure
to realize the intended benefits from one or more acquisitions, could have a
material adverse effect on our business, liquidity, financial position and/or
results of operations, including as a result of our incurrence of indebtedness
and related interest expense and our assumption of unforeseen contingent
liabilities. In addition, in order to finance any acquisitions, we will need to
raise additional funds through public or private equity or debt financings. In
that event, we could be forced to obtain financing on terms that are not
favorable to us and, in the case of equity financing, that result in dilution
to our stockholders.

Charges to earnings resulting from past or future acquisitions or
internal reorganizations may adversely affect our operating results.

Under purchase
accounting, we allocate the total purchase price to an acquired companys net
tangible assets, amortizable intangible assets and in-process research and
development based on their fair values as of the date of the acquisition and
record the excess of the purchase price over those fair values as goodwill.
Managements estimates of fair value are based upon assumptions believed to be
reasonable but which are inherently uncertain. As a result, any of the
following or other factors could result in material charges that would
adversely affect our results:

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| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Loss on
 impairment of goodwill and/or other intangible assets;                                                                                                                                                                                                                                       
| | · | Changes in
 the useful lives or the amortization of identifiable intangible assets;                                                                                                                                                                                                                   
| | · | Accrual of
 newly identified pre-merger contingent liabilities, in which case the related
 charges could be required to be included in earnings in the period in which
 the accrual is determined to the extent it is identified subsequent to the
 finalization of the purchase price allocation; and
| | · | Charges to
 income to reduce our cost structure.                                                                                                                                                                                                                                                      

In addition,
fluctuations in the price of our common stock may expose us to the risk of
securities class action lawsuits. Defending against such lawsuits could result
in substantial costs and divert managements attention and resources.
Furthermore, any settlement or adverse determination of these lawsuits could
subject us to significant liabilities.

Our business and users may be subject to sales tax and other taxes.

The
application of indirect taxes (such as sales and use tax, value added tax, or
VAT, goods and services tax, business tax, and gross receipt tax) to Internet
businesses such as MVI is a complex and evolving issue. Many of
the fundamental statutes and regulations that impose these taxes were
established before the growth of the Internet and e-commerce. In many cases, it
is not clear how existing statutes apply to the Internet or e-commerce. In
addition, some jurisdictions have implemented laws specifically addressing the
Internet or some aspect of e-commerce and several other proposals have been
made at the U.S. federal, state and local level that would impose additional
taxes on the sale of goods and services through the Internet. These proposals,
if adopted, could substantially impair the growth of e-commerce, hamper our
ability to retain and attract new customers and diminish our ability to derive
financial benefit from our activities. In December 2004, the U.S. federal
government enacted legislation extending the moratorium on states and other
local authorities imposing access or discriminatory taxes on the Internet through
November 2007. On October 31, 2007, the moratorium was extended through
November 2014. This moratorium does not prohibit federal, state, or local
authorities from collecting taxes on our income or from collecting taxes that
are due under existing tax rules. The application of existing, new, or future
laws could have adverse effects on our business, prospects and operating
results. There have been, and will continue to be, substantial ongoing costs
associated with complying with the various indirect tax requirements in the
numerous markets in which we conduct or will conduct business.

The successful operation of our business depends upon the provisioning
of critical technology from other companies.

We depend upon
third parties for several critical elements of our business, including various
technology and infrastructure components. We rely on private third-party
providers for our Internet and telephony connections and for co-location of a
significant portion of our communications servers. Any protracted disruption in
the services provided by any of these suppliers, or any failure by them to
handle current or higher volumes of activity could have a material adverse
effect on our business, prospects, financial condition, operating results and
cash flows.

An increase in the cost of email transmissions could have a material
adverse effect on our business.

We rely on
email for the delivery of some of MVIs electronic documents. In addition, the
Company regularly communicates with our clients via email. If regulations or
other changes in the industry lead to a charge associated with the sending or
receiving of email, the cost of providing MVIs services would increase and, if
significant, could materially adversely affect our business, prospects,
financial condition, operating results and cash flows.

We rely significantly on the revenue generated by our fax services.

During 2008,
approximately 18% of our net revenue was fax-related. Our future success is
therefore subject to the continued use of fax as a messaging medium and/or our
ability to diversify our service offerings and derive more revenue from other
services, such as voice, email and unified messaging solutions. If the demand
for fax as a messaging medium decreases, and we are unable to replace lost revenues
from decreased usage of our fax services with a proportional increase in our
customer base or with revenues from our other services, our business, financial
condition, operating results and cash flows could be materially and adversely
affected.

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We believe
that one of the attractions to fax versus alternatives, such as email, is that
fax signatures are a generally accepted method of executing contracts. Various
governmental and non-governmental entities, many of which possess greater
resources than we do, are attempting to create a universally accepted method
for electronically signing documents. Widespread adoption of so-called digital
signatures could reduce demand for our fax services and, as a result, could
have a material adverse effect on our business, prospects, financial condition,
operating results and cash flows.

Protection of our intellectual property is limited and there is a risk
of third party claims of infringement.

We regard our
software as proprietary, and our success and ability to compete depends, in
part, on our ability to protect our proprietary technology and operate without
infringing upon the rights of others; we may fail to do so. We will rely on
copyright and trade secret laws, trademarks, confidentiality procedures and contractual
provisions to protect our proprietary software, documentation, and other
proprietary information. In addition, we execute confidentiality and
non-disclosure agreements with our employees and limit access to distribution
of our proprietary information. These efforts will allow us to rely upon the
knowledge and experience of our management and technical personnel, to market
our existing products, and to develop new products. The departure of any of our
management or technical personnel, the breach of their confidentiality and
non-disclosure obligations to us, or the failure to achieve our intellectual
property objectives may have a material adverse effect on our business.
Although we believe that the effectiveness of our products and services does
not depend entirely upon the secrecy of our proprietary or licensed technology,
the public disclosure of our technology could reduce the level of our product
licensing. Further, litigation to defend and enforce our intellectual property
rights could result in substantial costs and diversion of our resources and
could have a material adverse effect on our business, prospects, financial
condition and results of operations regardless of the final outcome of such
litigation. Despite our efforts to safeguard and maintain our proprietary
rights, we may not be successful in doing so or the steps taken by us in this
regard may not be adequate to deter misappropriation or independent
third-parties from copying or otherwise obtaining and using our products,
services, technology, or other information that we regard as proprietary. Also,
others may independently develop similar technologies or duplicate our
technology. Our inability to protect our proprietary rights may have a material
adverse effect on us. As the number of similar products and services in the
industry increases and the functionality of these products further overlap, we
may increasingly become subject to claims of infringement or misappropriation
of the intellectual property or proprietary rights of others. Other third
parties could assert infringement or misappropriation claims against us in the
future with respect to current or future products and services. Any claims or
litigation, with or without merit, could be costly and could result in a
diversion of managements attention and of our resources.

In the past,
we received letters alleging that we had infringed the intellectual property
rights of CatchCurve, Inc. with respect to its AudioFax technology. To avoid
the costs of litigating the matter with CatchCurve or migrating our fax service
software to another provider, we entered into a license agreement with
CatchCurve for its AudioFax technology.

GoSolutions
has in the past received letters alleging that they are infringing the
intellectual property rights of Parus Holdings, the parent company of Webley
Systems. We have received advice from an intellectual property attorney with
experience in this industry with respect to the validity of the claim of the
Parus patent, and have been made aware that there is substantial evidence to
the effect that there existed prior art to the Parus patent that could impact
its effectiveness. We have made efforts to migrate away from the technologies
that are affected, and plan to continue to derive larger portions of revenue
from different technologies to reduce any exposure to this intellectual
property.

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Our services may become subject to burdensome telecommunications
regulation, which could increase our costs or restrict our service offerings.

Our GoSolo service provides Internet messaging
and telecommunication services through data transmissions over both the public
switched telecommunication network (PSTN) and the Internet. The PSTN based
telecommunications services provided by GoSolo
are subject to regulation by the Federal Communications Commission (FCC),
state public utility commissions and foreign governmental authorities. These
regulations affect the prices we pay for transmission services, the competition
we face from telecommunications services and other aspects of our market. The
FCC does not currently regulate the Internet messaging services provided as
part of GoSolo. In addition, MVI,
QSI and TBS provide services through data transmissions over public telephone
lines and other facilities provided by carriers. However, we believe that our
services are information services under the Telecommunications Act of 1996
and related precedent and therefore would not currently be subject to U.S.
telecommunications services regulation. The FCC also views Internet-based
services as being interstate and subject to the protection of federal laws
preempting state efforts to impose traditional common carrier regulation on
such services. However, as messaging and communications services converge and
as the services we offer expand, we may become subject to FCC or other
regulatory agency regulation. Changes in the regulatory environment could
decrease our revenues, increase our costs and restrict our service offerings.

Our business
segments, both directly and indirectly, rely on the Internet and other
electronic communications gateways. We intend to expand our use of these
gateways. To date, the use of the Internet has been relatively free from
regulatory restraints. However, legislation, regulations, or interpretations may
be adopted in the future that constrain our own and our customers abilities to
transact business through the Internet or other electronic communications
gateways. There is a risk that any additional regulation of the use of such
gateways could have a material adverse effect on our business and financial
condition.

The TCPA and
FCC rules implementing the TCPA, as amended by the Junk Fax Act, prohibit
sending unsolicited facsimile advertisements to telephone fax machines. The FCC
may take enforcement action against companies that send junk faxes and
individuals also may have a private cause of action. Although entities that
merely transmit facsimile messages on behalf of others are not liable for
compliance with the prohibition on faxing unsolicited advertisements, the
exemption from liability does not apply to fax transmitters that have a high
degree of involvement or actual notice of an illegal use and have failed to
take steps to prevent such transmissions. We take significant steps to ensure
that our services are not used to transmit unsolicited faxes on a large scale,
and we do not believe that we have a high degree of involvement or notice of
the use of our service to broadcast junk faxes. However, because fax
transmitters do not enjoy an absolute exemption from liability under the TCPA
and related FCC rules, we could face FCC inquiry and enforcement or civil
litigation, or private causes of action, if someone uses our service for such
impermissible purposes. If this were to occur and we were to be held liable for
someones use of our service for transmitting unsolicited faxes, the financial
penalties could cause a material adverse effect on our operations.

Since VillageEDOCS, Inc. is a holding company, our ability to make
payments on our various debt obligations depends upon the operations of our
subsidiaries.

VillageEDOCS,
Inc. is a holding company, and substantially all of our assets consist of the
stock of our subsidiaries and all of our operations are conducted by our direct
wholly owned subsidiaries. As a result, our ability to make payments on our
debt obligations will be dependent upon the receipt of sufficient funds from
our subsidiaries. Our debt obligations are guaranteed, on a joint, several,
full, and unconditional basis by all of our subsidiaries.

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Our success depends on the retention of existing executive officers and
the ability to hire and retain additional key personnel.

Our future
performance depends in significant part upon the continued service of the
executive officers named in Item 10. Directors, Executive Officers and Corporate
Governance of the Registrant and other key technical, sales and
management personnel. The loss of the services of one or more of any of the
named executive officers or other key employees could have a material adverse
effect on the business, prospects, financial condition and results of our
operations. Our future success also depends on its continuing ability to
attract and retain highly qualified technical, sales and managerial personnel.
Competition for such personnel is intense. Some technical job categories are
under conditions of severe shortage in the United States. We may not be able to
recruit or retain the caliber of staff required to carry out essential
functions at the pace necessary to sustain or expand our business. There can be
no assurance that we can retain our key employees or that we can attract,
assimilate or retain other highly qualified technical, sales and managerial
personnel in the future.

Changes in generally accepted accounting principles may adversely
affect us.

From time to
time, the Financial Accounting Standards Board (FASB) promulgates new
accounting principles that could have a material adverse impact on our results
of operations or financial condition. For example, in 2007, the FASB issued
Statement of Financial Accounting Standards No. 141(R) Business Combinations. The
standard, which is effective commencing in our 2009 fiscal year, will result in
significant changes in accounting for acquisitions, which could have a material
adverse effect on our business, results of operations or financial condition.

A limited number of shareholders own a significant portion of our
outstanding common stock and are able to influence our actions.

One
shareholder and his wife own 60,653,171 shares, or approximately 34%, of the
outstanding shares of our common stock as of February 28, 2009. In addition, as
of February 28, 2009, these individuals hold warrants to purchase an additional
3,000,000 shares of our common stock at $0.10 per share and secured convertible
promissory notes and accrued interest thereon convertible into an additional
1,274,072 shares of our common stock at $0.14 per share. We believe that Barron
Partners, LP owns up to 5,000,000 shares, or approximately 3% of the
outstanding shares of our common stock as of February 28, 2009 and has the
right to acquire up to 33,500,000 shares of the common stock pursuant to
outstanding shares of the Series A Preferred Stock (convertible to 33,500,000
shares of the common stock on a one-for-one basis). GoSolutions Equity LLC owns
26,786,840 shares, or approximately 15% of the outstanding shares of our common
stock as of February 28, 2009. In addition, our officers and directors own in
the aggregate approximately 3% of our outstanding common stock as of February
28, 2009 Each of these parties will also be able to significantly influence
corporate actions requiring shareholder approval.

Our Certificate of Incorporation limits director liability, thereby
making it difficult to bring any action against them for breach of fiduciary
duty.

As permitted
by Delaware law, our Certificate of Incorporation limits the liability of
directors to us or our stockholders for monetary damages for breach of a
directors fiduciary duty except for liability in certain instances. As a
result of its charter provision and Delaware law, stockholders may have limited
rights to recover against directors for breach of fiduciary duty.

Risks related principally to our common stock
and its market value:

Penny stock regulations may impose certain restrictions on
marketability of our stock.

The Commission
has adopted regulations which generally define a penny stock to be any equity
security that has a market price (as defined) of less than $5.00 per share,
subject to certain exceptions. As a result, our common stock is subject to
rules that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination
for the purchase of such securities and have received the purchasers written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require delivery,
prior to the transaction, of a risk disclosure document mandated by the
Commission relating to the penny stock market. The broker-dealer must also
disclose the commission payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealers presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in
the account and information on the limited market in penny stocks. Consequently,
the penny stock rules may restrict the ability of broker-dealers to sell our
securities and may affect the ability of our shareholders to sell our
securities in the secondary market and the price at which such purchasers can
sell any such securities.

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We have never paid dividends on our common stock and do not expect to
pay any in the foreseeable future.

We have not
paid any dividends on our common stock since our inception and do not intend to
pay dividends on our common stock in the foreseeable future. Any earnings that
we may realize in the foreseeable future will be retained to finance our
growth.

The number of shares eligible for future sale may adversely affect the
market for our common stock.

As of February
28, 2009, we had 180,270,913 shares of our common stock issued and outstanding,
approximately 170,000,000 of which were restricted securities when issued.
Rule 144 of the Commission provides, in essence, that a person holding
restricted securities for a period of six months may sell only an amount
every three months equal to the greater of (a) one percent of the issued and
outstanding shares, or (b) the average weekly volume of sales during the four
calendar weeks preceding the sale. The amount of restricted securities which
a person who is not an affiliate may sell is not so limited, since
non-affiliates may sell without volume limitation their shares held for one
year if there is adequate current public information available concerning us.
In such an event, restricted securities would be eligible for sale to the
public at an earlier date. The sale in the public market of such shares of
common stock may adversely affect prevailing market prices of the common stock.

Outstanding options and warrants could affect the market price of our
common stock.

As of December
31, 2008, there were outstanding stock options and warrants to purchase an
aggregate of 52,748,582 shares of our common stock at exercise prices ranging
between $0.015 per share and $2.50 per share. The exercise of such outstanding
options and warrants will dilute the percentage ownership of our stockholders,
and any sales in the public market of shares of common stock underlying such
securities may adversely affect prevailing market prices for the common stock. Moreover,
the terms upon which we will be able to obtain additional equity capital may be
adversely affected since the holders of such outstanding securities can be
expected to exercise their respective rights therein at a time when we would,
in all likelihood, be able to obtain any needed capital on terms more favorable
to us than those provided in such securities.

Our stock price will fluctuate which could result in substantial losses
for investors.

The market
price for our common stock may fluctuate significantly in response to a number
of factors, some of which are beyond our control. These factors include:

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| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | Quarterly
 variations in operating results;                                                                               
| |  | Changes in
 financial estimates by securities analysts;                                                                   
| |  | Announcements
 by us or our competitors of new products, significant contracts,
 acquisitions, or strategic relationships;
| |  | Disputes
 concerning our proprietary rights or any future patents, trademarks or
 copyrights;                             
| |  | Publicity
 about us, our products and services, or our competitors;                                                       
| |  | Additions or
 departures of key personnel;                                                                                
| |  | Any future
 sales of our common stock or other securities;                                                                
| |  | Stock market
 price and volume fluctuations of publicly-traded companies; and                                             
| |  | Business
 combination transactions.                                                                                       

These and
other external factors have caused and may continue to cause the market price
and demand for our common stock to fluctuate substantially, which may limit or
prevent investors from readily selling their shares of common stock and may
otherwise negatively affect the liquidity of our common stock.

In the past,
securities class action litigation has often been brought against companies
following periods of volatility in the market price of their securities. If
securities class action litigation is brought against us, it could result in
substantial costs and a diversion of managements attention and resources,
which could hurt our business.

Trading in our common stock on the Over-the-Counter Bulletin Board
(OTCBB) may be limited thereby making it more difficult for investors to
resell their shares of our common stock.

Our common
stock trades on the OTCBB. The OTCBB is not an exchange and, because trading of
securities on the OTCBB is often more sporadic than the trading of securities
listed on an exchange or NASDAQ, you may have difficulty reselling any of your
shares.

Our common shareholders may experience substantial dilution.

The sale of a
substantial number of shares of our common stock in the public market, or the
prospect of such sales, could materially and adversely affect the market price
of the Companys common stock. We are authorized to issue up to 500,000,000
shares of common stock. To the extent of such authorization, our Board of
Directors will have the ability, without seeking stockholder approval, to issue
additional shares of common stock in the future for such consideration as the
Board of Directors may consider sufficient. The issuance of additional common
stock in the future will reduce the proportionate ownership and voting power of
the Companys common stock held by existing stockholders. Sales in the public
market of substantial amounts of our common stock, including sales of common
stock issuable upon exercise of options and warrants, could depress prevailing
market prices for our common stock. Even the perception that such sales could
occur might impact market prices for the common stock. The existence of
outstanding options and warrants may prove to hinder our future equity
financings.

If we fail to establish or maintain effective internal controls over
financial reporting, the price of our common stock may be adversely affected.

We have
determined that our internal controls over financial reporting have material
weaknesses and conditions that need to be addressed, the disclosure of which
may have an adverse impact on the price of our common stock. We are required to
establish and maintain appropriate internal controls over financial reporting.
Failure to establish those controls, or any failure of those controls once
established, could adversely impact our public disclosures regarding our
business, financial condition or results of operations. In addition, our future
assessments of internal controls over financial reporting may identify
additional weaknesses and conditions that need to be addressed in our internal
controls over financial reporting or other matters that may raise concerns for
investors. Any actual or perceived weaknesses and conditions that need to be
addressed in our internal control over financial reporting, disclosure of
managements assessment of our internal controls over financial reporting or
disclosure of our independent registered public accounting firms attestation
to or report on managements assessment of our internal controls over financial
reporting may have an adverse impact on the price of our common stock.

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Failure to comply with standards for compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 in a timely manner, our business could be harmed and
our stock price could decline.

Rules adopted
by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require
annual assessment of our internal controls over financial reporting, and
attestation of our assessment by our independent registered public accounting
firm. Currently, we believe these two requirements apply to our annual reports
for fiscal 2008 and 2009, respectively. The standards that must be met for
management to assess the internal controls over financial reporting as
effective are evolving and complex, and require significant documentation, testing,
and possible remediation to meet the detailed standards. We have incurred, and
expect to incur, significant expenses and to devote resources to Section 404
compliance during the remainder of 2009 and on an ongoing basis. It is
difficult for us to predict how long it will take to complete the assessment of
the effectiveness of our internal control over financial reporting for each
year and to remediate any deficiencies in our internal control over financial
reporting. As a result, we may not be able to complete the assessment and
remediation process on a timely basis. In addition, the attestation process by
our independent registered public accounting firm is new and we may encounter
problems or delays in completing the implementation of any requested improvements
and receiving an attestation of our assessment by our independent registered
public accounting firm. In the event that our Chief Executive Officer, Chief
Financial Officer or independent registered public accounting firm determine
that our internal control over financial reporting is not effective as defined
under Section 404, we cannot predict how regulators will react or how the
market prices of our shares will be affected; however, we believe that there is
a risk that investor confidence and share value may be negatively impacted.

We cannot be certain that our internal control over financial reporting
will be effective or sufficient in the future.

Our ability to
manage our operations and growth requires us to maintain effective operations,
compliance and management controls, as well as our internal control over
financial reporting. We may not be able to implement necessary improvements to
our internal control over financial reporting in an efficient and timely manner
and may discover deficiencies and weaknesses in existing systems and controls,
especially when such systems and controls are tested by increased rate of
growth or the impact of acquisitions. In addition, upgrades or enhancements to
our computer systems could cause internal control weaknesses.

It may be
difficult to design and implement effective internal control over financial
reporting for combined operations as we integrate acquired businesses. In
addition, differences in existing controls of acquired businesses may result in
weaknesses that require remediation when internal controls over financial
reporting are combined. The integration of two compliant systems could result
in a noncompliant system or an acquired company may not have compliant systems.
In either case, the effectiveness of our internal control may be impaired.

