UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

Form10-QSB

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

For the quarterlyperiod ended September 30, 2002

OR

**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

For the transitionperiod from_________, 20__, to________, 20__.

 

Commission FileNumber: 000-31395

 

**VillageEDOCS**

 

| California                                                       | 33-0668917                                       |
|------------------------------------------------------------------|--------------------------------------------------|
| --------------------------------------------------------         | ------------------------------------------------ |
| (State or Other  Jurisdiction of Incorporation or Organization)  | I.R.S. Employer  Identification Number           |
|                                                                  |                                                  |
| 14471 Chambers  Road, Suite 105, Tustin, California              | 92780                                            |
| ---------------------------------------------------------------- | ----------------------------                     |
| (Address of  principal executive offices)                        | (Zip Code)                                       |

Registrant's telephone number, including areacode:  714) 734-1030

Indicate by check mark whether the Registrant (1) has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the Registrant was required to file such reports), and has been subject tosuch filing requirements for the past 90 days.
| X  | YES |   | NO |
|---------|-----|--------|----|
| ----    |     | ----   |    |

There were 29,981,487 shares of the Registrant's commonstock outstanding as of October 31, 2002.
| Transitional Small Business Format  (check one) | YES |     | NO | X  |
|-------------------------------------------------|-----|-----|----|---------|
|                                                 |     | --- |    | ---     |

----

**VillageEDOCS**

 

# PART I - FINANCIAL INFORMATION

 

# ITEM 1 - FINANCIAL STATEMENTS

|   |                                                               |   |
|---|---------------------------------------------------------------|---|
|   | Balance Sheet for September 30, 2002 (Unaudited)              | 1 |
|   |                                                               |   |
|   | Statements of Operations for the three and nine months  ended |   |
|   | September 30, 2002 and 2001  (Unaudited)                      | 2 |
|   |                                                               |   |
|   | Statements of Cash Flows for the three and nine months  ended |   |
|   | September 30, 2002 and 2001  (Unaudited)                      | 3 |
| . |                                                               |   |
|   | Notes to Unaudited Financial Statements                       | 4 |

 

 

 

----

# VillageEDOCS

**Balance Sheet**

**(Unaudited)**

|                                                                                     |        |                   September 30,                  |
|-------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                     |        |  2002                                                                                                                                 |
|                                                                                |        |  --------------------                                                                                                                 |
| ASSETS                                                                              |   |                                                                                                                                            |
| Current assets:                                                                |        |                                                                                                                                                 |
| Cash                                                                                |        |                     22,860             |
| Accounts receivable, net of allowance for doubtful    |        |                                                                                                                                                 |
| accounts of $58,000                                                       |        |                   120,296                        |
| Other current assets                                                      |        |                     10,456             |
|                                                                                     |        |  --------------------                                                                                                                 |
| Total current assets                                                      |        |                   153,612                        |
|                                                                                     |        |                                                                                                                                                 |
| Property and equipment, net                                          |        |                   218,816                        |
| Web site development costs, net                                 |        |                     70,935             |
| Other assets                                                                   |        |                     22,373             |
|                                                                                     |        |  --------------------                                                                                                                 |
|                                                                                     |        |  $               465,736                                   |
|                                                                                     |        |  =============                                                                                                                        |
| LIABILITIES AND STOCKHOLDERS' DEFICIT                                |        |                                                                                                                                                 |
| Current liabilities:                                                           |        |                                                                                                                                                 |
| Accounts payable                                                               |        |  $               236,056                                   |
| Accrued expenses                                                               |        |                   101,072                        |
| Current portion of capital lease obligations               |        |                     57,379             |
|                                                                                     |        |  --------------------                                                                                                                 |
|         Total current liabilities |        |                   394,507                        |
|                                                                                     |        |                                                                                                                                                 |
| Capital lease obligations, net of current portion     |        |                       6,989  |
| Convertible notes payable and accrued interest             |        |                                                                                                                                                 |
| payable to related parties                                           |        |                1,344,043                                        |
|                                                                                     |        | ----------------------                                                                                                                          |
|         Total liabilities              |        |                1,745,539                                        |
|                                                                                     |        |  ----------------------                                                                                                                    |
| Stockholders' Deficit:                                                         |        |                                                                                                                                                 |
| Common stock, no par value:                                |        |                                                                                                                                                 |
| Authorized -- 90,000,000 shares                                      |        |                                                                                                                                                 |
| Issued and outstanding -- 29,981,487 shares                |        |                6,805,550                                        |
| Additional paid-in capital                                                |        |                1,336,889                                        |
| Accumulated deficit                                                            |        |              (9,422,242)                                                       |
|                                                                                     |        |  --------------------                                                                                                                 |
| Total stockholders' deficit                                               |        |              (1,279,803)                                                       |
|                                                                                     |        |  --------------------                                                                                                                 |
|                                                                                     |        |  $               465,736                                   |
|                                                                                     |        |  =============                                                                                                                        |
|                                                                                     |        |                                                                                                                                                 |

See accompanying notes to unauditedfinancial statements

----

**VillageEDOCS**

**Statements of Operations**

(**Unaudited)**

|  |  |              Three Months Ended
               Nine Months Ended September 30,September 30,September 30,September 30,2002200120022001--------------------------------------------------------------------------------Net sales $             426,764  $             327,124  $          1,236,402  $             952,181 Cost of sales                228,236                 261,856                 652,316                 712,175 --------------------------------------------------------------------------------Gross profit                198,528                   65,268                 584,086                 240,006 --------------------------------------------------------------------------------Operating expenses:Product and technologydevelopment                126,557                 127,605                 314,186                 395,599 Sales and marketing                141,750                   83,441                 376,073                 332,396 General and administrative                178,144                 135,604                 519,762                 658,527 Depreciation and amortization                  29,069                   21,837                   87,740                   70,096 --------------------------------------------------------------------------------Total operating expenses                475,520                 368,487              1,297,761              1,456,618 --------------------------------------------------------------------------------Loss from operations              (276,992)              (303,219)               (713,675)           (1,216,612)Interest income                            -                             -                             -                          13 Interest expense                  30,745                   50,481                 135,860                 132,701 --------------------------------------------------------------------------------      Loss before provision for income taxes              (307,737)              (353,700)               (849,535)           (1,349,300)Provision for income taxes                            -                             -                        800                        800 --------------------------------------------------------------------------------Net loss $           (307,737) $           (353,700) $            (850,335) $        (1,350,100) =============  =============  =============  ============= Basic and diluted loss available tocommon stockholders per commonshare $                 (0.01) $                 (0.03) $                  (0.04) $                 (0.10) =============  =============  =============  ============= Weighted average shares outstanding           29,949,839            13,991,292            22,284,928            13,886,497  =============  =============  =============  ============= 
 

