**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 March 31, 2003

 

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

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**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 30,920,702 shares of the Registrant's commonstock outstanding as of April 30, 2003.
| Transitional Small Business Format  (check one) | YES |     | NO | X  |
|-------------------------------------------------|-----|-----|----|---------|
|                                                 |     | --- |    | ---     |

Indicate bycheck mark whether the Registrant is an accelerated filer (as defined in Rule12b-2 of the Act
|   | YES |     | NO | X  |
|--------|-----|-----|----|---------|
|   |     | --- |    | ---     |

----

**VillageEDOCS**

_____________________________________________________________________________________________

 

# PART I - FINANCIAL INFORMATION

 

**ITEM 1 - FINANCIAL STATEMENTS**

|   |                                                     |   |
|---|-----------------------------------------------------|---|
|   | Balance Sheet for March 31, 2003 (Unaudited)        | 1 |
|   |                                                     |   |
|   | Statements of Operations for the three months ended |   |
|   | March 31, 2003 and 2002  (Unaudited)                | 2 |
|   |                                                     |   |
|   | Statements of Cash Flows for the three months ended |   |
|   | March 31, 2003 and 2002  (Unaudited)                | 3 |
| . |                                                     |   |
|   | Notes to Unaudited Financial Statements             | 5 |

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| **VillageEDOCS**                                                                                                                 |  |                                                                                                                                                                    |
|----------------------------------------------------------------------------------------------------------------------------------|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Balance Sheet**                                                                                                           |  |                                                                                                                                                                    |
| **(Unaudited)**                                                                                                                  |  |                                                                                                                                                                    |
|                                                                                                                                  |  | **March 31,**                                                                                                                                                 |
|                                                                                                                                  |  | **2003**                                                                                                                                                           |
|                                                                                                                                  |  |  -----------------------                                                                                                                                 |
|                                                                                                                                  |  |                                                                                                                                                                    |
| **ASSETS**                                                                                                                       |  |                                                                                                                                                                    |
| Current assets:                                                                                                             |  |                                                                                                                                                                    |
|    Cash                                                                                                           |  |  $                      39,775             |
|    Accounts receivable, net of allowance for doubtful                               |  |                                                                                                                                                                    |
|       accounts of $30,000                                                                |  |                        143,372             |
|    Other current assets                                                                                 |  |                          45,702  |
|                                                                                                                                  |  |  -----------------------                                                                                                                                 |
|          Total current assets                                             |  |                        228,849             |
|                                                                                                                                  |  |                                                                                                                                                                    |
| Property and equipment, net                                                                                       |  |                        228,059             |
| Web site development costs, net                                                                              |  |                          70,125  |
| Other assets                                                                                                                |  |                          22,373  |
|                                                                                                                                  |  |  -----------------------                                                                                                                                 |
|                                                                                                                                  |  |  $                    549,406                        |
|                                                                                                                                  |  |  ===============                                                                                                                                         |
|                                                                                                                                  |  |                                                                                                                                                                    |
|                                                                                                                                  |  |                                                                                                                                                                    |
| **LIABILITIES AND STOCKHOLDERS' DEFICIT**                                                                         |  |                                                                                                                                                                    |
| Current liabilities:                                                                                                        |  |                                                                                                                                                                    |
|    Accounts payable                                                                                          |  |  $                    218,955                        |
|    Accrued expenses                                                                                          |  |                        145,317             |
|    Current portion of capital lease obligations                                          |  |                          21,813  |
|                                                                                                                                  |  |  -----------------------                                                                                                                                 |
|          Total current liabilities                                        |  |                        386,085             |
|                                                                                                                                  |  |                                                                                                                                                                    |
| Capital lease obligations, net of current portion                                                  |  |                          12,471  |
| Convertible notes and accrued interest                                                                       |  |                                                                                                                                                                    |
|    payable to related parties                                                                      |  |                     2,015,334                             |
|                                                                                                                                  |  |  -----------------------                                                                                                                                 |
|          Total liabilities                                                     |  |                     2,413,890                             |
|                                                                                                                                  |  |  -----------------------                                                                                                                                 |
|                                                                                                                                  |  |                                                                                                                                                                    |
|                                                                                                                                  |  |                                                                                                                                                                    |
| Stockholders' deficit:                                                                                                      |  |                                                                                                                                                                    |
|    Common stock, no par value:                                                           |  |                                                                                                                                                                    |
|       Authorized -- 90,000,000 shares                                               |  |                                                                                                                                                                    |
|           Issued and outstanding -- 30,920,702 shares |  |                     6,945,767                             |
| Additional paid-in capital                                                                                             |  |                     1,762,082                             |
| Accumulated deficit                                                                                                         |  |                 (10,572,333)                                                       |
|                                                                                                                                  |  |  -----------------------                                                                                                                                 |
|          Total stockholders' deficit                                      |  |                   (1,864,484)                                            |
|                                                                                                                                  |  |  -----------------------                                                                                                                                 |
|                                                                                                                                  |  |  $                    549,406                        |
|                                                                                                                                  |  |  ===============                                                                                                                                         |
|                                                                                                                                  |  |                                                                                                                                                                    |
| See accompanying notes to unaudited financial statements.                                          |  |
|                                                                                                                                  |  |                                                                                                                                                                    |