If we fail to
achieve and maintain an effective system of internal controls, we may be unable
to produce reliable financial reports or prevent fraud. If we are routinely
unable to assert that our internal control over financial reporting is
effective, or if our independent registered public accounting firm is required
to attest to the effectiveness of our internal controls but is unable to
deliver a report at all or can deliver only a qualified report, we could be
subject to regulatory enforcement and may lose investor confidence in our
ability to operate in compliance with existing internal control rules and
regulations, either of which could result in a decline in our stock price.

Significant Indebtedness

We have a significant amount of indebtedness and are very likely to
incur additional indebtedness in the future. In the future, we may not generate
sufficient cash flow from operations, or have future borrowings available to
us, sufficient to pay our debt.

In order to
finance the acquisition consideration for future acquisitions, we may incur
additional significant indebtedness.

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This
additional indebtedness may, among other things, require us to:

|                                                                                                                         |   |                                                                                                                                                                                                                                                                               
|------------------------------------------------------------------------------------------------------------------------ | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                         |  | Maintain a
 specific ratio of net debt to consolidated operating income or other
 measurements;                                                                                                                                                                               
|                                                                                                                         |  | Dedicate a
 significant portion of our cash flow from operations to payments on this
 debt, thereby reducing the availability of cash flow to fund capital
 expenditures, to pursue other acquisitions or investments in new technologies
 and for general corporate purposes;
|                                                                                                                         |  | Increase our
 vulnerability to general adverse economic conditions; and                                                                                                                                                                                                       
|                                                                                                                         |  | Limit our
 flexibility in planning for, or reacting to, changes in or challenges
 relating to its business and industry.                                                                                                                                                      
|                                                                                                                        
|In addition,
 the terms of the financing obligations may contain restrictions, including
 limitations on our ability to:
|                                                                                                                        
|                                                                                                                         |  | Incur
 additional indebtedness;                                                                                                                                                                                                                                               
|                                                                                                                         |  | Create or
 incur liens;                                                                                                                                                                                                                                                       
|                                                                                                                         |  | Dispose of
 assets;                                                                                                                                                                                                                                                           
|                                                                                                                         |  | Consolidate
 or merge with or acquire another entity;                                                                                                                                                                                                                         
|                                                                                                                         |  | Pay
 dividends, redeem shares of capital stock or effect stock repurchases; and                                                                                                                                                                                               
|                                                                                                                         |  | Make loans
 and investments.                                                                                                                                                                                                                                                  

The
requirements and limitations that could be associated with additional
indebtedness have the potential to increase our vulnerability to general
adverse economic conditions, and limit our ability to respond to changes and
challenges in our business. In addition, a failure to comply with any such
restrictions could result in a default under these financing obligations or
could require us to obtain waivers from our lenders for failure to comply with
these restrictions. The occurrence of a default that we are unable to cure or
the inability to secure a necessary consent or waiver could have a material
adverse effect on our business, financial condition or results of operations.

Our convertible preferred stock may adversely impact VillageEDOCS and
our common stockholders or have a material adverse affect on VillageEDOCS.

We have issued
shares of Series A Preferred Stock to Barron Partners LP, the terms of which
may have a material adverse effect on our financial condition and results of
operations. The preferred stock has a liquidation preference in the amount of
$1,675,000 which must be paid before common stockholders would receive funds in
the event of liquidation.

ITEM 1B. UNRESOLVED STAFF
COMMENTS.

None.

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ITEM 2. PROPERTIES.

We occupy
office space in California, Georgia and Florida. The operations of
VillageEDOCS, Inc., Questys, and MVI are conducted from approximately 5,750
square feet of leased office space located at 1401 N. Tustin Avenue, Suite 230,
Santa Ana, CA 92705. We lease the Santa Ana office space pursuant to an
operating lease agreement expiring in May 2012 at a cost of $10,364 per month.
In addition, Questys leases office space pursuant to an operating lease
agreement expiring November 30, 2009 at a cost of $11,856 per month. The
operations of GoSolutions are conducted from approximately 8,000 square feet of
leased office space located at 10701 Danka Way North, Suite 100, St.
Petersburg, Florida 33716. GoSolutions leases the St. Petersburg office space
pursuant to a noncancelable operating lease agreement expiring in April 30,
2011 at a cost of $12,653 per month. The building in which the office space is
located is owned by an entity in which a member of GoSolutions Equity LLC (a
significant shareholder of VillageEDOCS) owns an interest. The operations of
TBS are conducted from approximately 6,200 square feet of leased office space
located at 40 Joe Kennedy Blvd., Statesboro, GA 30458. The Company leases the
Statesboro office space pursuant to an operating lease expiring in January 2010
at a cost of $6,200 per month. The office building is owned by a partnership
controlled by TBS former owners, who are presently employees of TBS and
shareholders of VillageEDOCS (see Certain Relationships and Related Transactions).
In addition, TBS subleases office space located at 1060 Cambridge Square,
Alpharetta, GA 30004 at a cost of $1,200 per month expiring on December 31,
2009.

Additionally,
the Company leases space and operating systems equipment from Level 3 in
Tustin, California, from U.S. Colo in Los Angeles, California, and from Qwest
in Tampa, Florida, primarily to support the service operations of MVI, Questys,
TBS, and GSI. The highly secure facilities are served by all major global
telecommunications carriers and are physically-, environmentally-, and
utility-redundant sites with multiple telecommunications feeds, multiple
emergency power generators, and emergency fuel reserves. These fully redundant
systems and emergency power provisions are designed to provide non-stop service
and no single point of failure.

ITEM 3. LEGAL PROCEEDINGS.

Litigation and Claims

In connection
with our acquisition of GSI, we are entitled to certain rights of
indemnification from GoSolutions Equity, LLC, which is a former shareholder of
GSI that became a shareholder of the Company as a result of our acquisition of
GSI. We have made a claim of indemnification from this entity in connection
with the bankruptcy of one of GSIs significant customers  Vartec Telecom,
Inc.  and the facts and circumstances relating to the procurement and
maintenance of the Primerica Life Insurance account and related Citigroup
affiliates. GoSolutions Equity, LLC has indicated that it does not believe that
we have a valid basis for making such indemnification claims.

The Company
has engaged in limited discussions with GoSolutions Equity, LLC as it relates
to the indemnification claims notice and their response to such claims notice.
However, the Company is unable to advise whether it will be successful in the
indemnification claims against GoSolutions Equity, LLC. Pursuant to the
agreement with GSI, if the Company is successful, GoSolutions Equity, LLC would
only be required to return up to approximately 4.4 million of our shares issued
to that entity to satisfy such indemnification claims. GoSolutions Equity, LLC
is not required to contribute cash to satisfy any indemnification claims.

In the opinion
of management, the amount of ultimate liability, if any, with respect to these
actions will not materially affect the consolidated financial position or
results of operations of the Company.

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

During 2008,
our shareholders approved election of J. Thomas Zender, K. Mason Conner, H. Jay
Hill, and Ricardo A. Salas as directors to serve until the 2009 annual meeting
of stockholders and until their successors are elected and qualified. These
approvals were by a written consent action of the shareholders representing
51.5% of the 180,270,913 shares outstanding on the record date.

Below is a
tabulation of the shares consenting in writing to the election of our
directors:

|                              |  |              |            |                  |  |   | 
|----------------------------- |  | ------------ | ---------- | ---------------- |  | - | 
|Proposals                     |  | For Proposal |            | Abstain/Withheld | 
|Election of
 J. Thomas Zender |  |              | 92,757,207 |                  |  | - | 
|Election of
 Ricardo A. Salas |  |              | 92,757,207 |                  |  | - | 
|Election of
 H. Jay Hill      |  |              | 92,757,207 |                  |  | - | 
|Election of
 K. Mason Conner  |  |              | 92,757,207 |                  |  | - | 

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PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.

Our common stock is traded on the OTCBB. The following sets forth the
range of high and low bid quotations for the periods indicated as reported by
Nasdaq Trading and Market Services. Such quotations reflect prices between
dealers without retail mark-up, markdown or commission and may not represent
actual transactions. The Companys common stock is quoted on the OTCBB under
the symbol VEDO. The stock is thinly traded and transactions in the stock are
sporadic and infrequent.

|                   |  |           |      |          |   |      | 
|------------------ |  | --------- | ---- | -------- | - | ---- | 
|Quarter Ended      |  | High
 Bid |      | Low
 Bid |  
|March 31, 2007     |  | $         | 0.11 |          | $ | 0.03 | 
|June 30, 2007      |  | $         | 0.07 |          | $ | 0.02 | 
|September 30, 2007 |  | $         | 0.07 |          | $ | 0.04 | 
|December 31, 2007  |  | $         | 0.09 |          | $ | 0.04 | 
|March 31, 2008     |  | $         | 0.07 |          | $ | 0.01 | 
|June 30, 2008      |  | $         | 0.05 |          | $ | 0.03 | 
|September 30, 2008 |  | $         | 0.04 |          | $ | 0.02 | 
|December 31, 2008  |  | $         | 0.02 |          | $ | 0.01 | 

As of December 31, 2008, there were 329 holders of record of the
Companys common stock and one holder of record of the Companys preferred
stock.

Dividend Policy

We have never declared dividends or paid cash dividends on our common
stock. We intend to retain and use any future earnings for the development and
expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future.

Recent Sales
of Unregistered Securities

On November 17, 2008, the Company issued 2,500,000 shares of its common
stock to K. Mason Conner pursuant to the 2002 Equity Incentive Plan. Mr. Conner
is an officer and director of the Company. These shares were valued at $0.015
per share (the estimated fair value on the measurement date) and recorded as
compensation expense.

On November 17, 2008, the Company issued 2,000,000 shares of its common
stock to H. Jay Hill pursuant to the 2002 Equity Incentive Plan. Mr. Hill is
and officer and director of the Company. These shares were valued at $0.015 per
share (the estimated fair value on the measurement date) and recorded as
compensation expense.

On November 17, 2008, the Company issued 1,000,000 shares of its common
stock to Michael A. Richard pursuant to the 2002 Equity Incentive Plan. Mr.
Richard is an officer of the Company. These shares were valued at $0.015 per
share (the estimated fair value on the measurement date) and recorded as
compensation expense.

In December 2008, and in connection with a retainer agreement dated
September 15, 2007 that was cancelled by the Company effective February 28,
2009, the Company issued a warrant to purchase 1,304,074 shares of its common
stock at $0.023 per share (fair value on the measurement date) to a consultant
in consideration for public relations services. The warrant vested immediately
and is exercisable over a five year period from date of grant. The warrant was
valued using the Black-Scholes option pricing model, at $26,000, and is being
recorded as general and administrative expense over the three month service
period that began on December 1, 2008.

All offers and sales of our securities described above were made
pursuant to Section 4(2) of the Securities Act of 1933, as amended.

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ITEM 6. SELECTED FINANCIAL DATA.

VillageEDOCS, Inc. qualifies as a smaller reporting company and is
therefore not required to provide the information required by this Item.

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

INTRODUCTION

The following Management Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) is intended to help the reader
understand VillageEDOCS, Inc. MD&A is presented in the following six
sections:

| |   |                                                         
| | - | --------------------------------------------------------
| | § | Business Overview                                       
| | § | Critical Accounting Policies and Estimates              
| | § | Recent Accounting Standards and Pronouncements          
| | § | Results of Operations                                   
| | § | Liquidity and Capital Resources; and                    
| | § | Cautionary Information about Forward-Looking Statements.

MD&A is provided as a supplement to, and should be read in
conjunction with, our audited consolidated balance sheets as of December 31,
2008 and 2007 and our audited consolidated statements of operations,
stockholders equity and cash flows for the years then ended and the related
notes thereto.

In MD&A, we use we, our, us, VillageEDOCS, and the
Company to refer to VillageEDOCS, Inc. and its wholly-owned subsidiaries,
unless the context requires otherwise. Amounts and percents in tables may not
total due to rounding. This discussion contains forward-looking statements
based upon current expectations that involve risks and uncertainties, such as
our plans, objectives, expectations and intentions. We caution readers that
important facts and factors described in MD&A and elsewhere in this
document sometimes have affected, and in the future could affect our actual
results, and could cause our actual results during 2008 and beyond to differ
materially from those expressed in any forward-looking statements made by, or
on behalf of, us.

Our Internet web site address is www.villageedocs.com. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, and current reports of
Form 8-K, and all amendments thereto, are available free of charge on our
website as soon as reasonably practical after such reports are electronically
filed with, or furnished to, the U.S. Securities and Exchange Commission. The
information on our web site is not incorporated by reference in this annual
report on Form 10-K.

As reported in
the Report of Independent Registered Public Accounting Firm on our December 31,
2008 consolidated financial statements, we have suffered recurring losses from
operations and has a working capital deficit that raises substantial doubt
about our ability to continue as a going concern.

Effective August 1, 2008, we purchased Decision Management Company,
Inc. d/b/a Questys Solutions (Questys, QSI). This acquisition has caused
our results of operations for the third and fourth quarters of 2008 to vary
significantly from those reported for the first six months of 2008. See Note 5
to our consolidated financial statements contained elsewhere in this report for
additional information regarding the acquisition.

Effective December 1, 2007, we sold Resolutions. Our Board of Directors
approved the disposal of the assets and liabilities on December 7, 2007 as part
of a strategy to reduce debt and focus on growth at the remaining business
units and growth by acquisition. We closed the transaction on December 10,
2007. See Note 5 to our consolidated financial statements contained elsewhere
in this report for additional information regarding the accounting for this
segment as discontinued operations. Please refer to the discussion below under
the caption entitled Liquidity and Capital Resources.

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BUSINESS OVERVIEW

General

We have been
in business since 1995. From inception until September 7, 2007, we were a
California corporation. As the result of a merger into our wholly-owned
Delaware subsidiary, we became a Delaware corporation.

We conduct our
business through four wholly-owned subsidiaries. QSI, our most recent
acquisition, provides electronic content management and workflow software and
services. GSI provides enhanced voice and data communications services. MVI
operates our Internet based document delivery services. TBS operates our
government accounting products and services business. From April 2005 through
November 2007, Resolutions sold and operated our e-forms, archiving, imaging,
and workflow products and services.

We generate
revenue, operating income, and cash flows from:

| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | subscription
 agreements for enhanced voice, data, and conferencing services;                  
| |   |                                                                                                
| |  | usage
 charges for delivery, management, and other services involving electronic
 documents;   
| |   |                                                                                                
| |  | usage
 charges for our governmental accounting and online payment hosted application
 services;
| |   |                                                                                                
| |  | recurring
 fixed monthly service fees for access to voice, data, or application
 services;     
| |   |                                                                                                
| |  | per item and
 flat fee charges for volume printing services to governmental entities;          
| |   |                                                                                                
| |  | fees for
 professional service;                                                                
| |   |                                                                                                
| |  | wholesale
 enhanced voicemail services;                                                        
| |   |                                                                                                
| |  | the sale of
 licenses for proprietary software and third party software;                       
| |   |                                                                                                
| |  | fees for
 maintenance and support agreements;                                                  
| |   |                                                                                                
| |  | installation
 services;                                                                        
| |   |                                                                                                
| |  | sales of
 third party computer hardware; and                                                   
| |   |                                                                                                
| |  | fees for
 training.                                                                            

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Our
Objective

A core
component of our mission is to provide solutions that facilitate the movement
of business information between business enterprises using a dynamic and
diverse set of delivery methods and content formats. Our products and services
have been designed to help enterprises meet various communications challenges,
including the need to:

| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| | § | communicate
 with an ever-expanding number of trading partners, customers, and
 enterprises;                                             
| |   |                                                                                                                                          
| | § | increase the
 control, management, speed, accuracy and security of the information
 delivered;                                           
| |   |                                                                                                                                          
| | § | manage an
 increasing set of methods used to communicate (print/mail, email, web, fax,
 XML, and wireless);                              
| |   |                                                                                                                                          
| | § | cost-effectively
 implement a solution that will allow the enterprise to endure the slow acceptance
 of a common set of delivery methods;
| |   |                                                                                                                                          
| | § | meet the
 communications challenges with a service that is more robust than available
 commercial grade proprietary technologies; and    
| |   |                                                                                                                                          
| | § | mitigate the
 negative impact of delivery methods on workflow, business process and
 security requirements.                              

Our target
markets include Financial Services, Healthcare, Manufacturing, and Local
Government, and we serve approximately 1,500 active clients with over 25,000
users.

While we do
have some sources of non-recurring revenue, such as hardware sales and third
party software, we focus on developing and maintaining sources of monthly
recurring revenue, such as providing subscribers with solutions for their
critical day to day business processes for the movement, processing, and
storage of business information.

Key
Items in 2008

| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | § | Acquired
 Questys (2007 revenue: $3.1 million), thereby adding new products and SaaS
 solutions for document and content management, automated data capture,
 electronic agenda management, and business process workflow;                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | § | Although we
 incurred new current and long term debt of approximately $1.1 million in
 connection with our acquisition of QSI, during 2008 we used cash flows
 generated by our operations to retire $539,000 in accrued expenses and notes
 payable debt, $322,000 of which existed as of December 31, 2007, and $172,000 of which was related
 to management restructuring;
| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | § | Consolidated
 net revenue for 2008 increased 7% over 2007. QSI contributed $979,553 of
 revenue from August 1, 2008 (date of acquisition). While revenue at TBS
 increased 8%, GSI and MVI revenue decreased 3% and 7%, respectively, compared
 to 2007;                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | § | Revenue from
 recurring sources for 2008 comprised 87% of total revenue from external
 sources and included approximately $8.6 million from our hosted SaaS
 solutions, approximately $1.5 million from maintenance services, and
 approximately $3.1 million from our municipal tax and utility billing
 services;                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | § | Gross margin
 dipped to 58% compared to 60% in 2007 due to a combination of sales mix
 differences and increases in sales commission and telephony costs;                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | § | Operating
 expenses decreased by 9% compared to 2007. Consolidated operating expenses
 during 2008 were 61% of sales compared to 72% of sales during 2007. Operating
 expenses decreased at Corporate (-34%),MVI (-6%), TBS (-7%), and GSI (-5%);                                                                                                                            

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| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | § | Consolidated
 net loss for 2008 was $616,242, a 63% improvement from the $1,659,806
 reported for 2007. Net income increased significantly at GSI to $1,134,016
 compared to $1,005,091 for 2007; and
| |   |                                                                                                                                                                                                      
| | § | In the third
 quarter of 2008, which is historically our peak quarter, we reported net
 income of $318,800 compared to net loss of $43,269 for the third quarter of
 2007.                           

Growth
Strategy

Our current
and future growth strategy is focused on supporting organic revenue growth and
acquiring intellectual and technology assets that improve our ability to take a
clients unstructured content and documents and deliver it to the other party
through the method preferred by each party, presenting the content in a manner
that surpasses our clients goals. In essence, we strive to bring a Business
Process Management discipline to their information. We believe that if we are
successful in executing this strategy, our clients will enjoy improved compliance,
collaboration, cost containment, and superior continuity of business processes.

Our ultimate
vision is to become a business process management/workflow service that
provides competency and functionality in the following areas:

| |   |                                       
| | - | --------------------------------------
| |  | Web Content Management;               
| |  | Digital
 Asset Management;            
| |  | Email
 Management;                    
| |  | Records
 Management;                  
| |  | Documentation
 Management;            
| |  | Information
 Indexing;                
| |  | Categorization/Taxonomy;              
| |  | Recognition;                          
| |  | Document
 Imaging;                    
| |  | Form
 Processing;                     
| |  | Scanning;                             
| |  | Collaboration;                        
| |  | Repositories;                         
| |  | Storage;                              
| |  | Long Term
 Archival;                  
| |  | Content
 Integration;                 
| |  | Search and
 Retrieval;                
| |  | Content
 Syndication;                 
| |  | Localization
 and Personalization; and
| |  | Publication
 (paper or electronic).   

We intend to
continue our focus on obtaining growth from sales of higher margin products and
services at Questys, GSI, MVI, and TBS and by acquiring companies that
consistently generate net income and positive cash flows. We believe that this
strategy offers the best opportunity for our operations to generate positive
operating income and cash flows from operations and to achieve net income.

Our
acquisition strategy is focused in two areas: service infrastructure and
vertical market silo. The service infrastructure area is our focus to acquire
enterprises that fulfill our identified strategic technological core
competencies. The vertical market silo acquisition strategy is to acquire
companies that assist us in penetrating our target market segments of financial
services, healthcare, manufacturing, and local government.

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Capital
Formation

During 2009,
we are actively seeking additional financing by issuing equity or obtaining a
combination of equity and debt financing from new shareholders and/or lenders.
Although we believe we will generate adequate cash to sustain operations at
current levels in conjunction with borrowings from our existing lines of
credit, we will require additional funding should we wish to complete acquisitions or accelerate revenue growth from existing lines of business. In
addition, should we be required to repay certain of our debt instruments prior to maturity, we will require additional funding. We continue to caution that there can
be no assurance that funding will be available on acceptable terms, if at all,
or that any such funds we raise would enable us to achieve or maintain
profitable operations.

In spite of
the impact of new laws, regulations, and accounting pronouncements that have
significantly increased our cost of operating as a public company, we intend to
contain general and administrative costs where possible. However, we expect to
incur significant costs during the remainder of 2009 and in 2010 related to
compliance with Section 404 of the Sarbanes-Oxley Act of 2002, including new
infrastructure required to remediate certain material weaknesses we have
identified in our internal controls over financial reporting. Should additional
growth capital become available during 2009, we intend to direct the capital
toward increasing sales and marketing while holding down costs for
non-essential general and administrative as well as product and technology
expenses to the extent possible.

Organizational
Enhancements

Our goal is to
drive efficiency and effectiveness throughout our group of companies. We are
working to align each business unit around shared goals and performance
targets. In addition, we are striving to streamline corporate overhead and
maximize cross-selling activities. We are devoting strategic product management
and technical resources both to strengthening the integration of our existing
products and services and to developing new products and services that will
allow us to offer our clients powerful new solutions comprised of the best that
each of our business units has to offer.