See accompanying notes to unaudited financial statements

**VillageEDOCS**

**Statements of Cash Flows**

**(Unaudited)**

                          Nine Months Ended September 30,September 30,20022001--------------------------------------------Cash Flows from Operating Activities:Net loss $              (850,335) $           (1,350,100)Adjustments to reconcile net loss to net cashused in operating activities:Depreciation and amortization
            87,740                     70,096 Provision for loss on doubtful accounts receivable                    48,593                     17,033       Estimated fair market value of stock options issued to non-employees for services rendered                    17,877                   170,320 Stock purchase warrants issued to employees forservices rendered                    25,565                               - Common stock issued to non-employees forservices rendered                      6,000                               - Changes in operating assets and liabilities:Accounts receivable                   (86,327)                   (63,187)Other current assets                              -                    (17,873)Accounts payable                      6,707                     65,746 Accrued expenses and other                  111,982                   137,528 ----------------------------------------Net cash used in operating activities                 (632,198)                 (970,437)---------------------------------------Cash Flows from Investing Activities:Purchases of property and equipment                   (39,005)                     (2,730)Web site development costs                   (88,946)                              -  ------------------- ---------------------Net cash used by investing activities                 (127,951)                     (2,730) ------------------- ---------------------Cash Flows from Financing Activities:Proceeds from convertible notes payable to related parties                  820,000                1,010,000 Principal payments under capital leases                   (78,441)                   (96,937)Proceeds from the exercise of warrants                      2,129                       1,510  ------------------- ---------------------Net cash provided by financing activities                  743,688                   914,573  ------------------- ---------------------Net change in cash                   (16,461)                   (58,594)Cash, beginning of period                    39,321                     82,266 -----------------------------------------Cash, end of period $                 22,860  $                 23,672  =============  ============= Supplemental disclosure of cash flow information -Cash paid during the period for:Interest $                   9,946  $                 17,184  =============  ============= Income taxes $                      800  $                      800  =============  ============= 
See accompanying notes to unaudited financial statements

**VillageEDOCS**

**Notes to Unaudited FinancialStatements - September 30, 2002**

 

**NOTE 1 - SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

** **

1       Management'sRepresentation

Themanagement of VillageEDOCS (the "Company") without audit has prepared thefinancial statements included herein. The accompanying unaudited financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America for interim financial information. Certain information and note disclosure normally included in thefinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been omitted.  In the opinion of the management of theCompany, all adjustments considered necessary for fair presentation of thefinancial statements have been included and were of a normal recurring nature,and the accompanying financial statements present fairly the financial positionas of September 30, 2002, and the results of operations and cash flows for thethree and nine months ended September 30, 2002 and 2001.

Itis suggested that these unaudited financial statements be read in conjunctionwith the audited financial statements and notes thereto for the year endedDecember 31, 2001, included in the Company's Annual Report on Form 10-KSB filedwith the Securities and Exchange Commission on March 29, 2002.  The interim results are not necessarilyindicative of the results for a full year.

2.      Backgroundand Organization

VillageEDOCS wasincorporated in 1995 in Delaware and reincorporated in California in 1997. TheCompany develops and markets internet-enabled fax services to organizationsthroughout the United States and internationally.

3.          GoingConcern

The accompanying financial statements have been preparedassuming that the Company will continue as a going concern. The Company has a workingcapital deficit and has incurred significant losses from operations in eachyear since inception.  The Company'slosses are continuing and are expected to continue until such time as theCompany is able to sufficiently expand its internet-enabled fax services. 

The Company's success is dependent upon numerous items,certain of which are the successful implementation and marketing of itsinternet-enabled fax services, its ability to obtain new customers in order toachieve levels of revenues adequate to support the Company's current and futurecost structure, and its success in obtaining financing for equipment andoperations, for which there is no assurance. Unanticipated problems, expenses,and delays are frequently encountered in establishing a new business.  These include, but are not limited to,competition, the need to develop customer support capabilities and marketexpertise, setbacks in product development, technical difficulties, marketacceptance and sales and marketing.  Thefailure of the Company to meet any of these conditions could have a materiallyadverse effect upon the Company and may force the Company to reduce or curtailoperations. No assurance can be given that the Company can, or will ever,operate profitably.

Until sufficient revenue levels are achieved, the Companywill require additional financing to support its operations. Such sources offinancing could include capital infusions, additional equity financing or debtofferings. Management plans to obtain convertible debt and equity financingfrom existing shareholders and equity financing from new shareholders duringthe remainder of 2002.  Management isactively pursuing both of these financing arrangements.  If the planned financings are obtained, theCompany believes it will have adequate cash to sustain operations until itbecomes profitable.  There can be noassurance that funding will be available on acceptable terms, if at all, orthat such funds, if raised, would enable the Company to achieve and maintainprofitable operations.

These factors, among others, raise substantial doubt aboutthe Company's ability to continue as a going concern.  The financial statements do not include any adjustments toreflect the possible future effects on the recoverability and classification ofassets or the classification of liabilities that might result from the outcomeof these uncertainties.

4.       Summaryof Significant Accounting Policies

Concentration of Credit Risk

The Company extends credit to its customers andperforms ongoing credit evaluations of such customers.  The Company does not obtain collateral tosecure its accounts receivable.  TheCompany evaluates its accounts receivable on a regular basis for collectibilityand provides for an allowance for potential credit losses as deemednecessary.  At September 30, 2002, theCompany has recorded an allowance for doubtful accounts of approximately$58,000.  One customer accounted forapproximately 11% of accounts receivable at September 30, 2002 and 2001.  One customer accounted for approximately 17%of total sales for the nine months ended September 30, 2001.  No single customer accounted for more than10% of total sales for the nine months ended September 30, 2002

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Significant estimates madeby management are, among others, the realizability of accounts receivable,property and equipment and web site development costs, and valuation ofdeferred tax assets.   Actual resultscould differ from those estimates.

Revenue Recognition

The Company provides internet-enabled fax services tobusinesses and charges for these services on either a per page faxed or perminute used basis. Service revenues are recognized when the services areperformed.  

Risks and Uncertainties

The Companyoperates in a highly competitive industry that is subject to intense competition,government regulation and rapid technological change.  The Company's operations are subject to significant risks anduncertainties including financial, operational, technological, regulatory andother risks associated with an emerging business, including the potential riskof business failure.

Loss per Share

Basic loss pershare is computed by dividing loss available to common shareholders by theweighted average number of common shares assumed to be outstanding during theperiod of computation. Diluted loss per share is computed similar to basic lossper share except that the denominator is increased to include the number ofadditional common shares that would have been outstanding if the potentialshares had been issued and if the additional common shares were dilutive.  All potentially dilutive shares, 0 and2,474,461 as of September 30, 2002 and 2001, respectively, have been excludedfrom dilutive loss per share, as their effect would be anti-dilutive for the periodsended September 30, 2002 and 2001.

Segment Information

The Company views its operationsand manages its business as principally one segment.

ComprehensiveIncome

The Company has no items ofcomprehensive income.

