**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

**FORM 10-QSB**

(Mark One)

[**X**]   QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**For thequarterly period ended June 30, 2006**

[   ]   TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT 

For thetransition period from_________, 20__, to________, 20__.

Commission FileNumber: 000-31395

**VillageEDOCS**(Exact name of small business issuer as specified in its charter)

| **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** | ** ** | ** **

**(714) 734-1030**                    |
| (Address of  principal executive offices)                           |            | (Issuer's telephone  number, including area code) |

Check whether the issuer (1) filed all reports required tobe filed by Section 13 or 15(d) of the Exchange Act during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

|  | YES | **X** | NO |   |
|--|-----|-------|----|--------|

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

|  | YES |   | NO**** | **X** |
|--|-----|--------|--------|-------|

**APPLICABLE ONLY TOISSUERS INVOLVED IN BANKRUPTCYPROCEEDINGS DURING THE PRECEDING FIVE YEARS**

Check whether the registrant filed all documents and reportsrequired to be filed by Section 12, 13, or 15(d) of the Exchange Act after thedistribution of securities under a plan confirmed by a court.

|  | YES |   | NO |   |
|--|-----|--------|----|--------|

** **

**APPLICABLE ONLY TOCORPORATE ISSUERS**

There were 148,868,127 shares of the Registrant's commonstock outstanding as of July 31, 2006. 

| Transitional Small Business Format (check one) | YES |  | NO |  **X** |
|------------------------------------------------|-----|--|----|-------------|

----

**VillageEDOCS**

** Index**

** **

** **

| ** ** | ** **                         | Page No. |
|------------|------------------------------------|----------|
| ** ** | **PART I. FINANCIAL  INFORMATION** |          |  |
|            |                                    |          |  |  |  |
|            | Item 1.                            |          |  Consolidated Financial Statements |  |  |
|            |                                    |          |  Consolidated Balance Sheet as of June 30, 2006  (Unaudited) |  | 1 |
|            |                                    |          |  Consolidated Statements of Operations for the three and  six months ended June 30, 2006 and 2005* (Unaudited) |  | 2 |
|            |                                    |          |  Consolidated Statements of Cash Flows for the six months  ended June 30, 2006 and 2005* (Unaudited) |  | 3 |
|            |                                    |          |  Notes to Unaudited Consolidated Financial Statements |  | 5 |
|            | Item 2.                            |          |  Management's Discussion and Analysis or Plan of Operation |  | 23 |
|            | Item 3.                            |          |  Controls and Procedures |  | 34 |
|            |                                    |          |  |  |  |
| ** ** | **PART II. OTHER  INFORMATION**    |          |  |
|            |                                    |          |  |  |  |
|            | Item 1.                            |          |  Legal Proceedings |  | 35 |
|            | Item 2.                            |          |  Unregistered Sales of Equity Securities and Use of  Proceeds |  | 35 |
|            | Item 3.                            |          |  Defaults Upon Senior Securities |  | 35 |
|            | Item 4.                            |          |  Submission of Matters to a Vote of Security Holders |  | 35 |
|            | Item 5.                            |          |  Other Information |  | 35 |
|            | Item 6.                            |          |  Exhibits |  | 36 |
|            |                                    |          |  Signatures |  | 41 |
|            |                                    |          |  |  |  |
|            |                                    | *        | Restated |  |  |