Challenges
and Risks

Looking
forward, management has identified certain challenges and risks that demand our
attention. Of these, three key challenges and risks are discussed below.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Weakness in the financial markets and the
 economy in general                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Weakness in
 the financial markets and in the economy as a whole has adversely affected
 and may continue to adversely affect segments of our customers, which has
 resulted and may continue to result in decreased usage levels, customer
 acquisitions and customer retention rates and, in turn, could lead to a
 decrease in our revenues or rate of revenue growth. Certain segments of our
 customers - those whose business activity is tied to the health of the credit
 markets and the broader economy, such as banks, brokerage firms and those in
 the real estate industry - have been and may continue to be adversely
 affected by the current turmoil in the credit markets and weakness in the
 general economy. To the extent our customers businesses have been adversely
 affected by these economic factors, we have and may continue to experience a
 decrease in usage-based revenue and sales of our software products. In
 addition, continued weakness in the economy has adversely affected and may
 continue to adversely affect our customer retention rates and the number of
 our new customer acquisitions. These factors have adversely impacted, and may
 continue to adversely impact, our revenues and our ability to achieve cash
 flow growth during 2009. However, we believe increased value to our
 shareholders can still be achieved through a combination of a focus on
 innovation to support productivity and disciplined expense control, while we
 continue to invest prudently in sales and marketing and product development
 to support long-term profitable growth.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Increased Competition and Capabilities in
 the Marketplace                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | We face
 strong competition from well-established national and global companies as
 well as from relatively new companies. We must continue to selectively expand
 into other profitable segments of our markets and offer powerful product and
 service offerings in order to increase our share of the marketplace. The
 introduction of new technologies could render our existing products and
 services obsolete or unmarketable or require us to invest in research and development
 at much higher rates with no assurance of developing competitive products.
 Changes in technologies or customer requirements also may cause the
 development cycle for our new products and services to be lengthy and result
 in significant development costs. Competitive pressures may impair our
 ability to achieve profitability.                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Capital Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | We believe
 that current and future available capital resources, including the net
 proceeds from sale of our products and services, will be sufficient to fund
 our operations at current levels for the foreseeable future, but will be
 insufficient to allow us to repay our debt in full. The exact amount of funds
 that we will require will depend upon many factors, and it is likely that we
 will require additional financing. Such sources of financing could include
 capital infusions, additional equity financing, or debt offerings. In
 addition, since our revenues and cash flows have historically been subject to
 seasonality, we believe that it is important to secure greater access to
 short term borrowing facilities, such as operating lines of credit. There can
 be no assurance that additional funding or borrowing facilities will be
 available to us on acceptable terms, if at all. There can be no assurance
 that additional funds, if raised, would enable us to achieve or maintain
 profitable operations. The inability to secure new sources of working capital
 during the remainder of 2009 or 2010 could have a material adverse effect on
 our business, financial condition and results of operations.

See also Item
1A Risk
Factors for more information about risks and uncertainties facing
VillageEDOCS, Inc.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing
our consolidated financial statements, we make estimates, assumptions and
judgments that can have a significant effect on our revenues, income/loss from
operations, and net income/net loss, as well as on the value of certain assets
on our consolidated balance sheet. We believe that there are several accounting
policies that are critical to an understanding of our historical and future
performance as these policies affect the reported amounts of revenues,
expenses, and significant estimates and judgments applied by management.

While there
are a number of accounting policies, methods and estimates affecting our
consolidated financial statements, areas that are particularly significant
include:

| |   |                                       
| | - | --------------------------------------
| |  | revenue
 recognition;                 
| |  | stock-based
 compensation;            
| |  | goodwill and
 other intangible assets;
| |  | long-lived
 assets;                   
| |  | income
 taxes; and                    
| |  | contingencies.                        

In addition,
please refer to Note 3 to the accompanying consolidated financial statements
for further discussion of our significant accounting policies.

Revenue Recognition. We recognize revenue in accordance with Staff Accounting Bulletin (SAB)
No. 101, Revenue
Recognition in Financial Statements, as revised by SAB No. 104. As
such, we recognize revenue when persuasive evidence of an arrangement exists,
title transfer has occurred, or the services have been performed, the price is
fixed or readily determinable and collectibility is probable. Sales are
recorded net of sales discounts.

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We have
adopted Statement of Position (SOP) 97-2, Software Revenue Recognition, as well as
SOP 98-9, Modification
of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions.
The SOPs generally require revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair
market values of each of the elements. The fair value of an element must be
based on vendor-specific objective evidence (VSOE) of fair value. Software
license revenue generated by TBS and Questys allocated to a software product is
recognized upon delivery of the product, or deferred and recognized in future
periods to the extent that an arrangement includes one or more elements that
are to be delivered at a future date and for which VSOE has not been
established. Maintenance and support revenue is recognized ratably over the
maintenance term. First-year maintenance typically is sold with the related
software license and renewed on an annual basis thereafter. Estimated fair
values of ongoing maintenance and support obligations are based on separate
sales of renewals to other customers or upon renewal rates quoted in the
contracts. For such arrangements with multiple obligations, we allocate revenue
to each component of the arrangement based on the estimated fair value of the
undelivered elements. Fair value of services, such as consulting or training,
is based upon separate sales of these services. At times, we may enter into
multiple-customer contracts in which we allocate revenue based on the number of
specified users at each customer, and recognizes revenue upon customer
acceptance and satisfying the other applicable conditions of the above
described accounting policy.

Services
revenue is recognized as the service is performed assuming that sufficient
evidence exists to estimate the fair value of the services. Consulting and
training services are billed based on contractual hourly rates and revenues are
recognized as the services are performed. Consulting services primarily consist
of implementation services related to the installation of our products which do
not require significant customization to or modification of the underlying
software code.

Revenue from
subscription agreements consists of fixed monthly fees and usage charges,
generally based on per minute rates. Subscription agreement revenue related to
Questys, TBS, MVI and GSI usage service charges are billed monthly in arrears
and the associated revenues are recognized in the month of service. Recurring
charges for the GoSolo(TM) platform are billed in advance on a monthly basis
and recorded as deferred revenues. We recognize subscription agreement revenue
ratably over the service period, which management believes approximates the
actual provision of services. Professional service fee revenue consists of
consulting fees charged to enterprise clients for GoSolo (TM) platform
enhancements. We recognize professional service fee revenue on a time and
materials basis over the service period, which management believes approximates
the actual provision of services. Wholesale enhanced voicemail services
consists of fees charged to telecommunications providers for use of the GoSolo
(TM) platform to provide their customers with hosted electronic voicemail,
billed monthly in arrears and the associated revenues are recognized in the
month of service.

Significant
management judgments and estimates must be made in connection with
determination of the revenue to be recognized in any accounting period. If we
made different judgments or utilized different estimates for any period,
material differences in the amount and timing of revenue recognized could result.

Stock-Based Compensation.
Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based
Payment, (SFAS 123(R)), which is a revision of SFAS No. 123, Accounting
for Stock-Based Compensation. SFAS 123(R) requires all share-based
payments to employees, including grants of employee stock options and
restricted stock grants, to be recognized in the financial statements based
upon their fair values. The Company uses the Black-Scholes option pricing model
to estimate the grant-date fair value of share-based awards under SFAS 123(R).
Fair value is determined at the date of grant. In accordance with SFAS 123(R),
the financial statement effect of forfeitures is estimated at the time of grant
and revised, if necessary, if the actual effect differs from those estimates.
The estimated average forfeiture rate for the years ended December 31, 2008 and
2007, of approximately 17%, and 12%, respectively, was based on historical
forfeiture experience and estimated future employee forfeitures.

SFAS 123(R) requires
the cash flows resulting from the tax benefits resulting from tax deductions in
excess of the compensation cost recognized for those options to be classified
as financing cash flows. Due to the Companys loss position, there were no such
tax benefits during the years ended December 31, 2008 and 2007.

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Goodwill and Other Intangible Assets.
Goodwill represents the excess of acquisition cost over the net assets acquired
in a business combination and is not amortized in accordance with SFAS No. 142,
Goodwill
and Other Intangible Assets. The provisions of SFAS No. 142 require
that the Company allocate its goodwill to its various reporting units,
determine the carrying value of those businesses, and estimate the fair value
of the reporting units so that a two-step goodwill impairment test can be
performed. In the first step of the goodwill impairment test, the fair value of
each reporting unit is compared to its carrying value. Management reviews, on
an annual basis, the carrying value of goodwill in order to determine whether
impairment has occurred. Impairment is based on several factors including the
Companys projection of future undiscounted operating cash flows. If an
impairment of the carrying value were to be indicated by this review, the Company
would perform the second step of the goodwill impairment test in order to
determine the amount of goodwill impairment, if any.

We believe
that the accounting estimates related to impairment of goodwill and other
intangible assets are critical accounting estimates because (1) they are
highly susceptible to change from period to period because they require us to
make assumptions about future sales and cost of sales, and (2) the impact that
recognizing an impairment would have on the assets reported on our consolidated
balance sheet as well as our net loss would be material. Managements
assumptions about future sales prices and future sales volumes have fluctuated
in the past and are expected to continue to do so.

In estimating
future sales, we use our internal budgets. We develop our budgets based on
recent sales data for existing products and services, planned timing of new
product and service launches, and customer commitments related to existing and
newly developed products and services.

In each of the
last two years, we determined that, based on our assumptions, as well as an
impairment analysis, that the sum of the expected future discounted cash flows
exceeded the reported carrying value and therefore we did not recognize an
impairment loss.

If we had been
required to recognize an impairment loss on our goodwill and intangible assets,
it would likely not have materially affected our liquidity and capital
resources because we are not subject to any restrictive covenants related to
the results of operations we report in our consolidated financial statements.

Long-Lived Assets.We assess the recoverability of our long-lived assets by determining
whether the depreciation and amortization of long-lived assets over their
remaining lives can be recovered through projected undiscounted future cash
flows. The amount of long-lived asset impairment, if any, is measured based on
fair value and is charged to operations in the period in which long-lived asset
impairment is determined by management.

Income Taxes. We
account for income taxes using the asset and liability method under which
deferred tax assets or liabilities are calculated at the balance sheet date
using current tax laws and rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amounts
expected to be realized.

Contingencies.
From time to time we are or may be subject to various claims and contingencies,
sometimes related to legal proceedings. Due to their nature, such legal
proceedings involve inherent uncertainties including, but not limited to, court
rulings, negotiations between affected parties, and governmental actions.
Management assesses the probability of loss for such contingencies and accrues
a liability and/or discloses the relevant circumstances, as appropriate.

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RECENT ACCOUNTING STANDARDS AND
PRONOUNCEMENTS

Refer to Note
3 of Notes to Consolidated Financial Statements for a discussion of recent
accounting standards and pronouncements.

RESULTS OF OPERATIONS

The following
discussion of our performance is organized by reportable operating segments,
which is consistent with the way we manage our business. In December 2007, we
sold substantially all of the assets and liabilities of Resolutions. The sale
resulted in the reclassification of the revenues and expenses of Resolutions to
discontinued operations for 2007.

Year Ended December 31, 2008 Compared to Year
Ended December 31, 2007

Net Revenue from External Customers

Net revenue
from external customers for 2008 was $15,176,393, a 7% increase over 2007 net
revenue of $14,180,658.

During 2008,
GSI, QSI, MVI, and TBS, generated 40%, 6%, 18%, and 35% of our net revenue,
respectively. During 2007, GSI, MVI, and TBS generated 44%, 21%, and 35% of our
net revenue, respectively.

The following
is a comparison of the components of consolidated net revenue from external
customers:

|                                             |  |                               |            |                               |   |                  |  |         |          |   |  |    |  
|-------------------------------------------- |  | ----------------------------- | ---------- | ----------------------------- | - | ---------------- |  | ------- | -------- | - |  | -- | -
|                                             |  | Year Ended
 December 31, 2008 |            | Year Ended
 December 31, 2007 |   | Variance
 Amount |  | Percent |         
|                                             |  |                               |            |                               |   |                  |  |         |          |   |  |    |  
|Net revenue
 from external customers:        |  |                               |            |                               |   |                  |  |         |          |   |  |    |  
|                                             |  |                               |            |                               |   |                  |  |         |          |   |  |    |  
|Electronic
 document delivery services (MVI) |  | $                             | 2,761,147  |                               | $ | 2,956,857        |  | $       | (195,710 | ) |  | -7 | %
|Government
 accounting solutions (TBS)       |  |                               | 5,376,539  |                               |   | 5,001,343        |  |         | 375,196  |   |  | 8  | %
|Electronic
 content management (QSI)         |  |                               | 979,553    |                               |   | -                |  |         | 979,553  |   |  | *  |  
|Integrated
 communications (GSI)             |  |                               | 6,059,154  |                               |   | 6,222,458        |  |         | (163,304 | ) |  | -3 | %
|Corporate                                    |  |                               | -          |                               |   | -                |  |         | -        |   |  |    |  
|Total net revenue from external customers    |  | $                             | 15,176,393 |                               | $ | 14,180,658       |  | $       | 995,735  |   |  | 7  | %
|* calculation is not meaningful              |  |                               |            |                               |   |                  |  |         |          |   |  |    |  

Revenue
increased 8% at TBS due to increases in revenue from printing, hardware sales,
and support services. These increases were partially offset by decreases in
software which resulted in part from our strategy to promote online,
usage-based services rather than single unit product sales.

Revenue at GSI
decreased 3% due to decreases in revenue from professional service fees and
sales to corporate clients, which were partially offset by an increase from
user subscription fees.

Revenue
decreased 7% at MVI due to a decrease in inbound revenue as a result of
financial services industry customer attrition and, to a lesser extent, a
reduction in supplemental services revenue.

QSI
contributed $979,553 in revenue from August 1, 2008 (date of acquisition)
through December 31, 2008. On a pro forma basis, QSIs (unaudited) revenue for
2008 was approximately $2.8 million, down from approximately $3.1 million in
2007.

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Table of Contents

Cost of Sales

The following
is a comparison of the components of consolidated cost of sales:

|                                             |  |                               |           |                               |   |                  |  |         |         |   |  |    |  
|-------------------------------------------- |  | ----------------------------- | --------- | ----------------------------- | - | ---------------- |  | ------- | ------- | - |  | -- | -
|                                             |  | Year Ended
 December 31, 2008 |           | Year Ended
 December 31, 2007 |   | Variance
 Amount |  | Percent |        
|                                             |  |                               |           |                               |   |                  |  |         |         |   |  |    |  
|Cost of
 sales:                              |  |                               |           |                               |   |                  |  |         |         |   |  |    |  
|                                             |  |                               |           |                               |   |                  |  |         |         |   |  |    |  
|Electronic
 document delivery services (MVI) |  | $                             | 1,173,221 |                               | $ | 1,253,026        |  | $       | (79,805 | ) |  | -6 | %
|Government
 accounting solutions (TBS)       |  |                               | 3,638,476 |                               |   | 3,142,297        |  |         | 496,179 |   |  | 16 | %
|Electronic
 content management (QSI)         |  |                               | 365,165   |                               |   | -                |  |         | 365,165 |   |  | *  |  
|Integrated
 communications (GSI)             |  |                               | 1,153,489 |                               |   | 1,216,064        |  |         | (62,575 | ) |  | -5 | %
|Corporate                                    |  |                               | -         |                               |   | -                |  |         | -       |   |  | -  |  
|Total cost of sales:                         |  | $                             | 6,330,351 |                               | $ | 5,611,387        |  | $       | 718,964 |   |  | 13 | %
|* calculation is not meaningful              |  |                               |           |                               |   |                  |  |         |         |   |  |    |  

Total cost of
sales represented 42% and 40% of net sales during 2008 and 2007, respectively.
Cost of sales in 2008 and 2007 included $5,497 and $0, respectively, in
compensation expense related to the vesting of stock options.

Cost of sales
for MVI for 2008 and 2007 represented 42% of MVIs net sales in each year.
During 2008, increased staffing costs were offset by negotiated reductions in
telephony costs in effect during the third and fourth quarters.

Cost of sales
for TBS for 2008 represented 68% of TBS net sales as compared with 63% in
2007. The increased costs at TBS were attributable to higher revenue and
increased costs related to the sale of third party hardware, postal rate
increases and an increase in sales commissions.

Cost of sales
for GSI for 2008 represented 19% of GSIs net sales as compared with 20% during
2007. Telephony charges increased slightly; however, the increases were offset
by reduced customer service staff costs.

Cost of sales
for QSI for 2008 represented 37% of QSIs net sales.

Gross Profit

Gross profit for 2008 increased
3% to $8,846,042 as compared to $8,569,271 for 2007. The increase for 2008 of
$276,771 resulted from decreases of $115,905, $100,729, and $120,983 from MVI,
GSI, and TBS, respectively, as offset by the contribution of $614,388 in gross
profit of QSI. Gross profit margin for the 2008 and 2007 periods was 58% and
60%, respectively.

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Operating Expenses

The following
is a comparison of the components of consolidated operating expenses:

|                                             |  |                               |           |                               |   |                  |  |         |            |   |     |   | 
|-------------------------------------------- |  | ----------------------------- | --------- | ----------------------------- | - | ---------------- |  | ------- | ---------- | - | --- | - | 
|                                             |  | Year Ended
 December 31, 2008 |           | Year Ended
 December 31, 2007 |   | Variance
 Amount |  | Percent |           
|                                             |  |                               |           |                               |   |                  |  |         |            |   |     |   | 
|Operating
 expenses                          |  |                               |           |                               |   |                  |  |         |            |   |     |   | 
|                                             |  |                               |           |                               |   |                  |  |         |            |   |     |   | 
|Electronic
 document delivery services (MVI) |  | $                             | 1,292,392 |                               | $ | 1,376,543        |  | $       | (84,151    | ) | -6  | % | 
|Government
 accounting solutions (TBS)       |  |                               | 1,267,078 |                               |   | 1,357,964        |  |         | (90,886    | ) | -7  | % | 
|Electronic
 content management (QSI)         |  |                               | 648,314   |                               |   | -                |  |         | 648,314    |   | *   |   | 
|Integrated
 communications (GSI)             |  |                               | 3,803,204 |                               |   | 4,023,474        |  |         | (220,270   | ) | -5  | % | 
|Corporate                                    |  |                               | 2,298,940 |                               |   | 3,491,916        |  |         | (1,192,976 | ) | -34 | % | 
|Total operating expenses:                    |  | $                             | 9,309,928 |                               | $ | 10,249,897       |  | $       | (939,969   | ) | -9  | % | 

*calculation is not meaningful

During 2008,
the operating expenses of Corporate decreased 34% as a result of decreased
executive compensation, consulting, insurance, travel, accounting, and legal
expenses. These decreases were offset by increases in sales management
compensation recruiting fees, printing, and subscription services. Operating
expenses in 2008 and 2007 included $107,685 and $879,088, respectively, in
compensation expense related to the vesting of stock options.

During 2008,
MVIs operating expenses decreased 6% compared to 2007. Product and technology
development decreased $141,004 (-26%) as a result of reduced staffing. Sales
and marketing decreased by $147,247 (-32%) as a result of reduced staff
expenses, travel and advertising. General and administrative increased by
$179,119 (+56%) due to increased rent, insurance, compensation and recruiting
fees as offset by decreased facilities maintenance charges. Depreciation and
amortization expense increased $24,981 (+39%). Operating expenses in 2008 and
2007 included $18,941 and $0, respectively, in compensation expense related to
the vesting of stock options.

During 2008,
operating expenses at TBS decreased 7% compared to 2007. Product and technology
development decreased $69,782 (-33%) due to reduced staffing. Sales and
marketing decreased by $52,969 (-13%) due to reduced bonus compensation and
travel costs. General and administrative increased by $41,148 (+6%) on higher
compensation expense as offset by lower insurance, maintenance, and supplies.
Depreciation and amortization expenses decreased by $9,283 (-8%). Operating
expenses in 2008 and 2007 included $53,444 and $0, respectively, in
compensation expense related to the vesting of stock options.

During 2008,
GSIs operating expenses decreased 5% compared to 2007. Product and technology
development decreased $143,079(-15%). Sales and marketing decreased $55,310
(-5%) due to decreased sales management staff expense and commission expense,
as offset by increased outside marketing services. General and administrative
increased $52,602 (+4%) compared to 2007 due to increase non-cash compensation
expense as offset by lower bonus compensation to executives. Depreciation and
amortization expenses decreased by $74,483 (-13%). Operating expenses in 2008
and 2007 included $104,231 and $0, respectively, in compensation expense
related to the vesting of stock options.

During 2008,
QSI incurred $648,314 of operating expenses. Product and technology, sales and
marketing, general and administrative, and depreciation and amortization expenses
were $304,062, $78,978, $153,628, and $111,646, respectively. Operating
expenses in 2008 included $8,795 in compensation expense related to the vesting
of stock options.

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Table of Contents

Operating Income (Loss)

As a result of
the foregoing, the Company reported an operating loss for 2008 of $463,886,
compared to an operating loss of $1,680,626 for 2007.