Stock-Based Compensation

The Company accounts fornon-employee stock-based compensation under Statement of Financial AccountingStandards No. 123 ("SFAS 123"), "*Accounting For Stock-BasedCompensation*."  SFAS 123 defines afair value based method of accounting for stock-based compensation.  However, SFAS 123 allows an entity tocontinue to measure compensation cost related to stock and stock options issuedto employees using the intrinsic method of accounting prescribed by AccountingPrinciples Board Opinion No. 25 ("APB 25"), "*Accounting forStock Issued to Employees*." Under APB 25, compensation cost, if any, isrecognized over the respective vesting period based on the difference, on thedate of grant, between the fair value of the Company's common stock and thegrant price. Entities electing to remain with the accounting method of APB 25must make pro forma disclosures of net income and earnings per share, as if thefair value method of accounting defined in SFAS 123 had been applied. TheCompany has elected to account for its stock-based compensation to employeesunder APB 25 (see Note 6).

Web Site Development Costs

During the nine months endedSeptember 30, 2002, the Company capitalized $70,935, net of $18,011 ofaccumulated amortization, related to the web site in accordance with theEmerging Issues Task Force Issue No. 00-2, "*Accounting for Web SiteDevelopment Costs.*" 

5.       ConvertibleNotes Payable to Related Parties

During the nine months ended September 30, 2002, the Companyborrowed $820,000 from C. Alan and Joan P. Williams and issued convertiblepromissory notes bearing interest at 10 percent per annum.  The notes and accrued interest are due atthe earlier of one of three events: 1) October 31, 2005; 2) acquisition ofcontrolling interest in the Company by a third party; or 3) the Companyachieves equity financing of a minimum of $3,000,000.  If the Company is acquired, the principal and accrued interest onthe Notes, as modified, are convertible into shares of the Company's commonstock at the lower of $2.50 per share or the price paid per share by the acquirer.  In addition, the principal and accruedinterest on the Notes, as modified, are convertible into shares of theCompany's common stock at a conversion price equal to the lower of $2.50 pershare or the average of the Company's common stock closing bid price on theOTCBB, NASDAQ or other established securities exchange or market for the ten(10) consecutive trading days prior to the date Mr. Williams delivers writtennotice of his conversion election to the Company.

Total interest expense recognized on all the convertiblenotes payable was $118,678 and $115,517 during the nine months ended September30, 2002 and 2001, respectively.  Totalinterest accrued and not paid on the convertible notes payable to relatedparties as of September 30, 2002 totaled $376,296 and is included in theaccompanying balance sheet.

As an inducement for the extension of the due date withrespect to $2,039,245 in convertible promissory notes issued through April 10,2002 and due between June 2002 and October 2003 (the "Notes") and as inducementfor receipt of up to $610,000 in debt financing during 2002, the Companyentered into two agreements dated May 9, 2002 with Mr. and Mrs. Williams, aPromissory Note Modification Agreement and a Security Agreement (the "May 9,2002 Agreements").  Pursuant to the May9, 2002 Agreements, the Notes were modified and now include the followingterms:  the Notes, as modified, are secured by a security interest in all ofthe Company's assets. The principal and accrued interest on the Notes, as modified,are due at the earlier of one of three events: 1) October 31, 2005; 2)acquisition of controlling interest in the Company by a third party; or 3) theCompany achieves equity financing of a minimum of $3,000,000.  If the Company is acquired, the principaland accrued interest on the Notes, as modified, are convertible into shares ofthe Company's common stock at the lower of $2.50 per share or the price paidper share by the acquirer.  In addition,the principal and accrued interest on the Notes, as modified, are convertibleat any time into shares of the Company's common stock at a conversion priceequal to the lower of $2.50 per share or the average of the Company's commonstock closing bid price on the OTCBB, NASDAQ or other established securitiesexchange or market for the ten (10) consecutive trading days prior to the dateMr. and Mrs. Williams deliver written notice of his conversion election to theCompany.  In addition, the May 9, 2002Agreements grant to Mr. and Mrs. Williams piggyback registration rights withrespect to all previously unregistered shares of the Company's common stockheld by them, whether issued for cash or for conversion of the Notes, asmodified.  As there was no beneficialconversion feature related to these modifications, no interest expense wasrecorded during the periods ended September 30, 2002.

On May 15, 2002, C.Alan Williams and Joan P. Williams acquired 15,686,502 shares of the restrictedcommon stock of the Registrant by exercising their conversion rights with respectto $2,039,245 in convertible promissory notes payable by the Registrant, at aconversion price of $0.13 per share, the average of the Company's common stockclosing bid price on the OTCBB for the ten (10) consecutive trading days priorto May 15, 2002.

AtSeptember 30, 2002, the outstanding principal balance of convertible securedpromissory notes payable to Mr. and Mrs. Williams was $460,000.

On July 15, 2002, theCompany entered into a Promissory Note Modification Agreement with JamesTownsend with respect to $507,747 in convertible promissory notes issuedthrough January 12, 2001 and due between June 2002 and October 2003 (the"Townsend Notes").  Pursuant to thisagreement, the Townsend Notes were modified and now include the followingterms:  the principal and accruedinterest on the Notes, as modified, are due at the earlier of one of threeevents: 1) October 31, 2005; 2) acquisition of controlling interest in theCompany by a third party; or 3) the Company achieves equity financing of aminimum of $3,000,000.  If the Companyis acquired, the principal and accrued interest on the Notes, as modified, areconvertible into shares of the Company's common stock at the lower of $2.50 pershare or the price paid per share by the acquirer.  In addition, the principal and accrued interest on the Notes, asmodified, are convertible at any time into shares of the Company's common stockat a conversion price equal to the lower of $0.10 per share or the average ofthe Company's common stock closing bid price on the OTCBB, NASDAQ or otherestablished securities exchange or market for the ten (10) consecutive tradingdays prior to the date Mr. Townsend delivers written notice of his conversionelection to the Company.  In addition,the agreement grants to Mr. Townsend piggyback registration rights with respectto all previously unregistered shares of the Company's common stock held byhim, whether issued for cash or for conversion of the Notes, as modified.  As there was no beneficial conversionfeature related to these modifications, no interest expense was recorded duringthe periods ended September 30, 2002.

On July 30, 2002, theCompany granted Mr. And Mrs. Williams a full ratchet anti-dilution right toreceive additional shares of the Company's common stock in the event that Mr.Townsend converts some or all of his outstanding promissory notes to theCompany's common stock at any price lower than $0.13 per share such that Mr.and Mrs. William's conversion price shall be equivalent to Mr. Townsend'sconversion price with respect to the same number of shares.

6.       Stockholders' Equity (Deficit)

a.        Common Stock 

During the quarter ended June 30, 2002, the Companyincreased the number of authorized shares of its common stock from 40,000,000to 90,000,000.

During the nine months ended September 30, 2002, theCompany issued 212,839 shares of restricted common stock for $2,129 in cash inconnection with the exercise of warrants, and 32,000 shares of restrictedcommon stock in consideration for $6,000 in consulting services rendered.