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| **VillageEDOCS**                                                                                    |  |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     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| **Statements of Operations**                                                              |  |  |  |  |
| **For the Three Months Ended March 31, 2003 and 2002** |  |  |
| **(Unaudited)**                                                                                     |  |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              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|                                                                                                     |  |  |  |  | **Three Months Ended March 31,****2003****2002** --------------------  -------------------- Net sales $               438,790  $                407,149 Cost of sales                  213,198                    205,044  --------------------  --------------------          Gross profit                  225,592                    202,105  --------------------  -------------------- Operating expenses:      Product and technology         development                  136,294                      93,723       Sales and marketing                  202,225                      96,303       General and administrative                  266,258                    178,007       Depreciation and amortization                    33,853                      25,817 --------------------  --------------------          Total operating expenses                  638,630                    393,850  --------------------  --------------------          Loss from operations                 (413,038)                 (191,745)Interest expense                 (294,285)                   (62,470) --------------------  --------------------                Loss before provision for             income taxes                 (707,323)                 (254,215)Provision for income taxes                         800                           800  --------------------  --------------------          Net loss $              (708,123) $              (255,015) =============  ============= Basic and diluted loss available to   common stockholders per common   share $                    (0.02) $                    (0.02) =============  ============= Weighted average shares outstanding             30,498,583               14,081,500  =============  ============= See accompanying notes to unaudited financial statements.**VillageEDOCS****Statements of Cash Flows****For the Three Months Ended March 31, 2003 and 2002****(Unaudited)****2003****2002**--------------------------------------------Cash Flows from Operating Activities:   Net loss $              (708,123) $                 (255,015)   Adjustments to reconcile net loss to net cash      used in operating activities:         Depreciation and amortization            33,853                         25,817                  Provision for loss on doubtful accounts receivable                      5,852                         17,778                  Imputed interest expense on convertible debentures                  256,964                                   -                  Common stock issued to employees and             non-employees for services rendered                  116,217                                   -          Common stock issued for settlement of debt                    24,000    -          Changes in operating assets and liabilities:            Accounts receivable                   (46,904)                      (80,491)            Other current assets                   (42,700)                                  -             Accounts payable                    14,616                           6,278             Accrued expenses and other                    73,290                         69,919 --------------------------------------------               Net cash used in operating activities                 (272,935)                    (215,714)--------------------------------------------Cash Flows from Investing Activities:   Purchases of property and equipment                   (37,580)                      (30,554)   Web site development costs                              -                       (42,970) --------------------------------------------               Net cash used in investing activities                   (37,580)                      (73,524) --------------------------------------------Cash Flows from Financing Activities:           Proceeds from convertible notes payable to related parties                  317,000                       290,000    Principal payments under capital leases                   (20,037)                      (21,022)   Proceeds from the exercise of warrants                              -                           1,417  --------------------------------------------               Net cash provided by financing activities                  296,963                       270,395  --------------------------------------------   Net change in cash                   (13,552)                      (18,843)   Cash, beginning of period                    53,327                         39,321 --------------------------------------------   Cash, end of period $                 39,775  $                     20,478  ==============  ============== Supplemental disclosure of cash flow information -   Cash paid during the period for:               Interest $                      333  $                       4,748  ==============  ==============                Income taxes $                      800  $                          800  ==============  ============== continued.Supplemental Schedule of Noncash      Investing and Financing Activities:During the quarter ended March 31, 2003 the      Company financed certain computer equipment totaling $15,854through a capital lease.See accompanying notes to unaudited financial statements.
 

**VillageEDOCS**

**Notes to Unaudited FinancialStatements - March 31, 2003**

 

**NOTE 1 - SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

1.          Management'sRepresentation

The management ofVillageEDOCS (the "Company") without audit has prepared the financialstatements included herein.  Theaccompanying unaudited financial statements have been prepared in accordancewith accounting principles generally accepted in the United States of Americafor 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 March 31, 2003, and the results of operations and cash flows for thethree months ended March 31, 2003 and 2002.

It is suggested thatthese unaudited financial statements be read in conjunction with the auditedfinancial statements and notes thereto for the year ended December 31, 2002,included in the Company's Annual Report on Form 10-KSB filed with theSecurities and Exchange Commission on March 28, 2003.  The interim results are not necessarily indicative of the resultsfor a full year.