The following
is a comparison of the components of consolidated loss from operations:

|                                             |  |                               |            |                               |   |                  |   |         |           |   |     |   | 
|-------------------------------------------- |  | ----------------------------- | ---------- | ----------------------------- | - | ---------------- | - | ------- | --------- | - | --- | - | 
|                                             |  | Year Ended
 December 31, 2008 |            | Year Ended
 December 31, 2007 |   | Variance
 Amount |   | Percent |          
|                                             |  |                               |            |                               |   |                  |   |         |           |   |     |   | 
|Operating
 income (loss):                    |  |                               |            |                               |   |                  |   |         |           |   |     |   | 
|                                             |  |                               |            |                               |   |                  |   |         |           |   |     |   | 
|Electronic
 document delivery services (MVI) |  | $                             | 295,534    |                               | $ | 327,288          |   | $       | (31,754   | ) | -10 | % | 
|Government
 accounting solutions (TBS)       |  |                               | 470,985    |                               |   | 501,082          |   |         | (30,097   | ) | -6  | % | 
|Electronic
 content management (QSI)         |  |                               | (33,926    | )                             |   | -                |   |         | (33,926   | ) | *   |   | 
|Integrated
 communications (GSI)             |  |                               | 1,102,461  |                               |   | 982,920          |   |         | 119,541   |   | 12  | % | 
|Corporate                                    |  |                               | (2,298,940 | )                             |   | (3,491,916       | ) |         | 1,192,976 |   | 34  | % | 
|Total operating loss, net                    |  | $                             | (463,886   | )                             | $ | (1,680,626       | ) | $       | 1,216,740 |   | 72  | % | 
|* calculation is not meaningful              |  |                               |            |                               |   |                  |   |         |           |   |     |   | 

As illustrated
by the above table, each of GSI and Corporate reported a significant
improvement in operating income (loss) compared to the prior year period. These
improvements were offset by decreases at MVI and TBS, and an operating loss at
QSI.

Interest Expense, net of Interest Income

Interest
expense, net for 2008 increased by $170,344 to $281,905 from the $111,561 reported
in 2007. The most significant factor in the increase was amortization of debt
issue costs incurred in connection with finders fees for a new operating line
of credit.

Other Income, net

Other income,
net for 2008 was $141,747 compared to other income, net of $43,381 reported in
2007. In 2008, other income, net included other income related to settlement of
liabilities related to 2007, including, $68,000 in the final settlement of the
disposal of Resolutions.

Discontinued Operations

Because we
completed our sale of PFI in December 2007, there was no activity from
discontinued operations during 2008. For the year ended December 31, 2007, loss
from discontinued operations was $1,625,424, and included the results of
operations of PFI, our electronic forms segment. See Note 5 to our consolidated
financial statements contained elsewhere in this Annual Report on Form 10-K for
additional information related to discontinued operations.

Net Loss

As a result of
the foregoing, net loss for 2008 was $616,242, or $0.00 per share, compared to
a net loss of $1,659,806, or $0.01 per share, for 2007 on weighted average
shares of 162,595,571 and 150,218,437, respectively.

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The following
is a comparison of the components of consolidated net loss:

|                                             |  |                               |            |                               |   |                  |   |         |           |   |     |   | 
|-------------------------------------------- |  | ----------------------------- | ---------- | ----------------------------- | - | ---------------- | - | ------- | --------- | - | --- | - | 
|                                             |  | Year Ended
 December 31, 2008 |            | Year Ended
 December 31, 2007 |   | Variance
 Amount |   | Percent |          
|                                             |  |                               |            |                               |   |                  |   |         |           |   |     |   | 
|                                             |  |                               |            |                               |   |                  |   |         |           |   |     |   | 
|Net income
 (loss):                          |  |                               |            |                               |   |                  |   |         |           |   |     |   | 
|                                             |  |                               |            |                               |   |                  |   |         |           |   |     |   | 
|Electronic
 document delivery services (MVI) |  | $                             | 283,906    |                               | $ | 318,334          |   | $       | (34,428   | ) | -11 | % | 
|Government
 accounting solutions (TBS)       |  |                               | 491,532    |                               |   | 511,848          |   |         | (20,316   | ) | -4  | % | 
|Electronic
 content management (QSI)         |  |                               | 16,695     |                               |   | -                |   |         | 16,695    |   | *   |   | 
|Integrated
 communications (GSI)             |  |                               | 1,134,016  |                               |   | 1,005,091        |   |         | 128,925   |   | 13  | % | 
|Corporate                                    |  |                               | (2,542,391 | )                             |   | (3,495,079       | ) |         | 952,688   |   | 27  | % | 
|Discontinued
 operations                     |  |                               | -          |                               |   | (1,625,424       | ) |         | 1,625,424 |   | *   |   | 
|Total net loss                               |  | $                             | (616,242   | )                             | $ | (3,285,230       | ) | $       | 2,668,988 |   | 81  | % | 

*calculation is not meaningful

LIQUIDITY AND CAPITAL
RESOURCES

During the year ended December 31, 2008, our
net cash position decreased by $182,464 to $567,447. Although our operating and
financing activities provided net cash of $38,474 and $373,364, respectively,
our investing activities used net cash of $594,302.

We do not currently have any material
commitments for capital expenditures other than those expenditures incurred in
the ordinary course of business.

Our sources of capital include cash flow from
operations, available credit facilities, and the issuance of debt and equity
securities. During 2008, we relied heavily on cash reserves and our operating
lines of credit to fund the negative operating cash flows we experienced during
the first two quarters. We expect to experience further negative operating cash
flows during at least the first two quarters of 2009, and we expect to make use
of available borrowing capability under our operating lines of credit to offset
such negative cash flows.

Although we incurred new current and long term debt of approximately
$1.1 million in connection with our acquisition of QSI, during 2008 we used cash
flows generated by our operations to retire approximately $539,000 in accrued expenses
and notes payable debt, $322,000 of which existed as of December 31, 2007, and $172,000 of which was related
to management restructuring. During 2009, we expect to use available cash to continue
to reduce accrued expenses and notes payable debt that existed as of December 31, 2008.

On February 6, 2008, the Company and The
Private Bank of The Peninsula (Bank) entered into an agreement for an asset
based line of credit (the Line). On March 5, 2009, the Company received a
fully executed agreement between it and The Private Bank of The Peninsula
(Bank) to amend the agreement for the Line (the Amendment). The effective
date of the Amendment is February 24, 2009. Pursuant to the Amendment, the Bank
renewed the Line and modified the terms to include an interest rate that is
floating and is calculated at Wall Street Journal prime plus five percent (5%)
on the cash borrowed provided that the minimum rate will be eight and one half
percent (8.5%) and minimum interest will be $7,000 per three month period.
Interest on outstanding borrowings is payable monthly. In addition, the Company
was required to pay an amendment fee of $10,000 and, upon each advance, a fee
equal to one quarter of one percent (0.25%) of the advance, and will be subject
to covenants as to minimum quarterly income and cash flow.

During the initial term of the Line, the
Banks maximum commitment amount for the Line was $1.5 million. Advances were
generally limited to 85% of eligible domestic accounts receivable. The interest
rate was floating and was calculated at Wall Street Journal prime rate plus 3%
on the cash borrowed. Interest on outstanding borrowings was paid monthly.

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During 2008, the Company paid a facility fee
of $15,000 to the Bank in connection with the Line and paid a finders fee in
the amount of $50,000 to Dragonfly Capital Partners LLC (Dragonfly). In
addition, the Company issued the Bank and Dragonfly a warrant to purchase shares
of its common stock.

Outstanding advances under the Line are
secured by a first lien position on all of the Companys accounts receivable,
contract rights, chattel paper, documents, and payment and by a second lien on
its inventory, intellectual property, and equipment. As of December 31, 2008,
there were outstanding borrowings of $342,955 on the Line and the Company was
in compliance with all loan covenants. Availability on the Line as of December
31, 2008 was approximately $26,000.

Effective September 30, 2006, VillageEDOCS
obtained a $500,000 revolving line of credit (RLOC) with a financial
institution. The RLOC is guaranteed by a stockholder of the Company. Interest
on outstanding borrowings is payable monthly at an annual rate of interest
equal to LIBOR plus 2% (2.46% at December 31, 2008). As of December 31, 2008,
there were outstanding borrowings of $447,608 on the RLOC and the Company was
in compliance with all loan covenants. The Company is in the process of
renewing the underlying note and converting the revolving line to a
non-revolving term loan having a term of twelve months and required monthly
payments of interest only.

TBS has a $100,000 unsecured operating line
of credit with BB&T that it had not utilized as of February 28, 2009.

QSI has an unsecured line of credit agreement
with a financial institution for borrowings up to the maximum of $100,000 with
no maturity date (QSI RLOC). Borrowings bear interest at the prime rate, plus
2.775%. QSI had borrowings totaling $100,000 at December 31, 2008 and had $0
available for future borrowings under the line of credit. Pursuant to the QSI
acquisition agreements, we have agreed to repay all outstanding borrowings
under the QSI RLOC on or before August 1, 2009.

Effective August 1, 2008 and in connection
with the acquisition of Questys, we issued a secured promissory note to the
Pavlovics (the Pavlovic Note). The Pavlovics are a related party as a result
of the shares of the Companys common stock issued to them in connection with
the acquisition of Questys. The Pavlovic Note is non-interest bearing and may
be prepaid in whole or in part at any time without penalty and is due on August
1, 2011. Principal payments are due in three equal annual installments of
$300,000 each on August 1, 2009, August 1, 2010, and August 1, 2011. The
Pavlovic Note is secured by certain assets of Questys as defined in a Security
Agreement dated as of August 1, 2008. Payment obligations under the Pavlovic
Note are subordinate in certain respects to the rights of the Bank to the
extent set forth in a Subordination Agreement dated as of August 1, 2008.

Prior to August 1, 2008 (effective date of
acquisition of Questys), the Pavlovics made aggregate advances to Questys in
the amount of $115,000, which were assumed in the acquisition (the Pavlovic
Shareholder Debt). The Pavlovic Shareholder Debt is non-interest bearing and
the Company and the Pavlovics have agreed to the repayment of the outstanding
balance as follows: (i) $35,000 on or before August 1, 2009, (ii) $40,000 on or
before August 1, 2010, and (iii) $40,000 on or before the August 1, 2011.

We funded the requirement for the initial
$300,000 payment for the purchase of QSI from the proceeds of a $300,000
related party secured promissory note offering subscribed to by The Silver Lake
Group, LLC (SLG) on August 4, 2008 (the SLG Note). SLG is owned by Ricardo
A. Salas. Mr. Salas is a Director of VillageEDOCS, Inc. The SLG Note was
originally due on October 31, 2008 and bore interest at a rate of nine percent
(9%) per annum through October 31, 2008.

On October 30, 2008, VillageEDOCS, Inc. and
SLG entered into an Amendment to Secured Promissory Note (Amendment) to
modify the maturity date, interest rate, and repayment terms of the SLG Note.
As of October 31, 2008, the remaining principal balance of the SLG Note, as
amended, was $250,000 and no interest was outstanding. Pursuant to the
Amendment, the SLG Note matures on March 31, 2009 and bears interest from
November 1, 2008 at a rate of twelve percent (12%) per annum. As of February
28, 2009, the remaining principal balance of the SLG Note was approximately
$50,000. We intend to repay the SLG Note with a final installment of principal
and interest March 31, 2009. The SLG Note is secured by the accounts receivable
of GoSolutions, Inc., our wholly-owned subsidiary, as defined in a Security
Agreement dated as of August 1, 2008. Payment obligations under the SLG Note
are subordinate in certain respects to the rights of the Bank to the extent set
forth in a Subordination Agreement to be entered into as of August 1, 2008.

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Our inability to repay outstanding borrowings
when due would have a material adverse effect on us.

Substantial risk exists that a decrease in
demand for our products and services would reduce the availability of cash from
this source since our operating cash flows are derived from products and
services that are subject to rapid technological change.

Since our inception, our operating and
investing activities have used substantially more cash than they have
generated. We believe that we have made considerable progress toward achieving
profitable operations by increasing revenues from electronic document delivery
services and through our acquisition of QSI, TBS and GSI. In addition, we are
actively seeking opportunities to acquire or otherwise combine with businesses
that are operating profitably and generating positive cash flows. However, at
present and for the foreseeable future, we believe that we will continue to need
working capital to fund the growth of our businesses and to absorb the
increasing costs associated with operating as a fully reporting company in the
prevailing regulatory environment. Accordingly, we anticipate negative
operating and investing cash flows during at least the first two quarters of
2009 and at least until QSI, MVI, TBS, and GSI consistently generate net cash
flows sufficient to offset the projected expense to operate the holding
company.

We expect to use cash flow generated from
operations, the Line, and potentially other sources, to fund any such negative
operating cash flows during the remainder of 2009.

While we believe that our available cash
resources combined with our current revenue streams and lines of credit will be
sufficient to meet our anticipated working capital requirements for the next
twelve months, we would likely require new sources of debt or equity financing
during the remainder of 2009 should we be required to expand or significantly
upgrade our technology infrastructure through additional capital expenditures.
Should our current revenue streams or margins be subjected to even minor
decreases, our external funding requirements would likely be greater.

We believe that sustainable profitability is
achievable; however, we have a history of losses. While QSI, GSI, MVI, and TBS
each reported net income for 2008, this income was not sufficient to offset
interest expense and corporate overhead. If we are not successful in sustaining
and increasing operating profits from our three operating segments, or in
reducing expenses of the holding company as a percentage of revenue, we may not
achieve profitability on a consolidated basis.

This estimate is a forward-looking statement
that involves risks and uncertainties. The actual time period may differ
materially from that indicated as a result of a number of factors so that we
cannot assure you that our cash resources will be sufficient for anticipated or
unanticipated working capital and capital expenditure requirements for this
period. We have advised that we will need to raise additional capital in the
future to meet our operating and investing cash requirements. Such sources of
financing could include capital infusions, additional equity financing, or debt
offerings. There can be no assurance that additional funding will be available
on acceptable terms, if at all, or that such funds if raised, would enable us
to achieve and maintain profitable operations. If we are not able to obtain
sufficient additional funds from investors, we may be unable to sustain all or
part of our operations. If we raise additional funds through the issuance of
securities, these securities may have rights, preferences or privileges senior
to those of our common stock, and our stockholders may experience additional
dilution to their equity ownership.

The Report of Independent Registered Public
Accounting Firm on our December 31, 2008 consolidated financial statements
includes an explanatory paragraph stating that the recurring losses incurred
from operations and a working capital deficit raise substantial doubt about our
ability to continue as a going concern. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

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CAUTIONARY
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS

This Annual
Report on Form 10-K includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
that do not directly and exclusively relate to historical facts constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The forward-looking statements safe harbor
does not apply to our company because we issue penny stock and are excluded
from the safe harbor pursuant to Section 27A(b)(1)(C) of the Securities Act of
1933, as amended, and Section 21E(h)(1)(C) of the Securities Exchange Act of
1934, as amended (the Exchange Act). Our forward-looking statements are based
on our plans, intentions, expectation, and belief and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected or expressed herein. You can identify these statements by
forward-looking words such as may, will, expect, intend, anticipate,
believe, expect, plan, seek, estimate, project,
could, and
continue or similar words. You should read statements that contain these
words carefully because they discuss our expectations about our future performance,
contain projections of our future operating results or of our future financial
condition, or state other forward-looking information. These statements
include, among others, information regarding future operations, future capital
expenditures, and future net cash flow. Such statements reflect our current
views with respect to future events and financial performance and involves
risks and uncertainties, including, without limitation, general economic and
business conditions, changes in foreign, political, social and economic
conditions, regulatory initiatives and compliance with governmental
regulations, the ability to achieve further market penetration and additional
customers, and various other matters, many of which are beyond our control,
including, without limitation, the risks described in Item 1A Risk
Factors. Our future results and stockholder values may differ
materially from those expressed in these forward- looking statements. Many of
the factors that will determine these results and values are beyond our ability
to control or predict. We assume no obligation to update any forward-looking
statements. Investors are cautioned not to put undue reliance on any
forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. Readers should also consult the cautionary statements and
risk factors listed from time to time in our Reports, and all amendments
thereto, on Forms 10-Q, 8-K, and other SEC filings

Forward
looking statements in this Annual Report on Form 10-K include, without
limitation:

The statements
under the heading Item 1. Business and in MD&A under the caption Business
Overview concerning (1) our strategy to develop innovative solutions
to expand our ability to benefit our enterprise clients and increase the
breadth and size of the markets we satisfy today, (2) our strategy to focus on
acquiring intellectual and technology assets that continue to accelerate
expansion of our client solutions, (3) our goal to expand the business model of
TBS regionally and nationwide and to expand revenue both from printing and from
subscription-based hosted solutions, (4) our belief that we offer a complete
set of business communication services and solutions and a scalable global
platform, (5) our belief that our services improve and enhance data delivery or
help customers to optimize the processing and delivery of the entire range of
business documents, (6) our belief about the benefits businesses will derive
from our software and service solutions and about its capabilities, (7) our
intent to focus on obtaining growth from higher margin products and services
and to make acquisitions of companies that consistently generate net income and
positive cash flows, (8) our belief as to the reason that each of our
businesses can compete effectively, (9) our strategy of preparing for
significant growth and the expected benefits of adding to our leadership team,
and (10) our strategy of directing new capital primarily toward increasing
sales and marketing, which statements are subject to various risks and
uncertainties, including, without limitation, our limited operating history,
risks that we may not successfully implement our acquisition program, risks
associated with assimilating acquired personnel and technology into the Company,
the risk that we will not be able to compete effectively because our market
place is highly competitive and has low barriers to entry, and our dependence
on third party technology suppliers to provide key software and infrastructure.

The statements
under the heading Item 3. Legal Proceedings concerning our belief as
to the materiality of the indemnity claim.

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The statements
under MD&A under the captions Introductionand Business Overviewof our
strategies, beliefs, plans, expectations, anticipations and hopes with respect
to (1) our expectations about the business prospects of QSI, MVI, TBS, and GSI, (2)
our belief that we have improved our corporate governance, (3) our current and
future growth strategy to streamline the corporate structure, bolster sales resources,
acquire intellectual and technology assets and our expectations about the
benefits we may derive, (4) our belief about our vision to become a business
process management/workflow service and the benefits we expect to derive, (5)
our acquisition strategy, (6) our expectations regarding challenges and risks
that we believe are key challenges and risks, and (7) our belief that obtaining
planned financings will allow us to generate adequate cash flows to sustain
operations at current levels until we begin to operate profitably on a
consistent, month-over month basis, which statements are subject to various
risks and uncertainties, including, without limitation, our limited operating
history, risks that we may not be able to obtain any additional financing at
terms acceptable to us, or at all, risks that we may not successfully implement
our acquisition program, risks associated with assimilating acquired personnel
and technology into the Company, risks associated with governmental regulation, and the risk that we will not be able to
compete effectively because our market place is highly competitive and has low
barriers to entry.

The statements
in MD&A under the caption Critical Accounting Policiesregarding
calculation of allowances, reserves, and other estimates that are based on
historical experience, the judgment of management, and various other
assumptions that are believed to be reasonable under the circumstances, the
results of which for the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from any other sources,
our beliefs about critical accounting policies, and the significant judgments
and estimates used in the preparation of our consolidated financial statements,
which statements are subject to certain risks, including, among other things,
the inaccuracy of our beliefs regarding critical accounting policies and that
actual customer reserves or other estimates may be different from our
estimates, requiring revisions to our estimated allowance for doubtful
accounts, additional inventory write-downs, impairment charges, restructuring
charges, litigation, warranty, and other reserves.

The statements
in MD&A under the caption Results of Operationsof our strategies,
beliefs, plans, expectations, anticipations and hopes with respect to Net
Revenue, Gross Profit, Operating Expenses, Income (Loss) from Operations, and
Net Loss and our strategies, beliefs, plans, expectations, anticipations and
hopes with respect to Liquidity and Capital Resources set forth in MD&A
under the caption Liquidity and Capital Resources, including, without
limitation (1) our belief that we have made progress toward achieving
profitable operations, (2) our strategy
of actively seeking to combine with business that operate profitably and
generate positive cash flows, (3) our belief that sustainable profitability is
achievable, (4) our expectations about future funding requirements, (5) our expectations regarding
retirement of additional accrued expense and notes payable debt during 2009, and (6) our
belief that current cash position, cash generated through operations and available borrowings will be sufficient to meet our needs through
at least the next twelve months, which statements are subject to various risks
and uncertainties, including, without limitation, our limited operating
history, risks that we may not be able to obtain any additional financing at
terms acceptable to us, or at all, the risk that we may be unable to sustain
all or part of our operations if we are not able to obtain sufficient
additional funds from investors, the risk that our funding requirements could
be greater should our current revenue streams or margins decrease, risks that
we may not successfully implement our acquisition program, the risk that we may be required to repay certain notes payable debt prior to maturity, risks associated
with assimilating acquired personnel and technology into the Company, and the
risk that we will not be able to compete effectively because our market place
is highly competitive and has low barriers to entry.

The statements
under the heading Item 9A. Controls and Procedures of our belief that
we are addressing the deficiencies that affected our internal control over
financial reporting and the time we estimate we will require before we would be
able to conclude that all material weaknesses have been remediated or our
belief regarding the potential impact to us, which statements are subject to
various risks and uncertainties including, without limitation the risk that for
financial or other reasons we will be unable to effect some or all of the
changes we believe are required within the time periods estimated, or at all.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.

VillageEDOCS, Inc. qualifies as a smaller reporting company and is
therefore not required to provide the information required by this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Exhibit
99.1, VillageEDOCS, Inc. Financial
Statements is incorporated herein by this reference.

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

None.

ITEM
9A.  CONTROLS AND PROCEDURES

Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act). As a result of this evaluation, we identified material weaknesses in our
internal control over financial reporting as of December 31, 2008. Accordingly,
we concluded that our disclosure controls and procedures were not effective as
of December 31, 2008.

Our internal controls over financial reporting
(ICFR) are designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of consolidated financial statements
for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those
policies and procedures that pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets, provide reasonable assurance that transactions are
recorded as necessary to permit preparation of consolidated financial
statements in accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors, and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
consolidated financial statements.

Managements Annual
Report on Internal Control Over Financial Reporting.