On May 15, 2002, C. Alan Williams and Joan P.Williams acquired 15,686,502 shares of the restricted common stock of theRegistrant by exercising their conversion rights with respect to $2,039,245 inconvertible promissory notes payable by the Registrant, at a conversion priceof $0.13 per share, the average of the Company's common stock closing bid priceon the OTCBB for the ten (10) consecutive trading days prior to May 15, 2002.

b.        Stock Options

Effective January 30, 2002, the Board of Directorsof the Company adopted an equity incentive plan (the "2002 Plan") thatauthorizes the issuance of options to acquire up to 6,226,258 shares of commonstock to employees and certain outside consultants.   The 2002 Plan allows for the issuance of either non-qualifiedor, subject to stockholder approval, incentive stock options pursuant toSection 422 of the Internal Revenue Code. Options vest at the discretion of theBoard of Directors as determined at the grant date, but not longer than a ten-yearterm.  Under the 2002 Plan, the exerciseprice of each option shall not be less than fair market value on the date theoption is granted.  

Options to purchase 6,148,530 shares of theCompany's common stock under the 2002 Plan at per-share prices ranging from$0.17 to $0.21 (the fair market value on the date of grant) were issued toemployees during the nine months ended September 30, 2002, vesting on variousdates from the date of grant through September, 2007.  143,333 options under the 2002 or 1997 Plan were cancelled duringthe nine months ended September 30, 2002 due to the termination ofemployment.  Subject to approval by theCompany's Board of Directors to increase the number of shares reserved for issuancepursuant to the 2002 Plan, the Company has agreed to issue to an employee anoption to purchase 1,000,000 shares of the Company's common stock at $0.18 pershare (the fair market value on the date of grant).

Subject to approval by the Company's Board ofDirectors to increase the number of shares reserved for issuance under  the 2002 Plan, options to purchase 555,555shares of the Company's common stock at $0.18 per share (which was below thefair market value on the date of grant), vesting immediately, were issued to anon-employee in consideration for legal services during the nine months endedSeptember 30, 2002.  In connection withthis issuance, and pursuant to APB 25 and SFAS 123, the Company recorded legalexpense and prepaid expense of $17,877 and $4,123, respectively, during thenine months ended September 30, 2002. The Company recorded compensation expense of $170,320 during the ninemonths ended September 30, 2001 for options and warrants issued to non-employeeconsultants. 

c.        Warrants

During thenine months ended September 30, 2002, the Company issued a warrant to purchase24,019 shares of the Company's common stock at $0.01 per share to an employeeand recorded compensation expense of $25,565 in connection with theissuance.  During the nine months endedSeptember 30, 2002, warrants to purchase 212,839 shares of common stock wereexercised for cash, and warrants to purchase 113,777 shares of the common stockof the Company expired unexercised and were cancelled.

7.       Earningsper Share

          Basicand diluted loss per common share is computed as follows:

September  30,

 

September  30,

2002

      

2001

Numerator for basic and diluted  loss per common share:

-------------

 

---------------

   Net loss  available to common stockholders

$ (850,335)

 

$ (1,350,100)

=========

 

==========

 

 

 

Denominator for basic and  diluted loss per common share:

 

 

 

   Weighted  average common shares outstanding

   

22,284,928

 

13,886,497

=========

 

=========

Net loss  per common share available to common stockholders

 

 

 

 

 

 

Net loss  per share

$      (0.04)

 

$         (0.10)

 

========

 

=========

8.       Litigation

TheCompany is, from time to time, involved in various legal and other proceedingsthat arise in the ordinary course of operating its business. In the opinion ofmanagement, the amount of ultimate liability, if any, with respect to theseactions will not materially affect the financial position or results ofoperations of the Company. 

9.       SubsequentEvents

Subsequent toSeptember 30, 2002, the Company entered into a Consulting Services Agreementwith a related party to provide marketing communications services for up tofour months in consideration for up to 320,000 shares of the Company's commonstock.  The compensation shall be earnedon a pro-rata basis at the end of each of four thirty-day work periods and onlyupon receipt and acceptance by the Company of the related party's work product.

Subsequent toSeptember 30, 2002, the Company borrowed an additional $140,000 from C. Alan and JoanP. Williams and issued convertible promissory notes with terms identical tothose described in Note 5 above, except that, as to $70,000 in convertiblepromissory notes, the conversion price of the convertible promissory notes isthe lower of $0.07 per share (which wasbelow the fair market value on the date of issuance) or the average of theCompany's common stock closing bid price on the OTCBB, NASDAQ or otherestablished securities exchange or market for the ten (10) consecutive tradingdays prior to the date Mr. and Mrs. Williams deliver written notice of theirconversion election to the Company. The beneficial conversion feature will result in a charge to interestexpense.
****
**VillageEDOCS**

**ITEM 2 - MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  RESULTS OF OPERATIONS**

______________________________________________________________________________

**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION**

*Investorsare cautioned that certain statements contained in this document, and theCompany's Form 10-KSB, as well as some statements in periodic press releasesand some oral statements of VillageEDOCS officials during presentations aboutthe Company, are "forward-looking" statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995 (the "Act").  All statements that do not directly and exclusively relate tohistorical facts constitute forward-looking statements within the meaning ofthe Act.  The words"anticipate," "believe," "expect,""plan," "intend," "seek," "estimate,""project," "will," "could," "may," andsimilar expressions are intended to identify forward-looking statements. Inaddition, any statements concerning future financial performance, ongoingbusiness strategies or prospects, and possible future Company actions which maybe provided by management, are also forward-looking statements as defined bythe Act.  Such forward-looking   statements involve known and unknown risks,uncertainties and other factors which may cause the actual results, performanceor achievements of the Company to materially differ from any future results,performance or achievements expressed or implied by such forward-lookingstatements and to vary significantly from reporting period to reporting period.  Such factors include, among others, generaleconomic and business conditions, changes in foreign, political, social andeconomic conditions, regulatory initiatives and compliance with governmentalregulations, the ability to achieve further market penetration and additionalcustomers, and various other matters, many of which are beyond the Company'scontrol, including, without limitation, the risks described under the caption"DESCRIPTION OF BUSINESS - RISK FACTORS " in the Company's Form 10-SBfiled with the Securities and Exchange Commission on December 20, 2000.  Although management believes that theassumptions made and the expectations reflected in the forward-lookingstatements are reasonable, there is no assurance that the underlyingassumptions will, in fact, prove to be correct or that actual future resultswill not be different from the expectations expressed in this report orelsewhere by management.  The Companyhas no specific intention to update these statements.*

**GENERAL OVERVIEW**

The following discussion and analysisof our financial condition and results of operations should be read inconjunction with the unaudited balance sheet as of September 30, 2002, and theunaudited statements of operations and cash flows for the three and nine monthsended September 30, 2002 and 2001, and the related notes thereto as well as theaudited financial statements of the Company for the years ended December 31,2001 and 2000, included in the Company's Annual Report on Form 10-KSB filedwith the Securities and Exchange Commission on March 29, 2002.  This discussion contains forward-lookingstatements based upon current expectations that involve risks anduncertainties, such as our plans, objectives, expectations and intentions.