2.          Backgroundand Organization

VillageEDOCS was incorporated in 1995 in Delaware andreincorporated in California in 1997. The Company develops and marketsinternet-enabled fax services to organizations throughout the United States andinternationally.

3.          GoingConcern

Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern. The Company has a working capital deficit andhas incurred significant losses from operations in each year sinceinception.  The Company's losses arecontinuing and are expected to continue until such time as the Company is ableto sufficiently expand its internet-enabled fax services. 

TheCompany's success is dependent upon numerous items, certain of which are thesuccessful implementation and marketing of its internet-enabled fax services,its ability to obtain new customers in order to achieve levels of revenuesadequate to support the Company's current and future cost structure, and itssuccess in obtaining financing for equipment and operations, for which there isno assurance. Unanticipated problems, expenses, and delays are frequentlyencountered in establishing a new business. These include, but are not limited to, competition, the need to developcustomer support capabilities and market expertise, setbacks in productdevelopment, technical difficulties, market acceptance and sales andmarketing.  The failure of the Companyto meet any of these conditions could have a materially adverse effect upon theCompany and may force the Company to reduce or curtail operations. No assurancecan be given that the Company can, or will ever, operate profitably.

Untilsufficient revenue levels are achieved, the Company will require additionalfinancing to support its operations. Such sources of financing could includecapital infusions, additional equity financing or debt offerings. Managementplans to obtain convertible debt and equity financing from existing shareholdersand equity financing from new shareholders during the remainder of 2003.  Management is actively pursuing both ofthese financing arrangements.  If theplanned financings are obtained, the Company believes it will have adequatecash to sustain operations until it becomes profitable.  There can be no assurance that funding willbe available on acceptable terms, if at all, or that such funds, if raised,would enable the Company to achieve and maintain profitable operations.

Thesefactors, among others, raise substantial doubt about the Company's ability tocontinue as a going concern.  Thefinancial statements do not include any adjustments to reflect the possiblefuture effects on the recoverability and classification of assets or theclassification of liabilities that might result from the outcome of theseuncertainties.

4.           Summaryof Significant Accounting Policies

Concentration of Credit Risk

TheCompany extends credit to its customers and performs ongoing credit evaluationsof such customers.  The Company does notobtain collateral to secure its accounts receivable.  The Company evaluates its accounts receivable on a regular basisfor collectibility and provides for an allowance for potential credit losses asdeemed necessary.  At March 31, 2003,the Company has recorded an allowance for doubtful accounts of approximately$30,000.  No single customer accountedfor more than 10% of accounts receivable at March 31, 2003 and 2002.  No single customer accounted for more than5% of total sales for the three months ended March 31, 2003.  One customer accounted for approximately 13%of total sales for the three months ended March 31, 2002.  

Use of Estimates in the Preparation of FinancialStatements

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Significant estimates made by management are,among others, the realizability of accounts receivable, property and equipmentand web site development costs, and valuation of deferred tax assets.   Actual results could differ from thoseestimates.

Revenue Recognition

TheCompany provides internet-enabled fax services to businesses and charges forthese services on either a per page faxed or per minute used basis. Servicerevenues are recognized when the services are performed.  

Risks andUncertainties

The Company operates ina 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

Basicloss per share is computed by dividing loss available to common shareholders bythe weighted average number of common shares assumed to be outstanding duringthe period of computation. Diluted loss per share is computed similar to basicloss per share except that the denominator is increased to include the numberof additional 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, 14,422,334and 0 as of March 31, 2003 and 2002, respectively, have been excluded fromdilutive loss per share, as their effect would be anti-dilutive for the periodsended March 31, 2003 and 2002.

Segment Information

The Company views its operations and manages its business as principallyone segment.

Comprehensive Income

The Company has no items of comprehensive income.

Stock-Based Compensation

The Company accounts for non-employee stock-based compensation underStatement of Financial Accounting Standards ("SFAS") No. 123, "*AccountingFor Stock-Based Compensation*."  SFAS No.123 defines a fair value based method of accounting for stock-basedcompensation.  However, SFAS No. 123 allowsan entity to continue to measure compensation cost related to stock and stockoptions issued to employees using the intrinsic method of accounting prescribedby Accounting Principles Board Opinion No. 25 ("APB 25"), "*Accountingfor Stock 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 No.123 had been applied.

In December 2002, SFAS No. 148, "Accountingfor Stock-Based Compensation - Transition and Disclosure", was issued.  SFAS No. 148 amends SFAS No. 123 to providealternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation.  In addition, SFAS No. 148 amends thedisclosure requirements of SFAS No. 123 to require prominent disclosures inboth annual and interim financial statements about the method of accounting forstock-based employee compensation and the effect of the method used on reportedresults.  The provisions of SFAS No. 148are effective for financial statements for fiscal years ending after December15, 2002.  The Company adopted thedisclosure provisions of SFAS No. 148 in these financial statements.  The Companydoes not anticipate adopting the fair value based method of accounting forstock-based compensation.