Management is responsible for establishing and maintaining adequate
internal control over financial reporting. Our management conducted an
evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation, management has concluded, as of December 31, 2008, we
did not maintain effective controls over the financial reporting process
because we had the following deficiencies:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Shortage of
 qualified financial reporting personnel due to limited resources and number
 of locations generating transaction data. This shortage in financial
 reporting staff resulted in adjustments to our annual report for 2008, which
 were not detected initially by management. These adjustments included
 adjustments to the carrying value of certain notes payable and the estimated fair
 value of assets and liabilities acquired in purchase accounting. Management
 has concluded that this control deficiency constitutes a material weakness.

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| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | In part due
 to inability to purchase and implement more robust software tools, the Company
 did not maintain effective controls to ensure there is timely analysis and
 review of accounting records, spreadsheets, and supporting data. This control
 deficiency did not result in audit adjustments to the 2008 interim or annual
 consolidated financial statements. However, this control deficiency could
 result in a material misstatement of significant accounts or disclosures that
 would result in a material misstatement to the Companys interim or annual
 consolidated financial statements that would not be prevented or detected.
 Accordingly, management has determined that this control deficiency
 constitutes a material weakness.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 3. | The Company
 did not effectively monitor access to, or maintain effective controls over
 changes to, certain financial application programs and related data. This
 control deficiency did not result in audit adjustments to the 2008 interim or
 annual consolidated financial statements. However, this control deficiency
 could result in a material misstatement of significant accounts or
 disclosures that would result in a material misstatement to the Companys
 interim or annual consolidated financial statements that would not be
 prevented or detected. Accordingly, management has determined that this
 control deficiency constitutes a material weakness.                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 4. | The Company
 does not maintain a sufficient level of IT personnel to execute general
 computing controls over our information technology structure, which include
 the implementation and assessment of information technology policies and
 procedures. This control deficiency did not result in an audit adjustment to
 the 2008 interim or annual consolidated financial statements, but could
 result in a material misstatement of significant accounts or disclosures,
 which would not be prevented or detected. Accordingly, management has
 determined that this control deficiency constitutes a material weakness.                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 5. | The Company
 did not maintain adequate segregation of duties within its critical financial
 reporting applications, the related modules and financial reporting
 processes. This control deficiency did not result in audit adjustments to the
 2008 interim or annual consolidated financial statements. This control
 deficiency could result in a misstatement of balance sheet and income
 statement accounts, in the Companys interim or annual consolidated financial
 statements that would not be prevented or detected. Accordingly, management
 has determined that this control deficiency constitutes a material weakness.                                                                                                                      

Management has determined that these control deficiencies constituted a
material weakness in our internal control over financial reporting as of
December 31, 2008. A material weakness is a control deficiency, or combination
of control deficiencies, in our internal controls over financial reporting
(ICFR) such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis by employees in the normal course of
their assigned functions.

Inherent Limitations
Over Internal Controls

Internal control over financial reporting cannot provide absolute
assurance of achieving financial reporting objectives because of its inherent
limitations, including the possibility of human error and circumvention by collusion
or overriding of controls. Accordingly, even an effective internal control
system may not prevent or detect material misstatements on a timely basis.
Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions or that the degree of compliance with the policies or procedures may
deteriorate.

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Remediation of Material Weakness

As discussed in Managements
Annual Report on Internal Control over Financial Reporting, as of
December 31, 2008, there were material weaknesses in our internal control
over financial reporting. To the extent reasonably possible in our current
financial condition, we intend to employ additional staff members in the finance
department to better address ICFR deficiencies and ensure we continue to
prepare our financial statements and disclosures in accordance with accounting
principles generally accepted in the United States of America. We intend to
complete a process of centralizing accounts receivable and accounts payable
processes for all business units, which we believe will establish mitigating
controls to compensate for the risk due to lack of segregation of duties. In
addition, we are seeking ways to unify the financial reporting of all of our
component companies and we continue to plan to make resources available to
upgrade, where possible, certain of our information technology systems
impacting financial reporting. We are currently seeking senior information
technology management staff that is adequately qualified to oversee IT staff
and to ensure that the IT general computing controls are effective over our
systems impacting financial reporting.

Through these steps, we
believe we are making progress toward addressing the deficiencies that affected
our internal control over financial reporting as of December 31, 2008.
However, the effectiveness of any system of internal controls is subject to
inherent limitations and there can be no assurance that our ICFR will prevent or
detect all errors. Because the remedial actions require hiring of additional
personnel, upgrading certain of our information technology systems, and relying
extensively on manual review and approval, the successful operation of these
controls for at least several quarters may be required before management may be
able to conclude that the material weakness has been remediated. We intend to
continue to evaluate and strengthen our ICFR systems. These efforts require
significant time and resources. If we are unable to establish adequate ICFR
systems, we may encounter difficulties in the audit or review of our financial
statements by our independent public accountants, which in turn may have a
material adverse effect on our ability to prepare financial statements in
accordance with accounting principles generally accepted in the United States
of America and to comply with our Securities and Exchange Commission reporting
obligations.

Attestation Report of
the Registered Public Accounting Firm.

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

Changes in Internal
Control Over Financial Reporting.

We have made no change in our internal control over financial reporting
during the fourth quarter of 2008 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM
9B. OTHER.

None.

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PART III

ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Directors and Executive
Officers

The following
table sets forth certain information with respect to each person who is a
director, executive officer, or significant employee of the Company or its
subsidiary as of February 28, 2009.

|                   |  |     |  |                                                             
|------------------ |  | --- |  | ------------------------------------------------------------
|Name               |  | Age |  | Position                                                    
|                   |  |     |  |                                                             
|J. Thomas Zender   |  | 69  |  | Chairman of
 the Board                                      
|                   |  |     |  |                                                             
|K. Mason Conner    |  | 52  |  | Chief
 Executive Officer, President, Director               
|                   |  |     |  |                                                             
|H. Jay Hill        |  | 69  |  | Executive
 Vice President of Corporate Development, Director
|                   |  |     |  |                                                             
|Ricardo A. Salas   |  | 45  |  | Director                                                    
|                   |  |     |  |                                                             
|Michael A. Richard |  | 40  |  | Chief
 Financial Officer and Secretary                      

Executive
officers are appointed by the Board of Directors and, subject to the terms of
their employment agreements, serve until their successors are duly elected and
qualify, subject to earlier removal by the Board of Directors. Directors are
elected at the annual meeting of shareholders to serve for their term and until
their successors are duly elected and qualify, or until their earlier
resignation, removal from office, or death. The remaining directors may fill
any vacancy in the Board of Directors for an unexpired term. The term of the
current directors continues until the next annual meeting of shareholders to be
held in 2009. Mr. Zender has been a director since August 1997, Mr. Hill since
October 1997, Mr. Conner since October 1998, and Mr. Salas since July 2005.

Business Experience of Directors and
Executive Officers

J. THOMAS
ZENDER has been a director since 1997 and has been Chairman of the Board since
January 2001. He currently serves on our Audit Committee and our Compensation
Committee. Mr. Zender is an information technology industry board member and
executive with over 35 years management and business development experience. He
has held management positions at General Electric, Honeywell, ITT and other
companies. Mr. Zender has been an officer in three publicly held corporations,
one NYSE listed company and two NASDAQ traded companies. From 1996 through
2001, he served as an interim executive for several early stage companies,
including CEO of VillageEDOCS from 1997 to 1999. From 2001 to 2007 Mr. Zender
served as president and CEO of Unity, a worldwide not-for-profit,
trans-denominational spiritual support movement. He is a member of the Forum
for Corporate Directs, and has served on their board. Mr. Zender served on the
board of Peerless Systems, a NASDAQ traded company, from 2007 to 2008, and on
the board of SAMSys Technologies, a Toronto Stock Exchange traded corporation,
from 1996 to 2006. He holds a Business Administration degree from Ottawa
University, with focus areas of management, marketing, and information
technology.

K. MASON
CONNER has been our Chief Executive Officer since 1999 and has served as our
President since January 1, 2008. Mr. Conner joined the Company as
Vice-President of Sales in 1997 and has been a Board Member since 1998, Acting
Vice-President of Sales between 1998 and 2002, and President between 1998 and
March 2006, and Mr. Conner is also a Director and the President of Questys,
GoSolutions, MVI, and TBS. He has 27 years in sales and business management
experience, including 23 years of direct and channel sales experience in the
voice and data communications products and services industry. In the early
1980s he was involved in the application of Internet Protocol technologies. In
the late 1980s and early 1990s he was a principal strategist for an
international initiative to transform K-12 education through the use of the
Internet. He was a principal consultant with LTS for the electronic
vulnerability threat assessment of the Los Angeles Airport Department after the
UnaBomber threat. He has held sales management positions with Banyan Systems,
Doelz Networks, and Timeplex. During the five years prior to joining the
Company, Mr. Conner was Director of Sales at Telecom Multimedia Systems from
1996 to 1997, Vice President of Sales at Lo Tiro-Sapere from 1995 to 1996, and
Vice President of Sales at Digital Network Architectures from 1991 to 1995.

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H. JAY HILL
has been a director since 1997 and became the Executive Vice President of
Corporate Development in May 2003. Mr. Hill is also a Vice President of
Tailored Business Systems, Inc. and GoSolutions, Inc. For the last 20 years, he
has primarily been a senior executive in turnaround situations in information
technology and telecommunication companies. From November 2000 to May 2003, Mr.
Hill was CEO, President and a Director of LightPort Advisors, Inc, a private
Internet service provider for the financial services market. He has held
similar positions with Unitron Medical Communications, Inc. (d/b/a Moon
Communications) (1999-2000) and Amnet Corporation (Netlink) (1989-1994), and
has held senior sales and marketing management positions with SunCoast
Environmental Controls (1996-1999), Technology Research Corporation (1994-1996),
Harris Corporation, Doelz Networks, Paradyne/AT&T, and Inforex. His primary
background in sales and marketing commenced with Philadelphia Electric Company
and IBM. Mr. Hill currently serves on our Audit Committee and our Compensation
Committee.

RICARDO A.
SALAS joined the board of directors in the second quarter of 2005. Since 2005,
Mr. Salas has served Liquidmetal Technologies in various capacities, including
as its President and Chief Executive Officer between December 2005 and October
2006. From January 2000 through June 2005, Mr. Salas served as Chief Executive
Officer of iLIANT Corporation, an information technology and outsourcing
service firm in the health care industry, and he continues to serve as Director
of MED3000 Group, inc. following its acquisition of iLIANT Corporation in May
of 2006. Mr. Salas was a founder of Medical Manager Corporation and served as a
Vice President between June 1999 and January 2000. In April 1994, he founded
National Medical Systems, Inc. and served as its Vice President through its
merger into Medical Manager Corporation at the time of its initial public
offering in February 1997. From 1987 through 2004, he was Vice President of J.
Holdsworth Capital Ltd., a private investment firm. As an officer of J.
Holdsworth Capital Ltd., Mr. Salas held positions in various investments Mr.
Salas received his B.A. in Economics in 1986 from Harvard University in
Cambridge, Massachusetts. Mr. Salas currently serves on our Audit Committee and
our Compensation Committee.

MICHAEL A. RICHARD
joined the Company in February 2001 and is the Chief Financial Officer and
Corporate Secretary. Mr. Richard is also a Director and the Secretary of our
wholly-owned subsidiaries, Questys, GoSolutions, TBS and MVI. Mr. Richard has
over 15 years of diverse management and public corporate reporting experience
for start-up and early stage ventures. From 1999-2000 he served as V.P.
Controller for The BigHub.com, Inc., a public new media company providing
unique content, private label search engine, e-commerce solutions, and direct
mail. From 1995-1999, Mr. Richard served first as Controller and then as Vice
President, Accounting (principal accounting officer), and finally as a Director
of PortaCom Wireless, Inc., a public developer and operator of companies with
contracts to provide wireless telecommunication services in China and other
emerging markets.

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Table of Contents

Our Corporate
Governance Practices

We have always
believed in strong and effective corporate governance procedures and practices.
In that spirit, we have summarized several of our corporate governance
practices below.

|                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Adopting Governance
 Guidelines                   |  | Our board of directors has adopted a set of corporate governance
 guidelines to establish a framework within which it will conduct its business
 and to guide management in its running of your Company. The governance
 guidelines can be found on our website at www.villageedocs.com and are
 summarized below.                                                                                                                                                                                                                                                                                                
|                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Monitoring Board
 Effectiveness                   |  | It is important that our board of directors and its committees are
 performing effectively and in the best interest of the Company and its
 stockholders. The board of directors and each committee are responsible for
 annually assessing their effectiveness in fulfilling their obligations.                                                                                                                                                                                                                                                                                                                  
|                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Conducting Formal
 Independent Director
 Sessions |  | At the conclusion of each regularly scheduled board meeting, the
 independent directors meet without our management or any non-independent
 directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Hiring Outside
 Advisors                          |  | The board and each of its committees may retain outside advisors and
 consultants of their choosing at our expense, without managements consent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Avoiding Conflicts of
 Interest                   |  | We expect our directors, executives and employees to conduct
 themselves with the highest degree of integrity, ethics and honesty. Our
 credibility and reputation depend upon the good judgment, ethical standards
 and personal integrity of each director, executive and employee. In order to
 provide assurances to the Company and its stockholders, we have implemented
 standards of business conduct which provide clear conflict of interest
 guidelines to its employees and directors, as well as an explanation of
 reporting and investigatory procedures.                                          
|                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Providing
 Transparency                           |  | We believe it is important that stockholders understand our
 governance practices. In order to help ensure transparency of our practices,
 we have posted information regarding our corporate governance procedures on
 our website at www.villageedocs.com.                                                                                                                                                                                                                                                                                                                                                      
|                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Communicationswith the Board of
 Directors        |  | Although we do not have a formal policy regarding communications with
 the board of directors, stockholders may communicate with the board of
 directors by writing to the Company at VillageEDOCS, Inc. Attention: Investor
 Relations, 1401 N. Tustin Ave., Ste. 230, Santa Ana, CA 92705. Stockholders
 who would like their submission directed to a member of the board may so
 specify, and the communication will be forwarded, as appropriate.                                                                                                                                                            
|                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Standards of Business
 Conduct                    |  | The board of directors has adopted a Code of Business Conduct and
 Ethics for all of our employees and directors, including the Companys
 principal executive and senior financial officers. You can obtain a copy of
 our Code of Business Conduct and Ethics via our website at www.villageedocs.com, or by
 making a written request to the Company at VillageEDOCS, Attention: Investor
 Relations, 1401 N. Tustin Ave., Ste. 230, Santa Ana, CA 92705. We will
 disclose any amendments to the Code of Business Conduct and Ethics, or waiver
 of a provision therefrom, on our website at the same address.
|                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Ensuring Auditor
 Independence                    |  | We have taken a number of steps to ensure the continued independence
 of our independent registered public accounting firm. That firm reports
 directly to the Audit Committee, which also has the ability to pre-approve or
 reject any non-audit services proposed to be conducted by our independent
 registered public accounting firm.                                                                                                                                                                                                                                                                       

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Committees of the
Board and Audit Committee Financial Expert

The Board of
Directors has an Audit Committee and a Compensation Committee.

AUDIT
COMMITTEE. The Audit Committee of the Board of Directors (the Audit
Committee) monitors the integrity of the Companys financial statements, the
independence and qualifications of the independent registered public accounting
firm, the performance of the Companys independent registered public accounting
firm and the effectiveness of the Companys disclosure controls and procedures
and internal controls. It is also responsible for retaining, evaluating, and,
if appropriate, recommending the termination of the Companys independent
registered public accounting firm. The Audit Committee has been established
under a charter approved by the Board. Our Audit Committee consists of Messrs.
Zender, Hill, and Salas. Mr. Salas serves as Chairman. During 2008 the Audit
Committee met three times. Because our board of directors is comprised of only
four members, the Audit Committee includes one member of executive management,
H. Jay Hill, who is not considered to be independent within the meaning of Item
7(d)(3)(iv) of Schedule 14A of the Securities Exchange Act of 1934, as amended.
We are not required by the OTCBB to have an audit committee comprised entirely
of independent directors. We do not have an audit committee financial expert as
defined by Item 401(e) of Regulation S-B of the Exchange Act at this time
because we believe that we are not in a position to attract suitable candidates
due to insufficient capital resources. In addition, we are not required by the
OCTBB to have an audit committee financial expert.

COMPENSATION
COMMITTEE. The Compensation Committee of the Board of Directors (the
Compensation Committee) administers the benefits, incentives and compensation
of the Companys executive officers, reviews the performance of the Companys
executive officers, reviews and approves executive compensation policy and
objectives, concludes whether Company executives are compensated according to
such standards, makes recommendations to the Board of Directors with respect to
compensation, and carries out the Boards responsibilities relating to all
forms of executive compensation. The Compensation Committee has been
established under a charter approved by the Board. Non-qualified stock options
which are granted to the members of the Compensation Committee are recommended
by the Companys Chief Executive Officer and approved by the Board of
Directors. Our Compensation Committee consists of Messrs. Zender, Hill, and
Salas. Mr. Zender serves as Chairman. During 2008 the Compensation Committee
met three times. Because our board of directors is comprised of only four
members, the Compensation Committee includes one member of executive
management, H. Jay Hill. Mr. Hill recuses
himself from votes and discussions on his own compensation. We are not
required by the OTCBB to have a compensation committee comprised entirely of
independent directors.

Report
of the Compensation Committee on Executive Compensation

General

The Compensation Committee of the Board of Directors is currently
composed of two independent directors, Messrs. Zender and Salas, who have no
interlocking relationships (as defined by the SEC), and Mr. Hill, who recuses
himself from votes and discussions on his own compensation.

We are engaged in highly competitive businesses and compete nationally
for personnel at the executive and technical staff level. Outstanding
candidates are aggressively recruited, often at premium salaries. Highly
qualified employees are essential to our success. We are committed to providing
competitive compensation that helps attract, retain, and motivate the highly
skilled people we require. We strongly believe that a considerable portion of
the compensation for the Chief Executive Officer and other top executives must
be tied to the achievement of business objectives, completing acquisitions, and
to business unit and overall financial performance, both current and long-term.

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Executive Compensation

Our executive
compensation program is administered by the Compensation Committee. The role of
the Compensation Committee is to review and approve salaries and other
compensation of the executive officers of the Company, to administer the 2002
Equity Incentive Plan, and to review and approve stock awards and stock option
grants to all employees including the executive officers of the Company.

General Compensation Philosophy

Our
compensation philosophy is that total cash compensation should vary with our
performance and any long-term incentive should be closely aligned with the
interest of the stockholders. Total cash compensation for the executive
officers consists of the following components:

| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | Base salary;                                                                              
| |  | An executive
 officer bonus that is related to growth in our sales and operating earnings.

Long-term
incentives are realized through the granting of stock options to executives and
key employees through the 2002 Equity Incentive Plan. We have also granted
common stock and warrants to certain of our executive officers. We have no
other long-term incentive plans for our officers and employees.

Base Salary and Executive Officer Bonus Target

Current base
salaries for the executive officers were determined by arms length negotiations
with the Board of Directors. Messrs. Conner, Richard and Hill have employment
contracts with the Company which set a base salary and allow for bonus targets
and levels to be set at the sole discretion of this committee.

Chief Executive Officer Compensation

The current
base salary for the Chief Executive Officer of $236,250 is set according to his
employment contract, which also includes provision for annual bonuses at the
sole discretion of this committee.

Stock Options

Stock options
are granted to aid in the retention of executive and key employees and to align
the interests of executive and key employees with those of the stockholders.
The level of stock options granted (i.e., the number of shares subject to each
stock option grant) is based on the employees ability to impact future
corporate results. An employees ability to impact future corporate results
depends on the level and amount of job responsibility of the individual.
Therefore, the level of stock options granted is proportional to the Compensation
Committees evaluation of each employees job responsibility. For example,
Mason Conner, as the President and Chief Executive Officer, has the highest
level of responsibility and would typically be awarded the highest level of
stock options. Stock options are granted at a price not less than the fair
market value on the date granted.

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ITEM
11. EXECUTIVE COMPENSATION

The following
table sets forth the aggregate compensation, for each of the last two years,
awarded to, earned by or paid to:

| |     |                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | our chief
 executive officer;                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                        
| | (b) | each of our
 two most highly compensated executive officers who were serving as executive
 officers at the end of the most recently completed fiscal year and whose
 total salary and bonus exceeds $100,000 per year; or                                                              
| |     |                                                                                                                                                                                                                                                                                        
| | (c) | any
 additional individuals for whom disclosure would have been provided under (b)
 but for the fact that the individual was not serving as an executive officer
 of our company at the end of the most recently completed fiscal year
 (collectively, the Named Executive Officers).