----

| ****
**VillageEDOCS and subsidiaries**                                                       |  |                  |
|----------------------------------------------------------------------------------------------|--|------------------|
| **Consolidated Balance Sheet**                                                               |  |                  |
| **(Unaudited)**                                                                              |  |                  |
|                                                                                              |  | **June 30,**     |
|                                                                                              |  | **2006**         |
| ** **                                                                                   |  |                  |
| **ASSETS**                                                                                   |  |                  |
| Current assets:                                                                              |  |                  |
| Cash                                                                                         |  |  $          | 639,311  |
| Accounts receivable, net of  allowance for doubtful                                          |  |                  |
| accounts of $315,140                                                                         |  | 1,217,401   |
| Inventories, net                                                                             |  | 181,734     |
| Prepaid expenses and other  current assets, net                                              |  | 175,301     |
| Total current assets                                                                         |  | 2,213,747   |
|                                                                                              |  |                  |
| Property and equipment, net                                                                  |  | 515,364     |
| Other assets                                                                                 |  | 72,137      |
| Goodwill                                                                                     |  | 12,081,483  |
| Other intangibles, net                                                                       |  | 1,293,090   |
|                                                                                              |  |  $          | 16,175,821  |
|                                                                                              |  |                  |
|                                                                                              |  |                  |
| **LIABILITIES AND STOCKHOLDERS' EQUITY**                                                     |  |                  |
| Current liabilities:                                                                         |  |                  |
| Accounts payable                                                                             |  |  $          | 918,035  |
| Accrued expenses                                                                             |  | 1,604,483   |
| Deferred revenue                                                                             |  | 2,428,294   |
| Line of credit                                                                               |  | 840,000     |
| Notes payable to related parties                                                             |  | 198,281     |
| Current portion of convertible notes payable and accrued                                     |  |                  |
| interest payable to related  parties, net of unamortized debt                                |  |                  |
| discount of $19,571                                                                          |  | 343,090     |
|         Total current liabilities                         |  | 6,332,183   |
|                                                                                              |  |                  |
| Commitments and contingencies                                                                |  |                  |
|                                                                                              |  |                  |
| Stockholders' equity:                                                                        |  |                  |
| Series A Preferred stock, par  value $0.001 per share:                                       |  |                  |
| Authorized,  -- 48,000,000 shares                                                       |  |                  |
|         Issued and outstanding --  11,000,000 shares |  | 11,000      |
| (liquidation preference of  $550,000)                                                        |  |                  |
| Common stock, no par value:                                                                  |  |                  |
| Authorized -- 400,000,000  shares                                                            |  |                  |
|         Issued and outstanding -- 146,868,127 shares      |  | 17,865,133  |
| Additional paid-in capital                                                                   |  | 13,484,678  |
| Accumulated deficit                                                                          |  | (21,517,173)     |
| Total stockholders' equity                                                                   |  | 9,843,638   |
|                                                                                              |  |  $          | 16,175,821  |
|                                                                                              |  |                  |
| See accompanying notes to consolidated financial  statements.                                |  |                  |

----

 