At March 31, 2003, the Company has two stock-basedemployee compensation plans.  TheCompany accounts for those plans under the recognition and measurementprinciples of APB 25, and related interpretations (see Note 6).  During the three months ended March 31, 2003 and 2002, nostock-based employee compensation cost is reflected in the accompanying unaudited statements of operations, as all options granted under those planshad exercise prices equal to or greater that the market value of the underlyingcommon stock on the date of grant.  Thefollowing table illustrates the effect on net loss and loss per share if theCompany had applied the fair value recognition provisions of SFAS No. 123, tostock-based employee compensation:

**Three months ended March 31,**

**2003**

**2002**

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

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

Net loss as  reported

$ (708,123)

$ (255,015)

 

 

Deduct:  Total stock-based employee

 

 

compensation  expense under APB 25

--   

--   

 

 

Add:  Total stock-based employee

 

 

compensation  expense under fair value

 

 

based method for  all awards, net of

 

 

related tax effects

(279,541)

(104,159)

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

------------------
  Pro forma net loss
$ (987,664)

$ (359,174)

==========

==========

Basic and diluted  loss per share - as

 

 

reported

$          (0.02)

$         (0.02)

==========

==========

Basic and diluted  loss per share - pro

 

 

forma

$          (0.03)

$         (0.03)

==========

==========

 

 

 

Web Site Development Costs

During the three months ended March 31, 2003, the Company did notcapitalize any costs related to the web site in accordance with the EmergingIssues Task Force Issue No. 00-2, "*Accounting for Web Site DevelopmentCosts.*" 

Advertising

The Company expenses all advertising costs as incurred.  Advertising costs were $33,220 and $11,926for the three months ended March 31, 2003 and 2002, respectively.

 

5.           ConvertibleNotes Payable to Related Parties

During the threemonths ended March 31, 2003, the Company borrowed $317,000 from C. Alan andJoan P. Williams and issued convertible promissory notes bearing interest at 10percent per annum (the "Notes").  The Notes are secured by a security interest in all of theCompany's assets.  The notes and accrued interest 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 into shares ofthe Company's common stock at a conversion price equal to the lower of $0.07per share 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.  The beneficial conversion feature resulted in a charge tointerest expense in the accompanying statement of operations of $256,964 duringthe three months ended March 31, 2003.

Total interestexpense recognized on all the convertible notes payable was $292,606 and$57,723 during the three months ended March 31, 2003 and 2002,respectively.  Total interest accruedand not paid on the convertible notes payable to related parties as of March31, 2003 totaled $440,587 and is included in the accompanying balance sheet.

 

6.           Stockholders'Equity (Deficit)

a.        Common Stock 

On January 28, 2003, the Company entered into an agreement with anon-related party pursuant to which the party agreed to accept 109,091 sharesof the Company's common stock as payment in full for $24,000 in consulting feesowed to the party by the Company for product and service marketing consultingservices.  The shares were issued onFebruary 11, 2003.

On February 11, 2003, the Company issued 510,124 shares of restrictedcommon stock to consultants and employees in consideration for services valuedat $71,417, and 320,000 shares that were issued to the Company's formerfounder, who is a less than ten percent shareholder, in consideration formarketing communications services valued at $44,800, at $0.14 per share (fairmarket value on the date of issuance).

b.        Stock Options

Effective January 30, 2002, the Board of Directors of the Company adoptedan equity incentive plan (the "2002 Plan") that authorized the issuance ofoptions to acquire up to 6,226,258 shares of common stock to employees andcertain outside consultants.   OnNovember 25, 2002, the Board of Directors of the Company increased the numberof shares reserved for issuance pursuant to the 2002 Plan to 11,634,584shares.  On November 27, 2002, thestockholders of the Company approved the 2002 Plan and the number of sharesreserved for issuance pursuant to the 2002 Plan.  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.  The number ofoptions under the 2002 Plan available for grant at March 31, 2003 was 3,958,830.

Options to purchase 75,000 shares of the Company's common stock underthe 2002 Plan at $0.1875 per share (above or at the fair market value on thedates of grant) were issued to employees during the quarter ended March 31,2003, vesting on various dates from the date of grant through March, 2008.    

Options to purchase 50,000 shares at $0.10 (the fair market value on thedate of grant) were granted to a non-employee consultant during the quarterended March 31, 2003.  These optionsvest on February 28, 2004.  Totalconsulting expense to be recognized in the statement operations over thevesting period pursuant to SFAS No. 123 is $4,500, none of which was recognizedduring the quarter ended March 31, 2003.

199,609 options under the 2002 or 1997 Plan were cancelled during thequarter ended March 31, 2003 due to their expiration or the termination ofemployment.

c.        Warrants

There was no warrant activity for the quarterended March 31, 2003.