SUMMARY COMPENSATION
TABLE

|                                                              |  |  |      |  |  |             |  |  |            |  |  |                         |  |  |                          |  |  |                                               |  |  |            | 
|------------------------------------------------------------- |  |  | ---- |  |  | ----------- |  |  | ---------- |  |  | ----------------------- |  |  | ------------------------ |  |  | --------------------------------------------- |  |  | ---------- | 
|Name and
 Principal
 Position                                 |  |  | Year |  |  | Salary
 ($) |  |  | Bonus
 ($) |  |  | Stock
 Awards
 (2)
 ($) |  |  | Option
 Awards
 (3)
 ($) |  |  | Non-Equity
 Incentive plan
 Compensation
 ($) |  |  | Total
 ($) | 
|                                                              |  |  |      |  |  |             |  |  |            |  |  |                         |  |  |                          |  |  |                                               |  |  |            | 
|K. Mason Conner, President
 and CEO                           |  |  | 2008 |  |  | 232,500     |  |  | -          |  |  | 94,733                  |  |  | 5,000                    |  |  | -                                             |  |  | 332,233    | 
|                                                              |  |  | 2007 |  |  | 232,500     |  |  | -          |  |  | -                       |  |  | 110,000                  |  |  | -                                             |  |  | 342,500    | 
|                                                              |  |  |      |  |  |             |  |  |            |  |  |                         |  |  |                          |  |  |                                               |  |  |            | 
|Jerry T. Kendall,
 President, Chief Operating Officer (1)     |  |  | 2007 |  |  | 208,300     |  |  | -          |  |  | -                       |  |  | 132,000                  |  |  | -                                             |  |  | 340,300    | 
|                                                              |  |  |      |  |  |             |  |  |            |  |  |                         |  |  |                          |  |  |                                               |  |  |            | 
|H. Jay Hill, Executive Vice
President  Corporate Development |  |  | 2008 |  |  | 210,000     |  |  | -          |  |  | 70,873                  |  |  | 2,000                    |  |  | -                                             |  |  | 282,873    | 
|                                                              |  |  | 2007 |  |  | 206,700     |  |  | -          |  |  | 2,600                   |  |  | 44,000                   |  |  | -                                             |  |  | 253,300    | 
|                                                              |  |  |      |  |  |             |  |  |            |  |  |                         |  |  |                          |  |  |                                               |  |  |            | 
|Michael A. Richard, CFO and
 Secretary                        |  |  | 2008 |  |  | 160,000     |  |  | -          |  |  | 15,000                  |  |  | -                        |  |  | -                                             |  |  | 175,000    | 
|                                                              |  |  | 2007 |  |  | 160,000     |  |  | -          |  |  | -                       |  |  | 25,000                   |  |  | -                                             |  |  | 185,000    | 
|                                                              |  |  |      |  |  |             |  |  |            |  |  |                         |  |  |                          |  |  |                                               |  |  |            | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) Effective December 31,
 2007, Mr. Kendall ceased to be an officer and director of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(2) All of the shares of
 common stock earned by Messrs. Conner, Hill, and Richard that were issued
 during 2008 were valued at $0.015 per share (the estimated fair value on the
 measurement date) and recorded as compensation expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(3) Assumptions relating to
 the estimated fair value of stock options granted to Messrs. Conner and Hill
 during 2008 which we are accounting for in accordance with SFAS 123(R) are as
 follows: risk-free interest rate of 3.00%; expected dividend yield 0%;
 expected option life of 6.0 years; and volatility between 258% and 273%.
 Assumptions relating to the estimated fair value of stock options granted to
 Messrs. Kendall, Conner, Hill, and Richard during 2007, which we are
 accounting for in accordance with SFAS 123(R) are as follows: risk-free
 interest rate of 3.5%; expected dividend yield 0%; expected option life of
 6.0 years; and volatility between 121% - 124%.. Please see Note 3 to our
 consolidated financial statements for further discussion of our assumptions
 relating to the estimated fair value of equity awards.

NARRATIVE DISCLOSURE
TO SUMMARY COMPENSATION TABLE

We compensate
our executive officers through a combination of a base salary, a cash bonus,
and options to purchase shares of our common stock. In addition, in the future,
we may provide other perquisites to some of our executive officers. We do not
have a formal plan for determining the compensation of our executive officers. Instead,
each executive officer negotiates their respective employment agreement with
us.

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All agreements
with our named executive officers that provide for payments to such named
executive officers at, following or in connection with the resignation, retirement
or other termination of such named executive officers, or a change in control
of our company or a change in the responsibilities of such named executive
officers following a change in control are set forth in the following
description of their respective employment agreements.

Employment agreements

On November
13, 2008, we entered into employment agreements with K. Mason Conner, our
President and Chief Executive Officer, H. Jay Hill, our Executive Vice
President - Corporate Development, and Michael Richard, our Chief Financial
Officer. These agreements supersede the employment agreements dated June 10,
2004, as amended. Following is a summary of the significant terms of each of
the employment agreements:

K. MASON
CONNER. Mr. Conners employment agreement provides for Mr. Conner to serve as
our President and Chief Executive Officer for a term ending November 12, 2012.
The employment agreement provides that, the term of the agreement shall
automatically be extended for successive one year renewal terms, provided that
if either Mr. Conner or the Company gives the other party at least one hundred
twenty (120) days advance written notice of his or its intention to not renew
the agreement for an additional term, the agreement will terminate upon the expiration
of the current term.

Pursuant to
the employment agreement, Mr. Conners present base salary of $236,250 will
remain in effect through November 12, 2009. The Board will review his salary at
annual intervals, and may adjust his annual base salary from time to time as
the Board or its Compensation Committee deems to be appropriate, provided,
however, that the salary for the twelve month period beginning November 13,
2009 and each succeeding year shall not be less than 105% of the salary for the
prior year. Mr. Conner is entitled to an incentive bonus based upon the
Companys adjusted earnings before interest, taxes, amortization and
depreciation. For the years 2008 and 2009, the percentage bonus will be 7% of
the adjusted earnings before interest, taxes, amortization and depreciation
paid in Company shares. For each year subsequent to 2009, the Board will
establish the percentage and form of payment.

H. JAY HILL.
Mr. Hills employment agreement provides for Mr. Hill to serve as our Executive
Vice President  Corporate Development for a term ending November 12, 2012. The
employment agreement provides that, the term of the agreement shall
automatically be extended for successive one year renewal terms, provided that
if either Mr. Hill or the Company gives the other party at least one hundred
twenty (120) days advance written notice of his or its intention to not renew
the agreement for an additional term, the agreement will terminate upon the
expiration of the current term.

Pursuant to
the employment agreement, Mr. Hills present base salary of $210,000 will
remain in effect through November 12, 2009. The Board will review his salary at
annual intervals, and may adjust his annual base salary from time to time as
the Board or its Compensation Committee deems to be appropriate, provided,
however, that the salary for the twelve month period beginning November 13,
2009 and each succeeding year shall not be less than 105% of the salary for the
prior year. Mr. Hill is entitled to an incentive bonus based upon the Companys
adjusted earnings before interest, taxes, amortization and depreciation. For
the years 2008 and 2009, the percentage bonus will be 6% of the adjusted
earnings before interest, taxes, amortization and depreciation paid in Company
shares. For each year subsequent to 2009, the Board will establish the
percentage and form of payment.

MICHAEL A.
RICHARD. Mr. Richards employment agreement provides for Mr. Richard to serve
as our Chief Financial Officer for a term ending November 12, 2010. The
employment agreement provides that, the term of the agreement shall
automatically be extended for successive one year renewal terms, provided that
if either Mr. Richard or the Company gives the other party at least one hundred
twenty (120) days advance written notice of his or its intention to not renew
the agreement for an additional term, the agreement will terminate upon the
expiration of the current term.

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Pursuant to
the employment agreement, Mr. Richards present base salary of $160,000 will
remain in effect through November 12, 2009. The Board will review his salary at
annual intervals, and may adjust his annual base salary from time to time as
the Board or its Compensation Committee deems to be appropriate, provided,
however, that the salary for the twelve month period beginning November 13,
2009 and each succeeding year shall not be less than 105% of the salary for the
prior year. Mr. Richard, at the discretion of the Board, is entitled to receive
an annual incentive bonus in an amount to be determined by the Board.

The agreements
with Messrs. Conner, Hill, and Richard provide for continuation of certain
benefits, modification of vesting and exercise terms for stock and option
awards, and for certain payments, either in lump sum or in a series of from six
to twelve payments, to Messrs. Conner, Hill and Richard in the event their
employment is involuntarily terminated for disability, without cause, or in the
event that the agreement is not renewed. The amounts of such payments range
from 50% to 200% of annual salary and bonus in effect upon termination. In the
event of a Change in Corporate Control, any restricted stock, stock options or
other awards granted to Messrs. Conner, Hill, or Richard shall become
immediately vested in full and, in the case of stock options, exercisable in
full. If each of Messrs. Conner, Hill, or Richard is terminated for cause, he
shall be entitled to receive his base salary through the date of termination
and any non-forfeitable benefits earned and payable to him under the terms of deferred
compensation or incentive plans maintained by the Company.

JERRY T.
KENDALL. Effective December 31, 2007, Mr. Kendall ceased to be an officer and
director of the Company. On March 1, 2006, we entered into an executive
employment agreement with Jerry T. Kendall, who had served as a director of the
Company from the second quarter of 2005. The employment agreement provided for
Mr. Kendall to serve as our President and Chief Operating Officer for a term of
two years from March 1, 2006. Pursuant to his employment agreement, Mr. Kendall
received a base salary of $200,000, which increased to $210,000 on May 1, 2007
pursuant to his employment agreement. Pursuant to his employment agreement, the
Company granted Mr. Kendall options for 4,000,000 shares of its common stock
which were to have vested over a five year period and were exercisable during
the seven year period after vesting. Mr. Kendall will also be permitted to
continue to participate for the remainder of 2008, at the Companys expense, in
all benefit and insurance plans, coverage and programs in which he was
participating as of the termination date. Upon termination, Mr. Kendall vested
25% of the unvested portion of the stock option granted in connection with the
agreement and any stock options granted Mr. Kendall prior to the employment
agreement, has a modified term of the covenant not to compete equal to the
greater of twelve months or the number of months of severance pay granted, and
is entitled to receive a series of monthly payments for a period of twelve
months, each of which shall be equal to one-twelfth of Mr. Kendalls annual
base salary as in effect upon termination.

The foregoing
descriptions of the employment agreements are qualified in their entirety by
reference to the actual terms of each agreement, copies of which have been
filed with the Commission.

OUTSTANDING EQUITY
AWARDS AT FISCAL YEAR-END TABLE

The following
table presents information regarding outstanding options held by our named
executive officers as of the end of our fiscal year ended December 31, 2008.

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|                    |  |             |                                                             |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   |  |  |                                                                          |  |  |                                                                                                                     |  |  |                                                                                                                                       | 
|------------------- |  | ----------- | ----------------------------------------------------------- | ------------- |  | ----------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------- |  |  | ---------------------------- |  |  | ------------------------ |  |  | ----------------------------------------------------------------- |  |  | ------------------------------------------------------------------------ |  |  | ------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------- | 
|Name                |  |             | Option Awards                                               |               |  | Stock Awards                                                | 
|                    |  |             |                                                             |               |  | Number of Securities
 Underlying
 Unexercised
 Options
 (#) |  |  | Equity
 Incentive Plan
 Awards:
 Number of
 Securities
 Underlying
 Unexercised
 Unearned
 Options
 (#) |  |  | Option
 Exercise
 Price
 ($) |  |  | Option
 Expiration
 Date |  |  | Number of
 Shares or
 Units of
 Stock That
 Have Not
 Vested
 (#) |  |  | Market
 Value of
 Shares or
 Units of
 Stock That
 Have Not
 Vested
 ($) |  |  | Equity
 Incentive
 Plan
 Awards:
 Number of
 Unearned
 Shares,
 Units or
 Other
 Rights That
 Have Not
 Vested
 (#) |  |  | Equity
 Incentive
 Plan
 Awards:
 Market or
 Payout
 Value of
 Unearned
 Shares,
 Units or
 Other
 Rights That
 Have Not
 Vested
 ($) | 
|                    |  |             |                                                             |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   | 
|                    |  |             |                                                             |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   | 
|                    |  |             |                                                             |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   | 
|                    |  |             |                                                             |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   | 
|                    |  |             |                                                             |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   | 
|                    |  |             |                                                             |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   | 
|                    |  |             |                                                             |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   | 
|                    |  |             | Number of Securities
 Underlying
 Unexercised
 Options
 (#) |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   |  | 
|                    |  | Exercisable |                                                             | Unexercisable |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   | 
|                    |  |             |                                                             |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   |  |  |                                                                          |  |  |                                                                                                                     |  |  |                                                                                                                                       | 
|K. Mason
 Conner    |  |             | 100,000                                                     |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.250                        |  |  | 5/31/2009                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 31,138                                                      |               |  | -                                                           |  |  | -                                                                                                       |  |  | 2.500                        |  |  | 8/4/2010                 |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 34,536                                                      |               |  | -                                                           |  |  | -                                                                                                       |  |  | 2.500                        |  |  | 10/1/2011                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 1,719,658                                                   |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.188                        |  |  | 1/30/2014                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 3,500,000                                                   |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.150                        |  |  | 6/15/2012                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 2,000,000                                                   |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.160                        |  |  | 12/27/2012               |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 500,000                                                     |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.015                        |  |  | 11/16/2015               |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             |                                                             |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   |  |  |                                                                          |  |  |                                                                                                                     |  |  |                                                                                                                                       | 
|H. Jay Hill         |  |             | 31,138                                                      |               |  | -                                                           |  |  | -                                                                                                       |  |  | 2.500                        |  |  | 8/4/2010                 |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 34,536                                                      |               |  | -                                                           |  |  | -                                                                                                       |  |  | 2.500                        |  |  | 10/1/2011                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 686,325                                                     |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.188                        |  |  | 1/30/2014                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 1,500,000                                                   |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.180                        |  |  | 8/15/2013                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 1,000,000                                                   |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.100                        |  |  | 8/15/2013                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 500,000                                                     |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.150                        |  |  | 6/15/2012                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 2,000,000                                                   |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.160                        |  |  | 12/27/2012               |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 200,000                                                     |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.015                        |  |  | 11/16/2015               |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             |                                                             |               |  |                                                             |  |  |                                                                                                         |  |  |                              |  |  |                          |  |  |                                                                   |  |  |                                                                          |  |  |                                                                                                                     |  |  |                                                                                                                                       | 
|Michael A.
 Richard |  |             | 150,000                                                     |               |  | -                                                           |  |  | -                                                                                                       |  |  | 2.500                        |  |  | 2/27/2011                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 387,500                                                     |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.188                        |  |  | 1/30/2014                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 650,000                                                     |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.150                        |  |  | 6/15/2012                |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 
|                    |  |             | 250,000                                                     |               |  | -                                                           |  |  | -                                                                                                       |  |  | 0.160                        |  |  | 12/27/2012               |  |  | -                                                                 |  |  | -                                                                        |  |  | -                                                                                                                   |  |  | -                                                                                                                                     | 

(1) Except as indicated,
these options held by Messrs. Conner, Hill, and Richard are vested in full as
of December 31, 2008.

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STOCK OPTIONS

The Company
has adopted an equity incentive plan (the 2002 Plan) that authorizes the
issuance of stock awards and options to acquire up to 90,000,000 shares of
common stock, as amended, to employees and certain outside consultants. The
2002 Plan allows for the issuance of either non-qualified or, subject to
stockholder approval, incentive stock options pursuant to Section 422 of the
Internal Revenue Code. Options vest at the discretion of the Board of Directors
as determined at the grant date, but not longer than a ten-year term. Under the
2002 Plan, the exercise price of each option shall not be less than fair market
value on the date the option is granted.

During 1997,
the Board of Directors of the Company adopted a stock option plan (the 1997
Plan) that authorizes the issuance of options to acquire up to 5,000,000
shares of common stock to employees and certain outside consultants. The 1997
Plan allows for the issuance of either non-qualified or incentive stock options
pursuant to Section 422 of the Internal Revenue Code. Options vest at the
discretion of the Board of Directors as determined at the grant date, but not
longer than a ten-year term. Under the 1997 Plan, the exercise price of each
option shall not be less than 85 percent of fair market value on the date the
option is granted.

At December
31, 2008, we had outstanding options to purchase 42,730,939 shares of our
common stock pursuant to the 2002 Plan and the 1997 Plan. The number of options
under both the 2002 Plan and the 1997 Plan available for grant at December 31,
2008 is approximately 47,000,000 (see Notes to accompanying consolidated
financial statements).

ADDITIONAL NARRATIVE DISCLOSURE

The employment agreements with
Messrs. Conner, Hill, and Richard provide for continuation of certain benefits,
modification of vesting and exercise terms for stock and option awards, and for
certain payments, either in lump sum or in a series of from six to twelve payments,
to Messrs. Conner, Hill and Richard in the event their employment is
involuntarily terminated for disability, without cause, or in the event that
the agreement is not renewed. The amounts of such payments range from 50% to
200% of annual salary and bonus in effect upon termination. In the event of a
Change in Corporate Control, any restricted stock, stock options or other
awards granted to Messrs. Conner, Hill, or Richard shall become immediately
vested in full and, in the case of stock options, exercisable in full. If each
of Messrs. Conner, Hill, or Richard is terminated for cause, he shall be
entitled to receive his base salary through the date of termination and any
non-forfeitable benefits earned and payable to him under the terms of deferred
compensation or incentive plans maintained by the Company.

58

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COMPENSATION OF DIRECTORS

The following table presents information regarding compensation paid to
our non-employee directors for our fiscal year ended December 31, 2008.

|                 |  |  |                                    |  |  |                    |  |  |                     |  |  |                                               |  |  |                                                                                    |  |  |                              |  |  |            | 
|---------------- |  |  | ---------------------------------- |  |  | ------------------ |  |  | ------------------- |  |  | --------------------------------------------- |  |  | ---------------------------------------------------------------------------------- |  |  | ---------------------------- |  |  | ---------- | 
|Name             |  |  | Fees Earned
 or Paid in
 Cash
 ($) |  |  | Stock
 Awards
 ($) |  |  | Option
 Awards
 ($) |  |  | Non-Equity
 Incentive Plan
 Compensation
 ($) |  |  | Change in
 Pension Value
 and
 Nonqualified
 Deferred
 Compensation
 Earnings
 ($) |  |  | All Other
 Compensation
 ($) |  |  | Total
 ($) | 
|                 |  |  |                                    |  |  |                    |  |  |                     |  |  |                                               |  |  |                                                                                    |  |  |                              |  |  |            | 
|Ricardo A. Salas |  |  | -                                  |  |  | -                  |  |  | $6,000              |  |  | -                                             |  |  | -                                                                                  |  |  | -                            |  |  | $6,000     | 
|                 |  |  |                                    |  |  |                    |  |  |                     |  |  |                                               |  |  |                                                                                    |  |  |                              |  |  |            | 
|J. Thomas Zender |  |  | -                                  |  |  | -                  |  |  | $8,900              |  |  | -                                             |  |  | -                                                                                  |  |  | -                            |  |  | $8,900     | 
|                 |  |  |                                    |  |  |                    |  |  |                     |  |  |                                               |  |  |                                                                                    |  |  |                              |  |  |            | 

Assumptions relating to the
estimated fair value of stock options granted to Messrs. Salas, and Zender
during 2008, which we are accounting for in accordance with SFAS 123(R), are as
follows: risk-free interest rate of 3.0%; expected dividend yield 0%; expected
option life of 6.0 years; and volatility of 258% - 273%. Please see Note 3 to
our consolidated financial statements for further discussion of our assumptions
relating to the estimated fair value of equity awards.

NARRATIVE DISCLOSURE TO DIRECTOR COMPENSATION
TABLE

During 2008,
members of our board of directors received no cash compensation for services as
a director or for attendance at or participation in meetings. Beginning in
January 2009, non-employee directors will receive annual retainer fees, which
will be paid in cash in quarterly installments. Each non-employee director will
receive a retainer of $30,000 for his participation as a director. It is our
policy that our employee-directors do not receive cash compensation for their
service as members of our Board of Directors. Non-employee directors have
historically been eligible for participation in certain of our equity incentive
plans. During 2008, we issued options to purchase an aggregate of 1,490,000
shares of our common stock to our non-employee directors in consideration for
their services. There has been no determination made as to the number and
exercise price of options, if any, that will be issued to either K. Mason
Conner or H. Jay Hill for service during terms following the term that expired
on October 5, 2001. Directors are reimbursed for out-of-pocket expenses
incurred by them in connection with attending meetings. The Company has no
other arrangements regarding compensation for services as a director.