| **VillageEDOCS  and subsidiaries**                            | ** ** | ** **                      | ** **      | ** **                    | ** ** |                   |            |                  |
|---------------------------------------------------------------|------------|---------------------------------|-----------------|-------------------------------|------------|-------------------|------------|------------------|
| **Consolidated Statements  of Operations**                    | ** ** | ** **                      | ** **      | ** **                    | ** ** |                   |            |                  |
| **(Unaudited)**                                               | ** ** | ** **                      | ** **      | ** **                    | ** ** |                   |            |                  |
| ** **                                                    | ** ** | **Three Months Ended June 30,** | ** **      | **Six Months Ended June 30,** |
| ** **                                                    | ** ** | ** **                      | ** **      | **2005**                      | ** ** | ** **        | ** ** | **2005**         |
|                                                               |            | **2006**                        | ** **      | **(restated)**                |            | **2006**          | ** ** | **(restated)**   |
| Net sales                                                     |            | $                          | 3,034,092  |                               | $     | 2,275,518    |            | $           | 5,101,931  |  | $ | 3,687,500  |
| Cost of sales                                                 |            | 1,112,791                  |                 | 767,406                  |            | 1,816,903    |            | 1,318,892   |
| Gross  profit                                                 |            | 1,921,301                  |                 | 1,508,112                |            | 3,285,028    |            | 2,368,608   |
| Operating expenses:                                           |            |                                 |                 |                               |            |                   |            |                  |
| Product  and technology                                       |            |                                 |                 |                               |            |                   |            |                  |
| development                                                   |            | 536,578                    |                 | 162,897                  |            | 798,698      |            | 352,855     |
| Sales  and marketing                                          |            | 409,333                    |                 | 280,397                  |            | 733,097      |            | 579,111     |
| General  and administrative                                   |            | 1,151,339                  |                 | 759,761                  |            | 2,093,094    |            | 1,385,162   |
| Depreciation  and amortization                                |            | 129,828                    |                 | 114,329                  |            | 212,589      |            | 165,889     |
| Total  operating expenses                                     |            | 2,227,078                  |                 | 1,317,384                |            | 3,837,478    |            | 2,483,017   |
| Income  (loss) from operations                                |            | (305,777)                       |                 | 190,728                  |            | (552,450)         |            | (114,409)        |
|                                                               |            |                                 |                 |                               |            |                   |            |                  |
| Other expense, net of other  income                           |            | (24,557)                        |                 | -                        |            | (23,965)          |            | -           |
| Change in fair value of  derivative liability                 |            | -                |                 | 125,580                  |            | -            |            | 130,903     |
| Interest expense, net of  interest income                     |            | (26,359)                        |                 | (6,777,203)                   |            | (49,667)          |            | (7,168,324)      |
| Loss  before provision for                                    |            |                                 |                 |                               |            |                   |            |                  |
| income  taxes                                                 |            | (356,693)                       |                 | (6,460,895)                   |            | (626,082)         |            | (7,151,830)      |
|                                                               |            |                                 |                 |                               |            |                   |            |                  |
| Provision for income taxes                                    |            | -                |                 | -                        |            | 4,000        |            | 4,200       |
| Net  loss                                                     |            | $                          | (356,693)       |                               | $     | (6,460,895)       |            | $           | (630,082) |  | $  | (7,156,030) |
|                                                               |            |                                 |                 |                               |            |                   |            |                  |
| Basic and diluted loss  available to                          |            |                                 |                 |                               |            |                   |            |                  |
| common  stockholders per common                               |            |                                 |                 |                               |            |                   |            |                  |
| Share                                                         |            | $                          | -          |                               | $     | (0.08)            |            | $           | (0.01) |  | $  | (0.10) |
|                                                               |            |                                 |                 |                               |            |                   |            |                  |
| Weighted average shares  outstanding -                        |            |                                 |                 |                               |            |                   |            |                  |
|  basic and diluted                                       |            | 146,535,158                |                 | 77,934,956               |            | 115,707,360  |            | 69,194,342  |
|                                                               |            |                                 |                 |                               |            |                   |            |                  |
| See accompanying notes to  consolidated financial statements. |            |                                 |                 |                               |            |                   |
|                                                               |            |                                 |                 |                               |            |                   |            |                  |  |  |  |  |  |  |

----

 