7.           Earningsper Share

              Basicand diluted loss per common share is computed as follows:
   
**March  31,**

 

**March  31,**
   
**2003 **

**     **

**2002 **
   
Numerator for basic and diluted  loss per common share:

**-------------**

 

**---------------**
   
   Net loss  available to common stockholders

$ (708,123)

 

$ (255,015)
   
========

 

=========
   
 

 

 
   
Denominator for basic and diluted  loss per common share:

 

 

 
   
   Weighted average  common shares outstanding

 

30,498,583 

 

14,081,500 
   
========

 

=========
   
Net loss per common  share available to common stockholders

 

 

 
   
 

 

 
   
Net loss per share

$      (0.02)

 

$         (0.02)
   
 

========

 

=========

8.           Litigation

The Company is, from time to time,involved in various legal and other proceedings that arise in the ordinarycourse of operating its business. In the opinion of management, the amount ofultimate liability, if any, with respect to these actions will not materiallyaffect the financial position or results of operations of the Company. 

9.           SubsequentEvents

Subsequent to March 31, 2003, theCompany borrowed an additional$85,000 from C. Alan and Joan P. Williams and issued convertible promissorynotes with terms identical to those described in Note 5 above.  The beneficial conversion feature willresult in a charge to interest expense in the quarter ended June 30, 2003.

Effective May 26, 2003, the Company and H. Jay Hill, who is a currentDirector of the Company, have entered into an Executive Employment Agreementpursuant to which Mr. Hill will serve as the Company's Executive Vice Presidentof Corporate Development in consideration for an annual base salary of $60,000,options to purchase 1,500,000 shares of the Company's common stock at $0.18 pershare vesting at various dates through May 2007, options to purchase 1,000,000shares of the Company's common stock at $0.10 per share vesting at variousdates through May 2005, and the opportunity to earn additional cash and stockcompensation based upon certain performance criteria as set forth in theagreement.  The exercise prices of allstock options granted were either at or above the fair market value of theCompany's common stock on the date of grant.

 

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

 

**FORWARD-LOOKING INFORMATION**

*ThisQuarterly Report on Form 10-QSB includes forward-looking statements within themeaning of Section 21E of the Securities Exchange Act of 1934, as amended. Allstatements that do not directly and exclusively relate to historical factsconstitute forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These statements are based on our plans, intentions, expectation, andbelief and are subject to certain risks and uncertainties that could causeactual results to differ materially from those projected or expressed herein.The words "anticipated," "believe," "expect,""plan," "intended," "seek," "estimate,""project," "will," "could," "may," andsimilar expressions are intended to identify forward-looking statements. Thesestatements include, among others, information regarding future operations,future capital expenditures, and future net cash flow. Such statements reflectthe Company's current views with respect to future events and financialperformance and involves risks and uncertainties, including, withoutlimitation, general economic and business conditions, changes in foreign,political, social and economic conditions, regulatory initiatives andcompliance with governmental regulations, the ability to achieve further marketpenetration and additional customers, and various other matters, many of whichare beyond the Company's control, including, without limitation, the risks describedunder the caption "Factors That May Affect Future Results" in Item 6of the Company's Annual Report on Form 10-KSB filed with the Securities andExchange Commission on March 28, 2003. Our future results and stockholdervalues may differ materially from those expressed in these forward- lookingstatements. Many of the factors that will determine these results and valuesare beyond our ability to control or predict. Investors are cautioned not toput undue reliance on any forward-looking statements. For these statements, weclaim the protection of the safe harbor for forward-looking statementscontained in Section 21E of the Exchange Act.*

**WEBSITE ACCESS TO REPORTS**

** **Our principal executive offices are currently located at 14471 ChambersRoad, Suite #105, Tustin, CA 92780.  The Company's Internetwebsite address is www.villageedocs.com.  The Company's annual reports on Form 10-KSB,quarterly reports on Form 10-QSB, and current reports of Form 8-K, and all amendmentsthereto, are available free of charge on the Company's website as soon asreasonably practical after such reports are electronically filed with, orfurnished to, the U.S. Securities and Exchange Commission.

**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 March 31, 2003, and theunaudited statements of operations and cash flows for the three months endedMarch 31, 2003 and 2002, and the related notes thereto as well as the auditedfinancial statements of the Company for the years ended December 31, 2002 and2001, included in the Company's Annual Report on Form 10-KSB filed with theSecurities and Exchange Commission on March 28, 2003.  This discussion contains forward-looking statements based uponcurrent expectations that involve risks and uncertainties, 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 2003 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, 2002 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 issuingconvertible debt to existing shareholders during 2003. In addition, managementplans to seek equity or a combination of equity and debt financing from newshareholders and/or lenders in the second quarter of 2003.  Management is actively pursuing both ofthese financing arrangements. Between January and April 2003, one of ourshareholders loaned us  $402,000 to fundour operating shortfalls; however, he has no binding obligation to continueproviding funds. If the planned financings are obtained and/or the shareholdercontinues to cover our operating shortfalls, the Company believes it will haveadequate cash to sustain operations until it becomes profitable. There can beno assurance 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. 