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ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following
table sets forth certain information with respect to the beneficial ownership
of shares of the Companys common stock owned as of February 28, 2009
beneficially by (i) each person who beneficially owns more than 5% of the
outstanding common stock, (ii) each director of the Company, (iii) the
President and Chief Executive Officer of the Company, the executive officers
and significant employees of the Company whose cash and non-cash compensation
for services rendered to the Company for the year ended December 31, 2008
exceeded $100,000, and (iv) directors, executive officers, and significant
employees as a group:

|                                                                                    |  |                                                |  |                               
|----------------------------------------------------------------------------------- |  | ---------------------------------------------- |  | ------------------------------
|Name of Beneficial
 Owner (1)                                                       |  | Amount and Nature of
 Beneficial Ownership (2) |  | Percent
 of Class (3) (4) (13)
|                                                                                    |  |                                                |  |                               
|James Townsend (5)                                                                  |  | 11,147,720                                     |  | 5.5                           
|                                                                                    |  |                                                |  |                               
|C. Alan Williams (6)                                                                |  | 64,927,243                                     |  | 32.0                          
|                                                                                    |  |                                                |  |                               
|K. Mason Conner (7)                                                                 |  | 10,709,438                                     |  | 5.3                           
|                                                                                    |  |                                                |  |                               
|J. Thomas Zender (8)                                                                |  | 2,014,499                                      |  | 1.0                           
|                                                                                    |  |                                                |  |                               
|H. Jay Hill (9)                                                                     |  | 8,631,999                                      |  | 4.3                           
|                                                                                    |  |                                                |  |                               
|Ricardo A. Salas (10)                                                               |  | 620,000                                        |  | *                             
|                                                                                    |  |                                                |  |                               
|Michael Richard (11)                                                                |  | 2,504,167                                      |  | 1.2                           
|                                                                                    |  |                                                |  |                               
|GoSolutions Equity LLC (12)                                                         |  | 26,786,840                                     |  | 13.2                          
|                                                                                    |  |                                                |  |                               
|Vojin Hadzi-Pavlovic                                                                |  | 22,000,000                                     |  | 10.8                          
|                                                                                    |  |                                                |  |                               
|All directors, executive
 officers, and significant employees as a group(5 persons) |  | 24,480,103                                     |  | 12.1                          

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *
 Less than 1%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (1)
 The address of each individual is in care of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (2)
 Represents sole voting and investment power unless otherwise indicated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (3)
 Based on 180,270,913 shares of the Companys common stock outstanding at
 February 29, 2009, plus, as to each person listed, that portion of the
 Companys common stock subject to outstanding options, warrants, and
 convertible debt which may be exercised or converted by such person, and as
 to all directors and executive officers as a group, unissued shares of the
 Companys common stock as to which the members of such group have the right
 to acquire beneficial ownership upon the exercise of stock options or
 warrants, or conversion of convertible debt within 60 days of February 29,
 2009.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (4)
 Excludes 35,683,578 shares reserved for issuance under outstanding options
 and warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (5)
 Includes options to acquire 65,674 shares of common stock at $2.50 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (6)
 Includes $178,370 of debt and accrued interest convertible to 1,274,072
 shares of common stock at $0.14 per share and warrants to acquire 3,000,000
 shares at $0.10 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (7)
 Includes options to acquire 100,000 shares of common stock at $0.25 per
 share, options to acquire 65,674 shares at $2.50 per share, options to
 acquire 1,719,658 shares at $0.19 per share, options to acquire 3,500,000
 shares at $0.15 per share, options to acquire 2,000,000 shares at $0.16 per
 share, options to acquire 500,000 shares at $0.02 per share, and warrants to
 acquire 200,000 shares at $0.15 per share.                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (8)
 Includes options to acquire 290,000 shares of common stock at $0.02 per
 share, options to acquire 66,261 shares at $2.50 per share, options to
 acquire 918,825 shares at $0.19 per share, and options to acquire 500,000
 shares at $0.15 per share.                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (9)
 Includes options to acquire 65,674 shares at $2.50 per share, options to
 acquire 686,325 shares at $0.19 per share, options to acquire 1,500,000
 shares at $0.18 per share, options to acquire 1,000,000 shares at $0.10 per
 share, options to acquire 500,000 shares at $0.15 per share, options to
 acquire 2,000,000 shares at $0.16 per share, options to acquire 200,000
 shares at $0.015 per share, and warrants to acquire 350,000 shares at $0.15
 per share.                                                                                                                                             

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (10)
 Includes options to acquire 600,000 shares of common stock at $0.18 per
 share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (11)
 Includes options to purchase 150,000 shares of common stock at $2.50 per
 share, options to purchase 387,500 shares of common stock at $0.19 per share,
 options to purchase 650,000 shares of common stock at $0.15 per share, and
 options to purchase 250,000 shares at $0.16 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (12)
 The members of GoSolutions Equity LLC are Daniel M. Doyle, Sr., H. Scott
 Seltzer, Larry C. Morgan, Shaun C. Pope, Tom C. Lokey, and William Thompson
 Thorn, III.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (13)
 Excludes up to 33,500,000 shares of our common stock underlying conversion of
 our Convertible Series A Preferred Stock issued to Barron Partners, LP
 (Barron). We have entered into an agreement with Barron which provides that
 Barron will not acquire any additional shares of our common stock in the open
 market or convert our Convertible Series A Preferred Stock into our common
 stock or exercise warrants if the effect of such a purchase, exercise or
 conversion would be to increase Barrons equity ownership position above
 4.99%. Accordingly, because it is not anticipated that Barron will acquire
 beneficial ownership within the next 60 days or shares of our common stock
 above 4.99% of our outstanding number of shares of common stock, such
 securities are excluded from the above table.

Securities Authorized for Issuance Under Equity Compensation Plans

The following
provides information, as of December 31, 2008, concerning compensation plans
(including individual compensation arrangements) under which equity securities
of the Company are authorized for issuance.

|                                                            |  |                                                                                                |            |                                                                                |   |                                                                                                                                                    |  |  |            | 
|----------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | ---------- | ------------------------------------------------------------------------------ | - | -------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---------- | 
|                                                            |  | (a)                                                                                            |            | (b)                                                                            |   | (c)                                                                                                                                                | 
|                                                            |  |                                                                                                |            |                                                                                |   |                                                                                                                                                    |  |  |            | 
|Plan Category                                               |  | Number of securities to be
 issued upon exercise of
 outstanding options,
 warrants and rights |            | Weighed-average
 exercise price of
 outstanding options,
 warrants
 and rights |   | Number of securities
 remaining available for
 future issuances under
 equity compensation
 plans (excluding
 securities reflected in
 column (a)) | 
|                                                            |  |                                                                                                |            |                                                                                |   |                                                                                                                                                    |  |  |            | 
|Equity compensation plans
 approved by security holders     |  |                                                                                                | 42,730,939 |                                                                                | $ | 0.16                                                                                                                                               |  |  | 47,000,000 | 
|                                                            |  |                                                                                                |            |                                                                                |   |                                                                                                                                                    |  |  |            | 
|Equity compensation plans not
 approved by security holders |  |                                                                                                | 10,017,643 |                                                                                | $ | 0.07                                                                                                                                               |  |  |           | 
|                                                            |  |                                                                                                |            |                                                                                |   |                                                                                                                                                    |  |  |            | 
|Total                                                       |  |                                                                                                | 52,748,582 |                                                                                | $ | 0.14                                                                                                                                               |  |  | 47,000,000 | 

For a complete
description of our equity compensation plans, please refer to Note 7 of our
consolidated financial statements as of December 31, 2008, which are filed as
Exhibit 99.1 hereto.

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ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Review and Approval of Related Person Transactions.

Our Audit
Committee reviews all relationships and transactions in which the company and
our directors and executive officers or their immediate family members are
participants to determine whether such persons have a direct or indirect
material interest. The companys legal consultant is primarily responsible for
the development and implementation of processes and controls to obtain
information from the directors and executive officers with respect to related
person transactions and for then determining, based on the facts and
circumstances, whether the company or a related person has a direct or indirect
material interest in the transaction. As required under SEC rules, transactions
that are determined to be directly or indirectly material to the company or a
related person are disclosed in the companys proxy statement. In addition, the
Audit Committee reviews and approves or ratifies any related person transaction
that is required to be disclosed. As set forth in the Audit Committees key
practices, in the course of its review and approval or ratification of a
disclosable related party transaction, the committee considers:

| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | the nature
 of the related persons interest in the transaction;                                                                      
| |  | the material
 terms of the transaction, including, without limitation, the amount and type
 of transaction;                           
| |  | the
 importance of the transaction to the related person;                                                                             
| |  | the
 importance of the transaction to the company;                                                                                    
| |  | whether the
 transaction would impair the judgment of a director or executive officer to
 act in the best interest of the company; and
| |  | any other
 matters the committee deems appropriate.                                                                                   

Any member of
the Audit Committee who is a related person with respect to a transaction under
review may not participate in the deliberations or vote respecting approval or
ratification of the transaction, provided, however, that such director may be
counted in determining the presence of a quorum at a meeting of the committee
that considers the transaction.

Description of Related Party Transactions

GSI leases the
St. Petersburg office space pursuant to a noncancelable operating lease
agreement expiring in April 30, 2011 at a cost of $12,653, $13,232, $13,841,
$14,485, and $15,164 per month for each of the twelve month periods ended April
2007, 2008, 2009, 2010, and 2011, respectively. The building in which the
office space is located is owned by an entity in which a member of GoSolutions
Equity, LLC (a related party) owns an interest.

TBS has a
related party operating lease with Perimeter Center Partners for the rental of
the land and building occupied by TBS. The lease, as amended, commenced on
February 1, 2004 and has a term of six years, with monthly payments of $6,200.
The Company has executed a Guaranty with respect to the lease. Perimeter Center
Partners is owned by Stephen A. Garner and James L. Campbell, who are each
employees and stockholders of the Company and the former owners of TBS.

TBS has a related party capital
lease with Perimeter Center Partners for an inserting machine. The lease
commenced on May 19, 2007 and ends on January 31, 2010. Monthly payments are
$1,746. The Company has executed a Guaranty with respect to the lease.

On August 1, 2008 and in connection with the acquisition of Questys,
the Company issued 22,000,000 shares of its common stock to Vojin
Hadzi-Pavlovic and Gloria Hadzi-Pavlovic (the Pavlovics). These shares were
valued at $0.025 per share (the estimated fair value on the measurement date)
and recorded as additional purchase price.

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On August 1,
2008 and in connection with the acquisition of Questys, the Company issued a
secured promissory note to the Pavlovics in the amount of $900,000 (the
Pavlovic Note). The Pavlovics are a related party as a result of the common
stock issued to them by the Company in connection with the acquisition of
Questys. The Pavlovic Note is non-interest bearing and may be prepaid in whole
or in part at any time without penalty and is due on August 1, 2011. Principal
payments are due in three equal annual installments of $300,000 each on August
1, 2009, August 1, 2010, and August 1, 2011. The Pavlovic Note is secured by
certain assets of Questys as defined in a Security Agreement dated as of August
1, 2008. Payment obligations under the Pavlovic Note are subordinate in certain
respects to the rights of the Private Bank of the Peninsula to the extent set
forth in a Subordination Agreement dated as of August 1, 2008.

Prior to
August 1, 2008 (effective date of acquisition of Questys), the Pavlovics made
aggregate advances to Questys in the amount of $115,000, which were assumed in
the acquisition (the Pavlovic Shareholder Debt). The Pavlovic Shareholder
Debt is non-interest bearing and the Company and the Pavlovics have agreed to
the repayment of the outstanding balance as follows: (i) $35,000 on or before
August 1, 2009, (ii) $40,000 on or before August 1, 2010, and (iii) $40,000 on
or before the August 1, 2011.

The Company
funded the requirement for the initial $300,000 payment for the purchase of QSI
from the proceeds of a $300,000 related party secured promissory note offering
subscribed to by The Silver Lake Group, LLC (SLG) on August 4, 2008 (the SLG
Note). SLG is owned by Ricardo A. Salas. Mr. Salas is a Director of the
Company. The SLG Note was originally due on October 31, 2008 and bore interest
at a rate of nine percent (9%) per annum through October 31, 2008.

On October 30,
2008, the Company and SLG entered into an Amendment to Secured Promissory Note
(Amendment) to modify the maturity date, interest rate, and repayment terms
of the SLG Note. As of October 31, 2008, the remaining principal balance of the
SLG Note, as amended, was $250,000 and no interest was outstanding. Pursuant to
the Amendment, the SLG Note matures on March 31, 2009 and bears interest from
November 1, 2008 at a rate of twelve percent (12%) per annum. The SLG Note will
be repaid in a series of five monthly installments of principal and interest on
each of November 28, 2008, December 31, 2008, January 30, 2009, February 27,
2009, and March 31, 2009. The SLG Note is secured by the accounts receivable of
GoSolutions, Inc., a wholly-owned subsidiary of the Company, as defined in a
Security Agreement dated as of August 1, 2008. Payment obligations under the
SLG Note are subordinate in certain respects to the rights of the Private Bank
of the Peninsula to the extent set forth in a Subordination Agreement to be
entered into as of August 1, 2008. As of February 23, 2009, the outstanding
principal balance due pursuant to the SLG note was approximately $50,000.

On November
17, 2008, the Company issued 2,500,000 shares of its common stock to K. Mason
Conner pursuant to the 2002 Equity Incentive Plan. Mr. Conner is an officer and
director of the Company. These shares were valued at $0.015 per share (the
estimated fair value on the measurement date) and recorded as compensation
expense.

On November
17, 2008, the Company issued 2,000,000 shares of its common stock to H. Jay
Hill pursuant to the 2002 Equity Incentive Plan. Mr. Hill is and officer and
director of the Company. These shares were valued at $0.015 per share (the
estimated fair value on the measurement date) and recorded as compensation
expense.

On November
17, 2008, the Company issued 1,000,000 shares of its common stock to Michael A.
Richard pursuant to the 2002 Equity Incentive Plan. Mr. Richard is an officer
of the Company. These shares were valued at $0.015 per share (the estimated
fair value on the measurement date) and recorded as compensation expense.

Board of Director Independence

The standards
relied upon by the Board of Directors in affirmatively determining whether a
director is independent are those of the Nasdaq, which include the following
objective standards:

| |                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) a
 director who is an employee, or whose immediate family member (defined as a
 spouse, parent, child, sibling, father- and mother-in-law, son- and
 daughter-in-law and anyone, other than a domestic employee, sharing the
 directors home) is an executive officer of the Company, would not be
 independent for a period of three years after termination of such
 relationship;

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) a
 director who receives, or whose immediate family member receives, payments of
 more than $120,000 (or one percent of the average of our total assets at
 year-end for the last three completed fiscal years, whichever is greater)
 during any period of twelve consecutive months from the Company, except for
 certain permitted payments, would not be independent for a period of three
 years after ceasing to receive such amount;                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (c) a
 director who is or who has an immediate family member who is, a current
 partner of the Companys outside auditor or who was, or who has an immediate
 family member who was, a partner or employee of the Companys outside auditor
 who worked on the Companys audit at any time during any of the past three
 years would not be independent until a period of three years after the
 termination of such relationship;                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (d) a
 director who is, or whose immediate family member is, employed as an
 executive officer of another company where any of the Companys present
 executive officers serve on the other companys compensation committee would
 not be independent for a period of three years after the end of such
 relationship; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (e) a
 director who is, or who has an immediate family member who is, a partner in,
 or a controlling shareholder or an executive officer of any organization that
 makes payments to, or receives payments from, the Company for property or
 services in an amount that, in any single fiscal year, exceeds the greater of
 $200,000, or 5% of such other companys consolidated gross revenues, would
 not be independent until a period of three years after falling below such
 threshold.. In addition, no director will qualify as independent unless the
 Board affirmatively determines that the director has no material relationship
 with the Company (either, directly or as a partner, shareholder or officer of
 an organization that has a relationship with the Company).

The Board of
Directors, in applying the above-referenced standards, has affirmatively
determined that the Companys current independent directors are: J. Thomas
Zender and Ricardo A. Salas.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES.

The following
table sets forth fees billed to us by our auditors during the fiscal years
ended December 31, 2008 and 2007 for: (i) services rendered for the audit of
our annual financial statements and the review of our quarterly financial
statements, (ii) services by our auditors that are reasonably related to the
performance of the audit or review of our financial statements and that are not
reported as Audit Fees, including procedures related to our acquisition of
Questys (iii) services rendered in connection with tax compliance, tax advice,
and tax planning, and (iv) all other fees for services rendered. All Other
Fees consisted of fees related to our proxy statements, registration
statements, SEC comment letters, and press releases.

|      |                     |  |   |         |  |   |        
|----- | ------------------- |  | - | ------- |  | - | -------
|      |                     |  |   | 2008    |  |   | 2007   
|(i)   | Audit Fees          |  | $ | 195,000 |  | $ | 205,000
|(ii)  | Audit
 Related Fees |  |   | 33,000  |  |   | -      
|(iii) | Tax Fees            |  |   | 40,000  |  |   | 40,000 
|(iv)  | All Other
 Fees     |  |   | -       |  |   | -      
|      | Total               |  | $ | 268,000 |  | $ | 245,000

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ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1 |  | Agreement
 and Plan of Merger dated January 31, 2004 by and among VillageEDOCS,
 VillageEDOCS Merger Sub, Inc., Tailored Business Systems, Inc., Stephen A.
 Garner, and James L. Campbell previously filed as Exhibit 2.1 to the
 Companys Current Report on Form 8-K filed on February 18, 2004 and incorporated
 herein by reference. **                      
| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | 2.2 |  | Plan of
 Internal Restructuring previously filed as Exhibit B to the Companys
 Schedule 14C Information Statement filed on July 23, 2004 and incorporated
 herein by reference. **                                                                                                                                                                               
| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | 2.3 |  | Stock
 Purchase Agreement dated as of April 1, 2005 and executed April 15, 2005 by
 and among VillageEDOCS Acquisition Corp, Phoenix Forms, Inc., and Its
 Shareholders. Previously filed as Exhibit 2.1 to the Companys Current Report
 on Form 8-K filed on April 19, 2005.
 **                                                                                
| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | 2.4 |  | Merger
 Agreement, dated as of February 17, 2006, by and among VillageEDOCS, VEDO
 Merger Sub, Inc., GoSolutions, Inc. and certain stockholders of GoSolutions.
 Previously filed as Exhibit 2.1 to the Companys Current Report on Form 8-K
 filed on February 21, 2006. **                                                                                      
| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | 2.5 |  | Articles of
 Merger and Plan of Merger. Previously filed as Exhibit 99.2 to the Companys
 Current Report on Form 8-K filed on May 4, 2006. **                                                                                                                                                                                                                    
| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | 2.6 |  | Assets
 Purchase Agreement dated December 10, 2007 by and between Phoenix Forms, Inc.
 and DocPath Corp. Previously filed as Exhibit 2.1 to the Companys Current
 Report on Form 8-K filed on December 11, 2007. **                                                                                                                                              
| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | 2.7 |  | Assets
 Purchase Agreement dated December 10, 2007 by and between Phoenix Forms, Inc.
 and DocPath Corp. Previously filed as Exhibit 2.1 to the Companyss Current
 Report on Form 8-K filed on December 11, 2007.**                                                                                                                                              
| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | 2.8 |  | Stock
 Purchase Agreement dated as of August 1, 2008 by and among VillageEDOCS, Inc.
 and Decision Management Company, Inc. d/b/a Questys Solutions, Inc. and Its
 Sole Shareholder, Vojin Hadzi-Pavlovic and Gloria Hadzi-Pavlovic, Tenants In
 Common. Previously filed as Exhibit 99.1 to the Companys Current Report on
 Form 8-K filed on August 6, 2008. **
| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | 3.1 |  | Articles of
 Incorporation, as amended. Previously filed with the Companys Form 10-SB
 filed on August 29, 2000. **                                                                                                                                                                                                                                              
| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | 3.2 |  | By-laws.
 Previously filed with the Companys Form 10-SB filed on August 29, 2000. **                                                                                                                                                                                                                                                                             
| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | 3.3 |  | Article of
 Amendment to Articles of Incorporation to increase authorized number of
 common shares. Previously filed with the Companys 14C Information Statement
 filed on July 23, 2004. **                                                                                                                                                                     
| |     |  |                                                                                                                                                                                                                                                                                                                                                                   
| | 3.4 |  | Article of
 Amendment to Articles of Incorporation to increase authorized number of
 common shares and to create a class of preferred stock. Previously filed with
 the Companys 14C Information Statement filed on June 7, 2005. **                                                                                                                             

65

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| |     |  |                                                                                                                                                                                                                                                                                                                             
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.5 |  | Form of
 Certificate of Designations of Preferences, Rights and Limitations of Series
 A Convertible Preferred Stock. Previously filed as Exhibit 4.8 to the
 Companys Current Report on Form 8-K filed on April 19, 2005. **                                                                                              
| |     |  |                                                                                                                                                                                                                                                                                                                             
| | 3.6 |  | Certificate
 of Amendment of Articles of Incorporation to increase authorized number of
 common shares. Previously filed with the Companys Current Report on Form 8-K
 filed on January 20, 2006. **                                                                                                                       
| |     |  |                                                                                                                                                                                                                                                                                                                             
| | 3.7 |  | Form of
 Certificate of Incorporation of VillageEDOCS, Inc. Previously filed with the
 Companys Definitive Information Statement on Schedule 14A filed on May 24,
 2007. **                                                                                                                                                
| |     |  |                                                                                                                                                                                                                                                                                                                             
| | 3.8 |  | Form of
 Bylaws of VillageEDOCS, Inc. Previously filed with the Companys Definitive
 Information Statement on Schedule 14A filed on May 24, 2007.**                                                                                                                                                                        
| |     |  |                                                                                                                                                                                                                                                                                                                             
| | 4.1 |  | Letter
 Agreement dated July 30, 2002 by and between the Company, C. Alan Williams,
 and Joan P. Williams previously filed as Exhibit 4.1 to the Companys
 Quarterly Report on Form 10-QSB for the period ended June 30, 2002 and
 incorporated herein by reference. **                                                    
| |     |  |                                                                                                                                                                                                                                                                                                                             
| | 4.2 |  | Form of
 Unsecured Convertible Promissory Note. Previously filed as Exhibit 4.5 to the
 Registrants Quarterly Report on Form 10-QSB filed with the Securities and
 Exchange Commission on May 15, 2002 and incorporated herein by reference. **                                                                            
| |     |  |                                                                                                                                                                                                                                                                                                                             
| | 4.3 |  | Form of
 Convertible Secured Promissory Note. Previously filed as Exhibit 4.6 to the
 Registrants Quarterly Report on Form 10-QSB filed with the Securities and
 Exchange Commission on May 15, 2002 and incorporated herein by reference. **                                                                              
| |     |  |                                                                                                                                                                                                                                                                                                                             
| | 4.4 |  | 2002 Equity
 Incentive Plan dated as of January 30, 2002. Previously filed as Exhibit 4.1
 to the Registrants Quarterly Report on Form 10-QSB filed with the Securities
 and Exchange Commission on May 15, 2002 and incorporated herein by reference. **                                                                  
| |     |  |                                                                                                                                                                                                                                                                                                                             
| | 4.5 |  | Form of
 Stock Option Agreement. Previously filed as Exhibit 4.2 to the Registrants
 Quarterly Report on Form 10-QSB filed with the Securities and Exchange
 Commission on May 15, 2002 and incorporated herein by reference. **                                                                                           
| |     |  |                                                                                                                                                                                                                                                                                                                             
| | 4.6 |  | Promissory
 Note Modification Agreement dated May 9, 2002 by and among the Company, Joan
 P. Williams and C. Alan Williams. Previously filed as Exhibit 4.3 to the
 Registrants Quarterly Report on Form 10-QSB filed with the Securities and
 Exchange Commission on May 15, 2002 and incorporated herein by reference. **
| |     |  |                                                                                                                                                                                                                                                                                                                             
| | 4.7 |  | Security
 Agreement dated May 9, 2002 by and among the Company, Joan P. Williams and C.
 Alan Williams. Previously filed as Exhibit 4.4 to the Registrants Quarterly
 Report on Form 10-QSB filed with the Securities and Exchange Commission on
 May 15, 2002 and incorporated herein by reference. **                    
| |     |  |                                                                                                                                                                                                                                                                                                                             
| | 4.8 |  | Promissory
 Note to Stephen A. Garner dated February 17, 2004 previously filed as Exhibit
 4.1 to the Companys Current Report on Form 8-K filed on February 18, 2004
 and incorporated herein by reference.
 **                                                                                                            