The Company cautions readers thatimportant facts and factors described in this Management's Discussion andAnalysis of Financial Condition and Results of Operations and elsewhere in thisdocument sometimes have affected, and in the future could affect, the Company'sactual results, and could cause the Company's actual results during 2002 andbeyond to differ materially from those expressed in any forward-lookingstatements made by, or on behalf of, the Company. 

As reported in the Independent Auditors' Report on ourDecember 31, 2001 financial statements, the Company has suffered recurringlosses from operations, had significant negative cash flows from operations,and had a net capital deficiency that raised substantial doubt about ourability to continue as a going concern. 

Management is seeking additional financing by issuing convertible debt toexisting shareholders during 2002. In addition, management plans to seek equityor a combination of equity and debt financing from new shareholders and/orlenders in the fourth quarter of 2002. Management is actively pursuing both ofthese financing arrangements. Between January and September 2002, one of ourshareholders loaned us  $820,000 to fund our operating shortfalls; however,he has no binding obligation to continue providing funds. If the plannedfinancings are obtained and/or the shareholder continues to cover our operating shortfalls, the Company believes it willhave adequate cash to sustain operations until it becomes profitable. There canbe no assurance that funding will be available on acceptable terms, if at all,or that such funds, if raised, would enable the Company to achieve and maintainprofitable operations. 

**RESULTS OF OPERATIONS**
Three Months Ended September 30, 2002 Compared to Three Months EndedSeptember 30, 2001Net Sales
Net sales for the three monthsended September 30, 2002 were $426,764, a 30% increase over net sales for prioryear quarter of $327,124.  The increasein the 2002 quarter reflected an improvement in the volume of sales to existingcustomers and growth in the number of customers billed.

**Costof Sales**

Cost of sales forthe three months ended September 30, 2002 were $228,236 as compared to the$261,856 reported for the three months ended September 30, 2001.  Cost of sales during the 2002 quarterrepresented 53% of sales as compared with 80% of sales in the 2001 quarter dueto a decrease in variable telecommunications costs.

**Gross Profit**

Gross profit forthe three months ended September 30, 2002 increased 204% to $198,528 ascompared to $65,268 for the prior year quarter.  The increase of $133,260 is attributable to both a reduction invariable costs of sales and an increase in sales volume for the Company'sinternet-enabled fax services.

**OperatingExpenses**

Operating expenses for the threemonths ended September 30, 2002 increased by 29% to $475,520 from the $368,487reported in the three months ended September 30, 2001, an increase of$107,033.  Product and technologydevelopment decreased $1,048 to $126,557 from the $127,605 reported in theprior year quarter due to capitalization of certain payroll costs related toweb site development.  Sales andmarketing increased by $58,309 to $141,750 from the $83,441 reported in theprior year quarter due to the addition of sales staff and an increase in saleslead generation programs.  General andadministrative increased by $42,540 to $178,144 from the $135,604 reported inthe prior year quarter due to increases in legal, rent, and bad debtexpenses.  Depreciation and amortizationexpense increased $7,232 to $29,069 from the $21,837 reported in the 2001quarter due to an increase in capitalized web site development costs.  During the three months ended September 30,2002, expenses related to product and technology development, sales andmarketing, general and administrative, and depreciation and amortizationrepresented 30%, 33%, 42%, and 7% of net sales, respectively.

**Interest Expense**

Interest expensefor the quarter ended September 30, 2002 decreased 39% to $30,745 from the$50,481 reported in the prior year quarter due primarily to the May 15, 2002conversion to equity of convertible notes payable from a related party as wellas a reduction in interest paid on capital leases.

**Net Loss**

As a result of theforegoing, net loss for the three months ended September 30, 2002 was $307,737,or $0.01 per share, compared to a net loss of $353,700, or $0.03 per share, forthe three months ended September 30, 2001.
Nine Months Ended September 30, 2002 Compared to Nine Months EndedSeptember 30, 2001
**Net Sales**

Net sales for the nine months ended September 30, 2002 were$1,236,402, a 30% increase over net sales for the prior year period of$952,181.  The increase in the 2002period reflected an improvement in the volume of sales to existing customersand growth in the number of customers billed.

**Costof Sales**

Cost of sales for the nine monthsended September 30, 2002 were $652,316 as compared to the $712,175 reported forthe nine months ended September 30, 2001. Cost of sales during the 2002 period represented 53% of sales ascompared with 75% of sales in the 2001 period due to a decrease in variabletelecommunications costs.

**Gross Profit**

Gross profit forthe nine months ended September 30, 2002 increased 143% to $584,086 as comparedto $240,006 for the prior year period. The increase of $344,080 is attributable to both a reduction in variablecosts of sales and an increase in sales volume for the Company'sinternet-enabled fax services.

**OperatingExpenses**

Operating expenses for the ninemonths ended September 30, 2002 decreased by 11% to $1,297,761 from the$1,456,618 reported in the nine months ended September 30, 2001, a decrease of$158,857.  Product and technologydevelopment decreased $81,413 to $314,186 from the $395,599 reported in the prioryear period due to capitalization of certain payroll costs related to web sitedevelopment.  Sales and marketingincreased by $43,677 to $376,073 from the $332,396 reported in the prior yearperiod due to increases in sales staff and in sales lead generationprograms.  General and administrativedecreased by $138,765 to $519,762 from the $658,527 reported in the prior yearperiod.  The overall decrease wascomprised of increases of $31,555 in rent, bad debt and legal expenses offsetby a decrease of $170,320 in non-cash compensation charges incurred inconnection with the vesting of certain non-employee stock options taken duringthe 2001 period.  Depreciation andamortization expense increased $17,644 to $87,740 from the $70,096 reported inthe 2001 period due to an increase in capitalized web site development costs...  During the nine months endedSeptember 30, 2002, expenses related to product and technology development,sales and marketing, general and administrative, and depreciation andamortization represented 25%, 30%, 42%, and 7% of net sales, respectively.

**Interest Expense**

Interest expensefor the nine months ended September 30, 2002 decreased 2% to $135,860 from the$132,701 reported in the prior year period due primarily to the May 15, 2002conversion to equity of convertible notes payable from a related party as wellas a reduction in interest paid on capital leases.

**Net Loss**

As a result of the foregoing, net loss for the nine months ended September30, 2002 was $850,335, or $0.04 per share, compared to a net loss of $1,350,100,or $0.10 per share, for the nine months ended September 30, 2001.

**LIQUIDITY**

During thenine months ended September 30, 2002, the Company's net cash position decreasedby $16,461 to $22,860. Although the Company generated net cash of $743,688 fromfinancing activities, the Company's operating and investing activities used netcash of  $632,198 and $127,951,respectively.  These activitiescontributed to a net working capital deficit as of September 30, 2002 of$240,895.