**CRITICAL ACCOUNTING POLICIES**

In preparing our 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 valueof certain assets on our balance sheet. We believe that there are several accounting policies that are critical toan understanding of our historical and future performance as these policiesaffect the reported amounts of revenues, expenses, and significant estimatesand judgments applied by management. While there are a number of accounting policies, methods and estimatesaffecting our financial statements, areas that are particularly significantinclude revenue recognition, stock-based compensation, and web site developmentcosts.  In addition, please refer toNote 4 to the accompanying financial statements for further discussion of ouraccounting policies.

Revenue Recognition. The Company provides internet-enabled fax services to businesses andcharges for these services on either a per page faxed or per minute used basis.Service revenues are recognized when the services are performed.  

Stock-Based Compensation.  The Company accounts for non-employee stock-based compensationunder Statement of Financial Accounting Standards No. 123 ("SFAS123"), "Accounting For Stock-Based Compensation."  SFAS 123 defines a fair value based methodof accounting for stock-based compensation. However, SFAS 123 allows an entity to continue to measure compensationcost related to stock and stock options issued to employees using the intrinsicmethod of accounting prescribed by Accounting Principles Board Opinion No. 25, asamended ("APB 25"), "Accounting for Stock Issued to Employees."Under APB 25, compensation cost, if any, is recognized over the respectivevesting period based on the difference, on the date of grant, between the fairvalue of the Company's common stock and the grant price. Entities electing toremain with the accounting method of APB 25 must make pro forma disclosures ofnet income and earnings per share, as if the fair value method of accountingdefined in SFAS 123 had been applied. The Company has elected to account forits stock-based compensation to employees under APB 25.

Web Site Development.  The Company capitalizes costs related to its web site developmentin accordance with the Emerging Issues Task Force Issue No. 00-2,"Accounting for Web Site Development Costs."  Web site development costs are amortizedusing the straight-line method over the estimated useful life of three years.

 

**RESULTS OF OPERATIONS**
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31,2002
**Net Sales**

Net sales for the three months ended March 31, 2003 were$438,790, an 8% increase over net sales for prior year quarter of$407,149.  The increase in the 2003quarter reflected a growth in the number of customers billed.

**Costof Sales**

Cost of sales for the three months ended March 31, 2003 were$213,198 as compared to the $205,044 reported for the three months ended March31, 2002.  Cost of sales during the 2003quarter represented 49% of sales as compared with 50% of sales in the 2002quarter reflecting no significant change in equipment, operations staff, ortelecommunications costs despite increased sales.

**GrossProfit**

Gross profit for the three months ended March 31, 2003increased 12% to $225,592 as compared to $202,105 for the prior yearquarter.  The increase of $23,487 isattributable to the increase in sales volume for the Company's internet-enabledfax services.

**OperatingExpenses**

Operating expenses for the three months ended March 31, 2003increased by 62% to $638,630 from the $393,850 reported in the three monthsended March 31, 2002, an increase of $244,780. Product and technology development increased $42,571 to $136,294 fromthe $93,723 reported in the prior year quarter because none of the payroll costsfor the 2003 quarter were capitalized as they were not related to web sitedevelopment.  Sales and marketingincreased by $105,922 to $202,225 from the $96,303 reported in the prior yearquarter due to the addition of sales staff and an increase in spending on saleslead generation programs.  General andadministrative increased by $88,251 to $266,258 from the $178,007 reported inthe prior year quarter.   The overall increase was comprisedof increases in consulting fees, and, to a lesser extent, accounting fees andpayroll offset by a decreases in bad debt, insurance, and legal fees.  Depreciation and amortization expenseincreased $8,036 to $33,853 from the $25,817 reported in the 2002 quarter dueto an increase in capitalized web site development costs.  During the three months ended March 31,2003, expenses related to product and technology development, sales andmarketing, general and administrative, and depreciation and amortizationrepresented 31%, 46%, 61%, and 8% of net sales, respectively.

**InterestExpense**

Interest expense for the quarter ended March 31, 2003increased 371% to $294,285 from the $62,470 reported in the prior year quarterprimarily because the terms of all new convertible secured promissory notespayable issued in the 2003 quarter allow conversion at a price which was lessthan the fair market value of the Company's common stock on the dates ofissuance, which was not the case during the 2002 quarter.  The beneficial conversion feature resultedin a charge to interest expense of $256,964 during the quarter ended March 31,2003.  Interest expense incurred inconnection with capital leases decreased in the 2003 quarter as compared withthe 2002 quarter.