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| |      |  |                                                                                                                                                                                                                                                                                 
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.9  |  | Promissory
 Note to James L. Campbell dated February 17, 2004 previously filed as Exhibit
 4.2 to the Companys Current Report on Form 8-K filed on February 18, 2004
 and incorporated herein by reference.
 **                                                                
| |      |  |                                                                                                                                                                                                                                                                                 
| | 4.10 |  | Guaranty by
 Tailored Business Systems, Inc. to Stephen A. Garner dated February 17, 2004
 previously filed as Exhibit 4.3 to the Companys Current Report on Form 8-K
 filed on February 18, 2004 and incorporated herein by reference. **                                     
| |      |  |                                                                                                                                                                                                                                                                                 
| | 4.11 |  | Guaranty by
 Tailored Business Systems, Inc. to James L. Campbell dated February 17, 2004
 previously filed as Exhibit 4.4 to the Companys Current Report on Form 8-K
 filed on February 18, 2004 and incorporated herein by reference. **                                     
| |      |  |                                                                                                                                                                                                                                                                                 
| | 4.12 |  | Form of
 Security Agreement dated February 17, 2004 by and between Tailored Business
 Systems, Inc. and Stephen A. Garner previously filed as Exhibit 4.5 to the
 Companys Current Report on Form 8-K filed on February 18, 2004 and
 incorporated herein by reference. **     
| |      |  |                                                                                                                                                                                                                                                                                 
| | 4.13 |  | Form of
 Security Agreement dated February 17, 2004 by and between Tailored Business
 Systems, Inc. and James L. Campbell previously filed as Exhibit 4.6 to the
 Companys Current Report on Form 8-K filed on February 18, 2004 and
 incorporated herein by reference. **     
| |      |  |                                                                                                                                                                                                                                                                                 
| | 4.14 |  | Registration
 Rights Agreement dated February 17, 2004 by and between VillageEDOCS and
 Stephen A. Garner previously filed as Exhibit 4.7 to the Companys Current
 Report on Form 8-K filed on February 18, 2004 and incorporated herein by
 reference. **                     
| |      |  |                                                                                                                                                                                                                                                                                 
| | 4.15 |  | Registration
 Rights Agreement dated February 17, 2004 by and between VillageEDOCS and
 James L. Campbell previously filed as Exhibit 4.8 to the Companys Current
 Report on Form 8-K filed on February 18, 2004 and incorporated herein by
 reference. **                     
| |      |  |                                                                                                                                                                                                                                                                                 
| | 4.16 |  | Form of
 Stock Pledge Agreement dated February 17, 2004 by and between Tailored
 Business Systems, Inc. and Stephen A. Garner previously filed as Exhibit 4.9
 to the Companys Current Report on Form 8-K filed on February 18, 2004 and
 incorporated herein by reference. ** 
| |      |  |                                                                                                                                                                                                                                                                                 
| | 4.17 |  | Form of
 Stock Pledge Agreement dated February 17, 2004 by and between Tailored
 Business Systems, Inc. and James L. Campbell previously filed as Exhibit 4.10
 to the Companys Current Report on Form 8-K filed on February 18, 2004 and
 incorporated herein by reference. **
| |      |  |                                                                                                                                                                                                                                                                                 
| | 4.18 |  | Notice of Intent
 to Exercise Conversion Right dated February 10, 2005 by Joan P. Williams and
 C. Alan Williams. Previously filed as Exhibit 4.5 to the Companys Current
 Report on Form 8-K filed on February 14, 2005. **                                                   
| |      |  |                                                                                                                                                                                                                                                                                 
| | 4.19 |  | Note
 Purchase Agreement dated April 13, 2005 by and between VillageEDOCS and
 Barron Partners LP. Previously filed as Exhibit 4.5 to the Companys Current
 Report on Form 8-K filed on April 19, 2005. **                                                                     
| |      |  |                                                                                                                                                                                                                                                                                 
| | 4.20 |  | Convertible
 Note to Barron Partners LP dated April 13, 2005. Previously filed as Exhibit
 4.6 to the Companys Current Report on Form 8-K filed on April 19, 2005. **                                                                                                          

67

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| |      |  |                                                                                                                                                                                                                                                                                                             
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.21 |  | Registration
 Rights Agreement dated April 13, 2005 by and between VillageEDOCS and Barron
 Partners LP. Previously filed as Exhibit 4.7 to the Companys Current Report
 on Form 8-K filed on April 19, 2005.
 **                                                                                          
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.22 |  | Form of
 Certificate of Designations of Preferences, Rights and Limitations of Series
 A Convertible Preferred Stock. Previously filed as Exhibit 4.8 to the
 Companys Current Report on Form 8-K filed on April 19,2005. **                                                                               
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.24 |  | Form of Note
 Assignment. Previously filed as Exhibit 4.1 to the Companys Current Report
 on Form 8-K filed on July 6, 2005. **                                                                                                                                                                            
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.25 |  | Form of
 Promissory Note Modification Agreement. Previously filed as Exhibit 4.2 to
 the Companys Current Report on Form 8-K filed on July 6, 2005. **                                                                                                                                                     
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.26 |  | Form of
 Notice of Intent to Exercise Conversion Right. Previously filed as Exhibit
 4.3 to the Companys Current Report on Form 8-K filed on July 6, 2005. **                                                                                                                                              
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.27 |  | Notice of
 conversion by Barron Partners LP dated September 30, 2005. Previously filed
 as Exhibit 4.6 to the Companys Current Report on Form 8-K filed on October
 5, 2005. **                                                                                                                            
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.28 |  | Form of
 Convertible Secured Promissory Note by and among C. Alan Williams, Joan P.
 Williams, and the Company previously filed as Exhibit 4.19 to the Companys
 Annual Report on Form 10-KSB filed on April 14, 2006 and incorporated herein
 by reference. **                                            
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.29 |  | Convertible
 Secured Promissory Note dated February 16, 2004 by and among C. Alan
 Williams, Joan P. Williams, and the Company previously filed as Exhibit 4.20
 to the Companys Annual Report on Form 10-KSB filed on April 14, 2006 and
 incorporated herein by reference. **                            
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.30 |  | Notice of
 conversion by Barron Partners LP dated October 21, 2005. Previously filed as
 Exhibit 4.1 to the Companys Current Report on Form 8-K filed on October 24,
 2005 and incorporated herein by reference. **                                                                                        
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.31 |  | Notice of
 conversion by Barron Partners LP dated March 8, 2006. Previously filed as
 Exhibit 4.1 to the Companys Current Report on Form 8-K filed on March 9,
 2006 and incorporated herein by reference. **                                                                                              
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.32 |  | Registration
 Rights Agreement dated as of April 28, 2006 by and among VillageEDOCS and the
 principal stockholders of GoSolutions, Inc. Previously filed as Exhibit 99.5
 to the Companys Current Report on Form 8-K filed on May 4, 2006. **                                                             
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.33 |  | Principal
 VEDO Stockholders Voting Agreement dated as of April 28, 2006 by and among
 Barron Partners, LP, C. Alan Williams, Joan P. Williams and GoSolutions, Inc.
 Previously filed as Exhibit 99.6 to the Companys Current Report on Form 8-K
 filed on May 4, 2006. **                                
| |      |  |                                                                                                                                                                                                                                                                                                             
| | 4.34 |  | Indemnity/Contribution
 Agreement effective April 30, 2006, by and among VillageEDOCS, GoSolutions
 Equity, LLC (the LLC), and the principals of the LLC identified on the
 signature page thereto. Previously filed as Exhibit 99.7 to the Companys
 Current Report on Form 8-K filed on May 4, 2006. **

68

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| |      |  |                                                                                                                                                                                                                                                                                                                                    
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.35 |  | Settlement
 and Release Agreement dated as of April 28, 2006 by and among VillageEDOCS,
 GoSolutions, Inc., The Zant Group Trust and Louis J. Zant. Previously filed
 as Exhibit 99.9 to the Companys Current Report on Form 8-K filed on May 4,
 2006. **                                                                        
| |      |  |                                                                                                                                                                                                                                                                                                                                    
| | 4.36 |  | Second
 Extension Agreement dated as of April 28, 2006 by and between The Zant Group
 Trust and GoSolutions, Inc. Previously filed as Exhibit 99.9 to the Companys
 Current Report on Form 8-K filed on May 4, 2006. **                                                                                                           
| |      |  |                                                                                                                                                                                                                                                                                                                                    
| | 4.37 |  | Settlement and Release Agreement dated as of June 30, 2006, by and
 among VillageEDOCS, GoSolutions, Inc., Bruce H. Bennett and Sandra G.
 Bennett. Previously filed as Exhibit 10.1 to the Companys Current Report on
 Form 8-K filed on July 12, 2006. **                                                                       
| |      |  |                                                                                                                                                                                                                                                                                                                                    
| | 4.38 |  | Warrant Exchange Agreement dated as of November 20, 2006 by and
 between the Company and Barron Partners, LP. Previously filed as Exhibit 10.1
 to the Companys Amended Current Report on Form 8-K/A filed on November 22,
 2006.**                                                                                               
| |      |  |                                                                                                                                                                                                                                                                                                                                    
| | 4.39 |  | Promissory
 Note of VillageEDOCS, Inc. dated August 1, 2008 for $900,000 held by Vojin
 Hadzi-Pavlovic and Gloria Hadzi-Pavlovic, Tenants In Common. Previously filed
 as Exhibit 99.2 to the Companys Current Report on Form 8-K filed on August
 6, 2008. **                                                                    
| |      |  |                                                                                                                                                                                                                                                                                                                                    
| | 4.40 |  | Security
 Agreement dated as of August 1, 2008, by and among VillageEDOCS, Inc,
 Decision Management Company, Inc. d/b/a Questys Solutions, Inc. and Vojin
 Hadzi-Pavlovic and Gloria Hadzi-Pavlovic, Tenants In Common. Previously filed
 as Exhibit 99.3 to the Companys Current Report on Form 8-K filed on August
 6, 2008. **
| |      |  |                                                                                                                                                                                                                                                                                                                                    
| | 4.41 |  | Subordination
 Agreement dated as of August 1, 2008 by and between The Private Bank of the
 Peninsula and Vojin Hadzi-Pavlovic and Gloria Hadzi-Pavlovic, Tenants In
 Common. Previously filed as Exhibit 99.4 to the Companys Current Report on
 Form 8-K filed on August 6, 2008. **                                            
| |      |  |                                                                                                                                                                                                                                                                                                                                    
| | 4.42 |  | Form of
 Promissory Note of VillageEDOCS, Inc. dated August 1, 2008 for $300,000 held
 by The Silver Lake Group, LLC. Previously filed as Exhibit 99.6 to the
 Companys Current Report on Form 8-K filed on August 6, 2008. **                                                                                                    
| |      |  |                                                                                                                                                                                                                                                                                                                                    
| | 4.43 |  | Form of
 Security Agreement dated as of August 1, 2008, by and among VillageEDOCS,
 Inc, GoSolutions, Inc., and The Silver Lake Group LLC. Previously filed as
 Exhibit 99.7 to the Companys Current Report on Form 8-K filed on August 6,
 2008. **                                                                              
| |      |  |                                                                                                                                                                                                                                                                                                                                    
| | 4.44 |  | Form of
 Subordination Agreement dated as of August 1, 2008 by and between The Private
 Bank of the Peninsula and The Silver Lake Group LLC. Previously filed as
 Exhibit 99.8 to the Companys Current Report on Form 8-K filed on August 6,
 2008. **                                                                            
| |      |  |                                                                                                                                                                                                                                                                                                                                    
| | 4.45 |  | Amendment to
 Secured Promissory Note dated October 31, 2008 by and between VillageEDOCS,
 Inc. and The Silver Lake Group, LLC. Previously filed as Exhibit 99.1 to the
 Companys Current Report on Form 8-K filed on October 31, 2008. **                                                                                        

69

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Table of Contents

| |       |  |                                                                                                                                                                                                                                                                                             
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.1  |  | General
 Release and Noncompetition Agreement dated February 17, 2004 by Stephen A.
 Garner in favor of Tailored Business Systems, Inc. previously filed as
 Exhibit 10.3 to the Companys Current Report on Form 8-K filed on February
 18, 2004 and incorporated herein by reference. **  
| |       |  |                                                                                                                                                                                                                                                                                             
| | 10.2  |  | General
 Release and Noncompetition Agreement dated February 17, 2004 by James L.
 Campbell in favor of Tailored Business Systems, Inc. previously filed as
 Exhibit 10.4 to the Companys Current Report on Form 8-K filed on February
 18, 2004 and incorporated herein by reference. **  
| |       |  |                                                                                                                                                                                                                                                                                             
| | 10.3  |  | Lease
 Agreement dated February 17, 2004 by and between Perimeter Center Partners
 and Tailored Business Systems, Inc. previously filed as Exhibit 10.5 to the
 Companys Current Report on Form 8-K filed on February 18, 2004 and
 incorporated herein by reference. **                   
| |       |  |                                                                                                                                                                                                                                                                                             
| | 10.4  |  | Release of
 Claims Agreement dated as of April 1, 2005 by Alexander Riess in favor of
 Phoenix Forms, Inc. Previously filed as Exhibit 10.3 to the Companys Current
 Report on Form 8-K filed on April 19, 2005. **                                                                        
| |       |  |                                                                                                                                                                                                                                                                                             
| | 10.5  |  | Release of
 Claims Agreement dated as of April 1, 2005 by William R. Falcon in favor of
 Phoenix Forms, Inc. Previously filed as Exhibit 10.4 to the Companys Current
 Report on Form 8-K filed on April 19, 2005. **                                                                      
| |       |  |                                                                                                                                                                                                                                                                                             
| | 10.6  |  | Executive
 Employment Agreement, dates as of March 1, 2006, by and between the Company
 and Jerry T. Kendall. Previously files as Exhibit 10.1 to the Companys
 Current Report on Form 8-K filed on March 1, 2006. **                                                                      
| |       |  |                                                                                                                                                                                                                                                                                             
| | 10.7  |  | Thor
 Bendickson Employment Agreement effective as of May 1, 2006. Previously filed
 as Exhibit 99.14 to the Companys Current Report on Form 8-K filed on May 4,
 2006. **                                                                                                                 
| |       |  |                                                                                                                                                                                                                                                                                             
| | 10.8  |  | Patent
 License Agreement, dated as of May 12, 2006, by and between VillageEDOCS and
 Catch Curve, Inc. Previously filed as Exhibit 10.1 to the Companys Current
 Report on Form 8-K filed on May 16, 2006. **                                                                             
| |       |  |                                                                                                                                                                                                                                                                                             
| | 10.9  |  | Office Lease
 Agreement effective June 1, 2007 by and between the Company and Tustin Avenue
 Investors, LLC. Previously filed as Exhibit 10.1 to the Companys Current
 Report on Form 8-K filed on April 25,2007. **                                                                       
| |       |  |                                                                                                                                                                                                                                                                                             
| | 10.10 |  | Placement
 Agency Agreement effective October 13, 2006 by and between the Company and
 Stonegate Securities, Inc. Previously filed as Exhibit 10.28 to the Companys
 Quarterly Report on Form 10-QSB filed on August 14, 2007. **                                                          
| |       |  |                                                                                                                                                                                                                                                                                             
| | 10.11 |  | Engagement
 Agreement effective July 10, 2007 by and between the Company and GemStone
 Securities, LLC. Previously filed as Exhibit 10.29 to the Companys Quarterly
 Report on Form 10-QSB filed on August 14, 2007. **                                                                    
| |       |  |                                                                                                                                                                                                                                                                                             
| | 10.12 |  | Settlement
 Agreement dated June 6, 2007 by and among Jeffrey H. Mims, VarTec Telecom,
 Inc, Excel Telecommunications, Inc., VarTec Solutions, Inc., and GoSolutions,
 Inc. Previously filed as Exhibit 10.29 to the Companys Quarterly Report on
 Form 10-QSB filed on August 14, 2007. **

70

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Table of Contents

| |       |  |                                                                                                                                                                                                                                                                                                                 
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.13 |  | Form of Loan
 and Security Agreement dated February 6, 2008 by and between The Private Bank
 of the Peninsula and each of the Registrant, MessageVision, Inc., and
 Tailored Business Systems, Inc. Previously filed as Exhibit 10.1 to the
 Companys Current Report on Form 8-K filed on February 11, 2008. **
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 10.14 |  | Employment
 Agreement dated as of August 1, 2008 by and between VillageEDOCS, Inc. and
 Andre Hadzi-Pavlovic. Previously filed as Exhibit 99.5 to the Companys
 Current Report on Form 8-K filed on August 6, 2008. **                                                                                         
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 10.15 |  | Employment
 Agreement dated November 13, 2008 by and between VillageEDOCS, Inc. and K.
 Mason Conner. Previously filed as Exhibit 10.15 to the Companys Quarterly
 Report on Form 10-Q filed on November 14, 2008. **                                                                                          
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 10.16 |  | Employment
 Agreement dated November 13, 2008 by and between VillageEDOCS, Inc. and H.
 Jay Hill. Previously filed as Exhibit 10.16 to the Companys Quarterly Report
 on Form 10-Q filed on November 14, 2008.**                                                                                               
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 10.17 |  | Employment
 Agreement dated November 13, 2008 by and between VillageEDOCS, Inc. and
 Michael A. Richard. Previously filed as Exhibit 10.17 to the Companys
 Quarterly Report on Form 10-Q filed on November 14, 2008. **                                                                                       
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 10.18 |  | First
 Amendment to Loan and Security Agreement dated as of February 24, 2009 by and
 between The Private Bank of the Peninsula and the Registrant. Previously
 filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
 March 6, 2009. **                                                   
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 14.1  |  | Code of
 Ethics. Previously filed as Exhibit 14.1 to the Companys Annual Report on
 Form 10-KSB filed on March 29, 2004 and incorporated herein by reference. **                                                                                                                                               
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 21.1  |  | Subsidiaries
 of the Registrant.*                                                                                                                                                                                                                                                                               
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 31.1  |  | Certification
 Under Section 302 of The Sarbanes-Oxley Act of 2002 signed and dated March
 31, 2009 by K. Mason Conner, Chief Executive Officer.*                                                                                                                                                               
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 31.2  |  | Certification
 Under Section 302 of The Sarbanes-Oxley Act of 2002 signed and dated March
 31, 2009 by Michael A. Richard, Chief Financial Officer.*                                                                                                                                                            
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 32.1  |  | Certification
 Pursuant To 18 U.S.C. §1350, As Adopted Pursuant To Section 906 of the
 Sarbanes-Oxley Act of 2002 signed and dated March 31, 2009 by K. Mason
 Conner, Chief Executive Officer.***                                                                                                              
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 32.2  |  | Certification
 Pursuant To 18 U.S.C. §1350, As Adopted Pursuant To Section 906 of the
 Sarbanes-Oxley Act of 2002 signed and dated March 31, 2009 by Michael A.
 Richard, Chief Financial Officer.***                                                                                                           
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | 99.1  |  | VillageEDOCS, Inc. Consolidated Financial Statements for the Fiscal
Years Ended December 31, 2008 and 2007 together with Report of Independent Registered Public Accounting Firm.*                                                                                                                              
| |       |  |                                                                                                                                                                                                                                                                                                                 
| | *     |  | Filed herewith                                                                                                                                                                                                                                                                                                  
| | **    |  | Previously
 filed                                                                                                                                                                                                                                                                                               
| | ***   |  | Furnished
 herewith                                                                                                                                                                                                                                                                                             

71

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SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, VillageEDOCS, Inc. has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.

| |                               |                         | 
| | ----------------------------- | ----------------------- | 
| | VillageEDOCS,
 Inc.          
| | (Registrant)                 
| |                               |                        
| | VillageEDOCS,
Inc.           
| |                               |                        
| | By:                           | /s/ Michael
 A. Richard | 
| | Michael A.
 Richard          
| | Chief
 Financial Officer and 
| | Principal
 Accounting Officer
| |                               |                        
| | Date: March
 31, 2009        

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Annual Report
on Form 10-K has been signed by the following persons below on behalf of the
registrant and in the capacities and on the dates indicated.

| |                         |  |                               |  |               
| | ----------------------- |  | ----------------------------- |  | --------------
| | SIGNATURE               |  | TITLE                         |  | DATE          
| |                         |  |                               |  |               
| | /s/ K. Mason Conner     |  |                               |  | March 31, 2009
| | K.
 Mason Conner        |  | Director,
 President, and     |  |               
| |                         |  | Chief
 Executive Officer      |  |               
| |                         |  |                               |  |               
| | /s/
 Michael A. Richard |  |                               |  | March 31, 2009
| | Michael
 A. Richard     |  | Chief
 Financial Officer,     |  |               
| |                         |  | Principal
 Accounting Officer |  |               
| |                         |  |                               |  |               
| | /s/
 J. Thomas Zender   |  |                               |  | March 31, 2009
| | J.
 Thomas Zender       |  | Director,                     |  |               
| |                         |  | Chairman of
 the Board        |  |               
| |                         |  |                               |  |               
| | /s/
 Ricardo A. Salas   |  |                               |  | March 31, 2009
| | Ricardo A.
 Salas       |  | Director                      |  |               
| |                         |  |                               |  |               
| | /s/
 H. Jay Hill        |  |                               |  | March 31, 2009
| | H.
 Jay Hill            |  | Executive
 Vice President,    |  |               
| |                         |  | Director                      |  |               

72

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