Net cash used in operating activities for the nine monthsended September 30, 2002 was $632,198, a decrease of $338,239 from the $970,437used in operating activities for the nine months ended September 30, 2001,mainly due to a reduction in net loss as described above. 

The Company's investing activities consisted of the purchaseof computer software and computer equipment and capitalization of web sitedevelopment costs. Net cash used for investment activities increased $125,221in the nine months ended September 30, 2002 to $127,951 from the $2,730reported for the nine months ended September 30, 2001 due primarily to theacquisition of computer software in connection with service enhancements andcapitalization of web site development costs. 

The Company's financing activities include proceeds from theexercise of warrants to purchase common stock, issuance of convertible notespayable, and principal payments on capital leases. 

Net cash provided by financing activities for the ninemonths ended September 30, 2002 was $743,688, and included proceeds of  $820,000 and $2,129 from stockholder loansand warrant exercises, respectively, less principal payments on capital leasesof $78,441. 

Net cash provided by financing activities for the ninemonths ended September 30, 2001 was $914,573. The Company received net proceeds from stockholder loans in the amountof $1,010,000, and net proceeds from warrant exercises of $1,510, but used$96,937 in principal payments on capital leases during the 2001 period.

**CAPITAL RESOURCES**

The Company does not currently have any material commitmentsfor capital expenditures other than those expenditures incurred in the ordinarycourse of business. 

Since our inception,our operating and investing activities have used substantially more cash thanthey have generated. Because we will continue to need working capital to fundthe growth of our business, we expect to continue to experience negativeoperating and investing cash flows for the remainder of 2002. We currentlyanticipate that our available cash resources will be insufficient to meet ouranticipated working capital and capital expenditure requirements throughDecember 31, 2002.  Accordingly, webelieve we will require up to approximately $5 million in additional financing to support ouroperations and to fund a substantially increased sales and marketing effortuntil we become profitable.

Between November2000 and at least November 2002, our operating shortfalls have been, and areexpected to be, funded by one shareholder, an affiliate, who has loaned us$2,499,245 through September 30, 2002 for that purpose. Assuming that thisshareholder continues to fund our operations, we will be able to sustainoperations at current levels. On May 9, 2002, we modified the terms of theconvertible promissory notes held by this shareholder to induce thisshareholder to provide additional loans and to extend the due dates of existingloans, which resulted in this shareholder obtaining rights, preferences andprivileges senior to those of other creditors and our stockholders.    On May 15, 2002, this shareholderexercised his conversion rights with respect to $2,039,245 in convertiblepromissory notes payable by the Company in consideration for 15,686,502 sharesof the restricted common stock of the Company. This shareholder has no obligation to continue to fund our operatingshortfalls and could stop doing so at any time.  We may be required to provide similar terms to other existing andpotential new investors which could further result in such investors obtainingrights, preferences or privileges senior to those of other creditors and ourstockholders.

This estimate is aforward-looking statement that involves risks and uncertainties. The actualtime period may differ materially from that indicated as a result of a numberof factors so that we cannot assure you that our cash resources will besufficient for anticipated or unanticipated working capital and capitalexpenditure requirements for this period. We have stated that we will need toraise additional capital in the future to meet our operating and investing cashrequirements. Such sources of financing could include capital infusions,additional equity financing, or debt offerings. There can be no assurance thatadditional funding will be available on acceptable terms, if at all, or thatsuch funds, if raised, would enable the Company to achieve and maintainprofitable operations. If we are not able to obtain sufficient additional fundsfrom investors, we may be unable to sustain our operations.  Ifwe raise additional funds through the issuance of securities, these securitiesmay have rights, preferences or privileges senior to those of our common stock,and our stockholders may experience additional dilution to their equityownership. 

While we stronglybelieve that sustainable profitability is achievable and we intend to continueour strategy of increasing sales to more profitable clients while attempting toreduce variable costs of sales and overhead, we have a history of losses, havenever been profitable, and may never achieve profitability.  Should we achieve profitability in anyperiod, we cannot be certain that we will sustain or increase suchprofitability on a quarterly or annual basis. 

From inceptionthrough September 30, 2002, we generated net sales of only approximately$3,303,000 and we incurred total expenses of approximately $11,680,000 duringthat same period. We have incurred net losses each year since our inception. Asof September 30, 2002, we had an accumulated deficit of $9,422,242.  To date, we have funded our capitalrequirements and our business operations primarily with funds provided from thesale of common stock and from shareholder borrowings, supplemented by revenuesfrom sales of our services. From inception to September 30, 2002, the Companyhas received approximately **$**5,173,000 from the sale of common stock andconvertible notes subsequently converted into common stock.

The IndependentAuditors' Report on our December 31, 2001 financial statements includes anexplanatory paragraph stating that the recurring losses incurred fromoperations and a working capital deficiency raise substantial doubt about ourability to continue as a going concern. The financial statements do not includeany adjustments that might result from the outcome of this uncertainty.

**VillageEDOCS**

**ITEM 3 - CONTROLS ANDPROCEDURES**

As required by Rule 13a-15 under the SecuritiesExchange Act of 1934, within the 90 days prior to the filing date of thisreport, the Company carried out an evaluation of the effectiveness of thedesign and operation of the Company's disclosure controls and procedures.  This evaluation was carried out under thesupervision and with the participation of the Company's management, includingthe Company's Chief Executive Officer and the Company's Chief FinancialOfficer, who concluded that the Company's disclosure controls and proceduresare effective.  There have been nosignificant changes in the Company's internal control or in other factors,which could significantly affect internal controls subsequent to the date theCompany carried out its evaluation.

Disclosure controls and procedures are controls andother procedures that are designed to ensure that information required to bedisclosed in the Company reports filed or submitted under the Exchange Act isrecorded, processed, summarized and reported, within the time periods specifiedin the Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed in Company reports filed under the Exchange Act isaccumulated and communicated to management, including the Company's ChiefExecutive Officer and Chief Financial Officer as appropriate, to allow timely decisionsregarding required disclosure.

 
VillageEDOCS
** PART II**

 

** ITEM 1 - LEGALPROCEEDINGS.**

** **The Company is not a party in any lawsuits. 

A marketing company has threatenedlegal action related to its claim that the Company owes it $48,000 for servicesrendered. The Company agrees that it owes $24,000 for such services, whichamount is recorded as a liability in the Company's financial statements. TheCompany believes the claim for the additional $24,000 is without merit, andthat the outcome of any legal action will not have a material adverse effect onthe Company. 

In early 1999, the Company received communications from a companyasserting the ownership of certain United States and Canadian patents andmaking a licensing proposal for these patents on unspecified terms. The Companyhas not accepted the licensing proposal. If these claims prove accurate and theCompany is not able to enter into a licensing agreement on acceptable terms, itwould have a material adverse effect on the Company. 

** **

**ITEM 2 - CHANGES INSECURITIES. **

During the nine months ended September 30, 2002, the Company increasedthe number of authorized shares of its common stock from 40,000,000 to 90,000,000.