**NetLoss**

As a result of the foregoing, net loss for the three monthsended March 31, 2003 was $708,123, or $0.02 per share, compared to a net lossof $255,015, or $0.02 per share, for the three months ended March 31, 2002 onweighted average shares of 30,498,583 and 14,081,500, respectively.

** **

**LIQUIDITY**

During thethree months ended March 31, 2003, the Company's net cash position decreased by$13,552 to $39,775. Although the Company generated $296,963 from financingactivities, the Company's operating and investing activities used net cashof  $272,935 and $37,580, respectively.  These activities contributed to a net workingcapital deficit as of March 31, 2003 of $157,236.

Net cash used in operating activities for the three monthsended March 31, 2003 was $272,935 an increase of $57,221 from the $215,714 usedin operating activities for prior year period, mainly due to the increase innet loss for 2003. 

The Company's investing activities consisted of the purchaseof computer equipment. Net cash used for investment activities decreased$35,944 to $37,580 from the $73,524 reported for 2002 due to decreasedcapitalized 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 three monthsended March 31, 2003 was $296,963, and included proceeds of  $317,000 from stockholder loans, andprincipal payments on capital leases of $20,037. Net cash provided by financingactivities for the three months ended March 31, 2002 was $270,395, and includedproceeds of  $290,000 and $1,417 fromstockholder loans and warrant exercises, respectively, and principal paymentson capital leases of $21,022. 

**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 2003. We currentlyanticipate that our available cash resources will be insufficient to meet ouranticipated working capital and capital expenditure requirements through May31, 2003.  Accordingly, we believe wewill require up to approximately $3 million in additional financing to support our operations until we becomeprofitable.  The issuance of additional common stock in thefuture will reduce the proportionate ownership and voting power of our commonstock held by existing stockholders.  In our opinion,together with our current revenue stream, we have sufficient cash to operate atadequate staffing levels through July 2003.

Between November2000 and at least December 2003, our operating shortfalls have been, and areexpected to be, funded by one shareholder, an affiliate, who has loaned us$3,226,245 through May 8, 2003 for that purpose. Assuming that this shareholdercontinues to fund our operations, we will be able to sustain operations atcurrent levels. However, this shareholder has no obligation to continue to fundour operating shortfalls and could stop doing so at any time.  We may be required to alter the terms of theconvertible promissory notes held by this shareholder to induce thisshareholder or other such potential lenders to provide additional loans, whichcould result in this shareholder or other such potential lenders obtainingrights, preferences or privileges senior to those of other creditors or 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. 

Frominception through March 31, 2003, we generated revenue of only approximately$4,117,000 and we incurred total expenses of approximately $13,608,000 duringthat same period. We have incurred net losses each year since our inception. Asof March 31, 2003, we had an accumulated deficit of $10,572,333.  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 April 30, 2003, the Company hasreceived approximately $5,900,000 from the sale of common stock andconvertible notes, $2,039,245 of which were converted into shares of commonstock on May 15, 2002.

The Independent Auditors' Report on our December 31, 2002financial statements includes an explanatory paragraph stating that therecurring losses incurred from operations and a working capital deficiencyraise substantial doubt about our ability to continue as a going concern. Thefinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

**RECENT DEVELOPMENTS**

During April 2003, the Company has obtained cash of $85,000in consideration for convertible notes issued to one stockholder, who is anaffiliate. The notes bear interest at 10 percent per annum. The notes andaccrued interest are due at the earlier of one of three events: 1) acquisitionof a controlling interest in the Company by a third party; 2) October 31, 2005;or 3) the receipt by the Company of $3,000,000 or more from an equityfinancing. If the Company achieves the equity financing, the stockholders havethe option to convert the notes plus accrued interest into common stock at thelower of $2.50 per share or the price per share of common stock issued in theequity financing. If the Company is acquired, the stockholders have the optionto convert the notes plus accrued interest into common stock at the lower of$2.50 per share or the price per share paid by the acquirer. The notes areconvertible at any time at the option of the holder at a price equal to thelower of $0.07 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 the holderdelivers written notice of conversion election to the Company.
 
**ITEM 3 - CONTROLS ANDPROCEDURES**

Asrequired by Rule 13a-15 under the Securities Exchange Act of 1934, within the90 days prior to the filing date of this report, the Company carried out anevaluation of the effectiveness of the design and operation of the Company'sdisclosure controls and procedures. This evaluation was carried out under the supervision and with theparticipation of the Company's management, including the Company's ChiefExecutive Officer and the Company's Chief Financial Officer, who concluded thatthe Company's disclosure controls and procedures are effective.  There have been no significant changes inthe Company's internal control or in other factors, which could significantlyaffect internal controls subsequent to the date the Company carried out itsevaluation.