During the nine months ended September 30, 2002, the Company issued212,839 shares of restricted common stock for $2,129 in cash in connection withthe exercise of warrants, and 32,000 shares of restricted common stock inconsideration for $6,000 in consulting services rendered.

On May 15, 2002, C. Alan Williams and Joan P. Williams acquired15,686,502 shares of the restricted common stock of the Registrant byexercising their conversion rights with respect to $2,039,245 in convertiblepromissory notes payable by the Registrant, at a conversion price of $0.13 pershare, the average of the Company's common stock closing bid price on the OTCBBfor the ten (10) consecutive trading days prior to May 15, 2002.

Effective January 30, 2002, the Board of Directors of the Companyadopted an equity incentive plan (the "2002 Plan") that authorizes the issuanceof options to acquire up to 6,226,258 shares of common stock toemployees 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 Section422 of the Internal Revenue Code. Options vest at the discretion of the Boardof Directors as determined at the grant date, but not longer than a ten-yearterm.  Under the 2002 Plan, the exerciseprice of each option shall not be less than fair market value on the date theoption is granted.  

Options to purchase6,148,530 shares of the Company's common stock under the 2002 Plan at per-shareprices ranging from $0.17 to $0.21 (the fair market value on the date of grant)were issued to employees during the nine months ended September 30, 2002,vesting on various dates from the date of grant through September, 2007.  143,333 options under the 2002 or 1997 Planwere cancelled during the nine months ended September 30, 2002 due to thetermination of employment.  Subject toapproval by the Company's Board of Directors to increase the number of sharesreserved for issuance pursuant to the 2002 Plan, the Company has agreed toissue to an employee an option to purchase 1,000,000 shares of the Company'scommon stock at $0.18 per share (the fair market value on the date of grant).

Subject to approval by the Company's Board of Directors to increase thenumber of shares reserved for issuance under the 2002 Plan, options to purchase555,555 shares of the Company's common stock at $0.18 per share (which was belowthe fair market value on the date of grant), vesting immediately, were issued to a non-employee in consideration for legalservices during the nine months ended September 30, 2002.

During the nine monthsended September 30, 2002, the Company issued a warrant to purchase 24,019shares of the Company's common stock at $0.01 per share to an employee andrecorded compensation expense of $25,565 in connection with the issuance.  During the nine months ended September 30,2002, warrants to purchase 113,777 shares of the common stock of the Companyexpired unexercised and were cancelled.

During the nine monthsended September 30, 2002, the Company borrowed $820,000 from C. Alan and JoanP. Williams and issued convertible promissory notes bearing interest at 10percent per annum.  The notes andaccrued interest are due at the earlier of one of three events: 1) October 31,2005; 2) acquisition of controlling interest in the Company by a third party;or 3) the Company achieves equity financing of a minimum of $3,000,000.  If the Company is acquired, the principaland accrued interest on the Notes, as modified, are convertible into shares ofthe Company's common stock at the lower of $2.50 per share or the price paidper share by the acquirer.  In addition,the principal and accrued interest on the Notes, as modified, are convertibleinto shares of the Company's common stock at a conversion price equal to thelower of $2.50 per share or the average of the Company's common stock closingbid price on the OTCBB, NASDAQ or other established securities exchange ormarket for the ten (10) consecutive trading days prior to the date Mr. Williamsdelivers written notice of his conversion election to the Company.  Total interest expense recognized on all theconvertible notes payable was $118,678 and $115,517 during the nine monthsended September 30, 2002 and 2001, respectively.

As an inducement for theextension of the due date with respect to $2,039,245 in convertible promissorynotes issued through April 10, 2002 and due between June 2002 and October 2003(the "Notes") and as inducement for receipt of up to $610,000 in debt financingduring 2002, the Company entered into two agreements dated May 9, 2002 with Mr.and Mrs. Williams, a Promissory Note Modification Agreement and a SecurityAgreement (the "May 9, 2002 Agreements"). Pursuant to the May 9, 2002 Agreements, the Notes were modified and nowinclude the following terms:  the Notes,as modified, are secured by a security interest in all of the Company's assets.The principal and accrued interest on the Notes, as modified, are due at theearlier of one of three events: 1) October 31, 2005; 2) acquisition ofcontrolling interest in the Company by a third party; or 3) the Companyachieves equity financing of a minimum of $3,000,000.  If the Company is acquired, the principal and accrued interest onthe Notes, as modified, are convertible into shares of the Company's commonstock at the lower of $2.50 per share or the price paid per share by theacquirer.  In addition, the principaland accrued interest on the Notes, as modified, are convertible at any timeinto shares of the Company's common stock at a conversion price equal to thelower of $2.50 per share or the average of the Company's common stock closingbid price on the OTCBB, NASDAQ or other established securities exchange ormarket for the ten (10) consecutive trading days prior to the date Mr. and Mrs.Williams deliver written notice of his conversion election to the Company.  In addition, the May 9, 2002 Agreementsgrant to Mr. and Mrs. Williams piggyback registration rights with respect toall previously unregistered shares of the Company's common stock held by them,whether issued for cash or for conversion of the Notes, as modified.

On May 15, 2002, C. AlanWilliams and Joan P. Williams acquired 15,686,502 shares of the restrictedcommon stock of the Registrant by exercising their conversion rights withrespect to $2,039,245 in convertible promissory notes payable by theRegistrant, at a conversion price of $0.13 per share, the average of theCompany's common stock closing bid price on the OTCBB for the ten (10)consecutive trading days prior to May 15, 2002.

AtSeptember 30, 2002, the outstanding principal balance of convertible securedpromissory notes payable to Mr. and Mrs. Williams was $460,000.

On July 15, 2002, theCompany entered into a Promissory Note Modification Agreement with JamesTownsend with respect to $507,747 in convertible promissory notes issuedthrough January 12, 2001 and due between June 2002 and October 2003 (the"Townsend Notes").  Pursuant to thisagreement, the Townsend Notes were modified and now include the followingterms:  the principal and accruedinterest on the Notes, as modified, are due at the earlier of one of threeevents: 1) October 31, 2005; 2) acquisition of controlling interest in theCompany by a third party; or 3) the Company achieves equity financing of aminimum of $3,000,000.  If the Companyis acquired, the principal and accrued interest on the Notes, as modified, areconvertible into shares of the Company's common stock at the lower of $2.50 pershare or the price paid per share by the acquirer.  In addition, the principal and accrued interest on the Notes, asmodified, are convertible at any time into shares of the Company's common stockat a conversion price equal to the lower of $0.10 per share or the average ofthe Company's common stock closing bid price on the OTCBB, NASDAQ or other established securities exchange or market for the ten (10)consecutive trading days prior to the date Mr. Townsend delivers written noticeof his conversion election to the Company.  In addition, the agreementgrants to Mr. Townsend piggyback registration rights with respect to allpreviously unregistered shares of the Company's common stock held by him,whether issued for cash or for conversion of the Notes, as modified.

On July 30, 2002, theCompany granted Mr. And Mrs. Williams a full ratchet anti-dilution right toreceive additional shares of the Company's common stock in the event that Mr.Townsend converts some or all of his outstanding promissory notes to theCompany's common stock at any price lower than $0.13 per share such that Mr.and Mrs. William's conversion price shall be equivalent to Mr. Townsend'sconversion price with respect to the same number of shares.

Alloffers and sales of our securities described above were made pursuant toSection 4(2) of the Securities Act of 1933 and Regulation D promulgatedthereunder.

** **

**ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.**

On July 10, 2002, James Townsend gave the Company a Noticeof Default with respect to two convertible promissory notes in the aggregateprincipal amount of $307,747.  On July15, 2002, the Company entered into a Promissory Note Modification Agreementwith James Townsend with respect to the $307,747 in convertible promissorynotes, and an additional $200,000 in convertible promissory notes, issuedthrough January 12, 2001 and due between June 2002 and October 2003 (the"Townsend Notes").  Pursuant to thisagreement, the Townsend Notes were modified and now include the followingterms.  The principal and accruedinterest on the Notes, as modified, are due at the earlier of one of threeevents: 1) October 31, 2005; 2) acquisition of controlling interest in theCompany by a third party; or 3) the Company achieves equity financing of aminimum of $3,000,000.  If the Companyis acquired, the principal and accrued interest on the Notes, as modified, areconvertible into shares of the Company's common stock at the lower of $2.50 pershare or the price paid per share by the acquirer.  In addition, the principal and accrued interest on the Notes, asmodified, are convertible at any time into shares of the Company's common stockat a conversion price equal to the lower of $0.10 per share or the average ofthe Company's common stock closing bid price on the OTCBB, NASDAQ or otherestablished securities exchange or market for the ten (10) consecutive tradingdays prior to the date Mr. Townsend delivers written notice of his conversionelection to the Company.  In addition,the agreement grants to Mr. Townsend piggyback registration rights with respectto all previously unregistered shares of the Company's common stock held byhim, whether issued for cash or for conversion of the Notes, as modified.

** **

**ITEM 4 - SUBMISSIONOF MATTERS TO VOTE OF SECURITY HOLDERS.**

None. 

** **

**ITEM 5 - OTHERMATTERS.**

OnNovember 12, 2002, the Company entered into an agreement with Magnum FinancialGroup, LLC pursuant to which Magnum has agreed to provide certain financialcommunications and investor relations services on our behalf.  The agreement does not have a stated term,but will remain in effect until terminated by either party upon thirty daysprior notice to the other party.  Inconsideration for the services to be performed by Magnum, we have agreed to payMagnum a monthly consulting fee of $500 and to issue to Magnum during eachmonth a number of shares of our common stock determined by dividing $5,000 bythe average closing bid price of the stock for the trading days in thatmonth.  We have also agreed to provideMagnum piggyback registration rights with respect to any shares issued underthe agreement.  

** **

**ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.**

(a)    Exhibits
   
  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.
   
  4.2

Promissory Note Modification Agreement dated July 15, 2002  by and between the Registrant and James W. Townsend previously filed as  Exhibit 4.1 to the Company's Current Report on Form 8-K filed on July 2, 2002  and incorporated herein by reference.
   
  4.3

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.
   
  4.4

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.
   
10.1

Engagement Agreement dated November  12, 2002 by and between the Company and Magnum Financial Group, LLC.*
   
10.2

Consulting Services agreement dated October 28, 2002 by  and between the Company and Tim Dales.*
   
99.1

Certification Pursuant To 18 U.S.C. §1350, As Adopted  Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 signed and dated  November 14, 2002 by K. Mason Conner, Chief Executive Officer.*
   
99.2

Certification Pursuant To 18 U.S.C. §1350, As Adopted Pursuant  To Section 906 of the Sarbanes-Oxley Act of 2002 signed and dated November  14, 2002 by Michael A. Richard, Principal Accounting Officer.*
   
*

Filed herewith

(b)     Reportson Form 8-K
   
Date

Subject
   
July 2, 2002

Extension of due dates to October, 2005 with  respect to $508,000 in convertible promissory notes and modification of  certain terms thereof.

** **

** **

** SIGNATURES**

** **

**Pursuant to the requirements of the Securities and Exchange Act of1934, the Registrant has caused this report to be signed on its behalf by theundersigned, thereto duly authorized, in the capacities and on the datesindicated:**

** **

** **

**VillageEDOCS  (Registrant)**

**Dated:  November  14, 2002**

**By:  /s/  K. Mason  Conner                         **

**       K.  Mason Conner**

**       Chief  Executive Officer and Director**

**Dated:  November  14, 2002**

**By  /s/  Michael A.  Richard                         **

**      Michael  A. Richard**

**      Controller**

**      (Principal  Accounting Officer)**

** **

** **

** **

**CERTIFICATION UNDER**

**SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I certify that:

1.              I reviewed this quarterly reporton Form 10-QSB;

2.              Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

3.             Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all materials respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the period presented in this quarterly report;

4.              The Registrant's other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the Registrant and have:

               a)               designed such disclosure controls and procedures toensure that material information relating to the Registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

               b)               evaluated the effectiveness ofthe Registrant's disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the "EvaluationDate"); and

               c)               presented in this quarterlyreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

5.              The Registrant's other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant's auditors and the audit committee of the Registrant's board ofdirectors (or persons performing the equivalent functions);

      a)               all significant deficiencies inthe design or operation of internal controls which could adversely affect theRegistrant's ability to record, process, summarize and report financial dataand have identified for the Registrant's auditors any material weaknesses ininternal controls; and

                 b)             any fraud, whether or not material,that involves management or other employees who have a significant role in theRegistrant's internal controls; and

6.              The Registrant's other certifyingofficers and I have indicated in this quarterly report whether there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

Date:  November 14,  2002

/s/ K. Mason Conner

          -------------------------------

------------------------------------------

President and Chief Executive  Officer

**CERTIFICATION UNDER**

**SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

I certify that:

1.              I reviewed this quarterly reporton Form 10-QSB;

2.              Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

3.             Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all materials respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the period presented in this quarterly report;

4.              The Registrant's other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the Registrant and have:

               a)               designed such disclosure controls and procedures toensure that material information relating to the Registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

               b)               evaluated the effectiveness ofthe Registrant's disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the "EvaluationDate"); and

               c)               presented in this quarterlyreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

5.              The Registrant's other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant's auditors and the audit committee of the Registrant's board ofdirectors (or persons performing the equivalent functions);

                a)               all significant deficiencies inthe design or operation of internal controls which could adversely affect theRegistrant's ability to record, process, summarize and report financial dataand have identified for the Registrant's auditors any material weaknesses ininternal controls; and

                 b)             any fraud, whether or not material,that involves management or other employees who have a significant role in theRegistrant's internal controls; and

6.              The Registrant's other certifyingofficers and I have indicated in this quarterly report whether there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

Date:  November 14,  2002

/s/ Michael A. Richard

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Controller and Principal  Accounting Officer

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