Disclosurecontrols and procedures are controls and other procedures that are designed toensure that information required to be disclosed in the Company reports filedor submitted under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the Securities and ExchangeCommission's rules and forms. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed inCompany reports filed under the Exchange Act is accumulated and communicated tomanagement, including the Company's Chief Executive Officer and Chief FinancialOfficer as appropriate, to allow timely decisions regarding requireddisclosure.

**PART II**

 

**ITEM 1 - LEGALPROCEEDINGS.**

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

A marketing companyhad threatened legal action related to its claim that the Company owed it$48,000 for services rendered. The Company agreed that it owed $24,000 for suchservices, which amount was recorded as a liability in the Company's financial statementsas of December 31, 2002.   On January28, 2003, the Company entered into an agreement with the sole principal of themarketing company pursuant to which the principal agreed to accept 109,091shares of the Company's common stock in full and final settlement of all claimsagainst the Company by the marketing company and its principal.  The shares were issued on February 11, 2003.

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.**

On January 28, 2003,the Company entered into an agreement with a non-related party pursuant towhich the party agreed to accept 109,091 shares of the Company's common stockas payment in full for $24,000 in consulting fees owed to the party by theCompany for product and service marketing consulting services.  The shares were issued on February 11, 2003.

On February 11, 2003,the Company issued 510,124 shares of restricted common stock to consultants andemployees in consideration for services valued at $71,417, and 320,000 sharesthat were issued to the Company's former founder, who is a less than tenpercent shareholder, in consideration for marketing communications servicesvalued at $44,800.

On February 11, 2003,the Company issued 510,124 shares of restricted common stock at  $0.14 per share to consultants and employeesin consideration for services valued at $71,417, and 320,000 shares that wereissued to the Company's former founder, who is a less than ten percentshareholder, in consideration for marketing communications services valued at$44,800.

Options to purchase75,000 shares of the Company's common stock under the 2002 Plan at $0.1875 pershare (above or at the fair market value on the dates of grant) were issued toemployees during the quarter ended March 31, 2003, vesting on various datesfrom the date of grant through March, 2008.

Options to purchase50,000 shares at $0.10 (the fair market value on the date of grant) weregranted to a non-employee consultant during the quarter ended March 31,2003.  These options vest on February28, 2004.

During the threemonths ended March 31, 2003, the Company borrowed $317,000 from C. Alan andJoan P. Williams and issued convertible promissory notes bearing interest at 10percent per annum (the "Notes").  The Notes are secured by a security interest in all of theCompany's assets.  The notes and accrued interest 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 into shares ofthe Company's common stock at a conversion price equal to the lower of $0.07per share 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.  

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.**

None.

 

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

None. 

** **

**ITEM 5 - OTHERMATTERS.**

Effective May 26, 2003, the Companyand H. Jay Hill, who is a current Director of the Company, have entered into anExecutive Employment Agreement pursuant to which Mr. Hill will serve as theCompany's Executive Vice President of Corporate Development in considerationfor an annual base salary of $60,000, options to purchase 1,500,000 shares ofthe Company's common stock at $0.18 per share vesting at various dates throughMay 2007, options to purchase 1,000,000 shares of the Company's common stock at$0.10 per share vesting at various dates through May 2005, and the opportunityto earn additional cash and stock compensation based upon certain performancecriteria as set forth in the agreement. The exercise prices of all stock options granted were either at or abovethe fair market value of the Company's common stock on the date of grant.

 

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

a)    Exhibits
   
  4.1

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.
   
  4.2

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.
   
  4.3

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.
   
10.1

Debt settlement agreement dated  January 28, 2003 by and between the Company and James R. Spoerl.  Previously filed as Exhibit 4.9 to the  Company's Registration Statement on Form S-8 filed with the Securities and  Exchange Commission on January 29, 2003.
   
10.2

Consulting and Other Services agreement dated January 28,  2003 by and between the Company and Paul Allen.  Previously filed as Exhibit 4.8 to the Company's Registration  Statement on Form S-8 filed with the Securities and Exchange Commission on  January 29, 2003.
   
10.3

Executive Employment Agreement effective as of May 26,  2003 by and between the Company and H. Jay Hill.*
   
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  May 14, 2003 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  May 14, 2003 by Michael A. Richard, Principal Accounting Officer.*
            
*

Filed herewith

(b)     Reports on Form 8-K
   
Date

Subject
   
January 14, 2003

Change of auditors to  Corbin & Company LLP, a successor firm to Corbin & Wertz.

** **

** **

** **
 
**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:  May  15, 2003**

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

**       K.  Mason Conner**

**       Chief  Executive Officer and Director**

**Dated:  May  15, 2003**

**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:  May 15, 2003

/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:  May 15, 2003

/s/ Michael A. Richard

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

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

 

Controller and Principal  Accounting Officer

** **

** **

** **

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