| **Consolidated Statements  of Cash Flows**                       |  |                                                                                                  |            |                                                                                            |
|------------------------------------------------------------------|--|--------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|
| **For the Six Months Ended  June 30, 2006 and 2005**             |  |                                                                                                  |            |                                                                                            |
| **(Unaudited)**                                                  |  |                                                                                                  |            |                                                                                            |
| ** **                                                       |  |                                                                                                  |            | **2005**                                                                                   |
|                                                                  |  | **2006**                                                                                         | ** ** | **(restated)**                                                                             |
| Cash Flows from Operating  Activities:                           |  |                                                                                                  |            |                                                                                            |
| Net  loss                                                        |  | $           (630,082)                     |            | $         (7,156,030)                         |
| Adjustments  to reconcile net loss to net cash                   |  |                                                                                                  |            |                                                                                            |
| provided  by operating activities:                               |  |                                                                                                  |            |                                                                                            |
| Depreciation  and amortization                                   |  | 212,589                                                                                     |            | 165,890                                                                               |
| Provision  for doubtful accounts receivable                      |  | 24,879                                                                                      |            | 69,000                                                                                |
| Estimated  fair value of stock options issued  to employees |  |                                                                                                  |            |                                                                                            |
| and  non-employees for services rendered                         |  | 244,591                                                                                     |            | -                                                                                     |
| Common  stock issued to employees and non-employees              |  |                                                                                                  |            |                                                                                            |
| for  services rendered                                           |  | 29,761                                                                                      |            | 28,997                                                                                |
| Interest  expense in connection with inducement                  |  | -                                                                                           |            | 306,429                                                                               |
| Amortization  of debt issue costs                                |  | -                                                                                           |            | 39,000                                                                                |
| Amortization  of debt discount                                   |  | 7,338                                                                                       |            | 6,700,417                                                                             |
| Change  in fair value of derivative liability                    |  | -                                                                                           |            | (130,903)                                                                                  |
| Accrued  interest on convertible notes                           |  | 3,252                                                                                       |            | 86,878                                                                                |
| Changes  in operating assets and liabilities, net of             |  |                                                                                                  |            |                                                                                            |
| acquisition:                                                     |  |                                                                                                  |            |                                                                                            |
| Accounts  receivable                                             |  | 111,416                                                                                     |            | (220,183)                                                                                  |
| Inventories                                                      |  | 8,291                                                                                       |            | (369)                                                                                      |
| Prepaid  expenses and other current assets                       |  | (47,726)                                                                                         |            | 58,278                                                                                |
| Other  assets                                                    |  | (3,295)                                                                                          |            | (31,775)                                                                                   |
| Accounts  payable                                                |  | 108,351                                                                                     |            | (52,430)                                                                                   |
| Accrued  expenses and accrued interest                           |  | (1,063,521)                                                                                      |            | 226,022                                                                               |
| Deferred  revenue                                                |  | 1,173,797                                                                                   |            | 125,239                                                                               |
| Net  cash provided by operating activities                       |  | 179,641                                                                                     |            | 214,460                                                                               |
| Cash Flows from Investing  Activities:                           |  |                                                                                                  |            |                                                                                            |
| Purchases  of property and equipment                             |  | (22,437)                                                                                         |            | (19,137)                                                                                   |
| Additions  to capitalized software development                   |  | (16,144)                                                                                         |            | (9,998)                                                                                    |
| Cash  acquired in acquisition of GSI, net of cash paid           |  | 234,535                                                                                     |            | -                                                                                     |
| Cash  paid for acquisition of PFI                                |  | -                                                                                           |            | (378,189)                                                                                  |
| Costs  incurred for purchase of GSI                              |  | (130,054)                                                                                        |            | -                                                                                     |
| Costs  incurred for purchase of TBS                              |  | -                                                                                           |            | (69,620)                                                                                   |
| Net  cash provided by (used in) investing activities             |  | 65,900                                                                                      |            | (476,944)                                                                                  |
| Cash Flows from Financing  Activities:                           |  |                                                                                                  |            |                                                                                            |
| Proceeds  from notes payable to related parties                  |  | 10,000                                                                                      |            | 20,000                                                                                |
| Proceeds  from notes payable                                     |  | -                                                                                           |            | 715,000                                                                               |
| Payments  on capital lease obligations                           |  | -                                                                                           |            | (4,963)                                                                                    |
| Principal  payments on notes payable                             |  | (108,281)                                                                                        |            | (3,455)                                                                                    |
| Principal  payments on convertible notes to related parties      |  | (200,000)                                                                                        |            | (200,000)                                                                                  |
| Payments  on notes payable to related parties                    |  | (70,000)                                                                                         |            | (40,000)                                                                                   |
| Net  cash (used in) provided by financing activities             |  | (368,281)                                                                                        |            | 486,582                                                                               |
| Net  change in cash                                              |  | (122,740)                                                                                        |            | 224,098                                                                               |
|                                                                  |  |                                                                                                  |            |                                                                                            |
| Cash,  beginning of period                                       |  | 762,051                                                                                     |            | 458,009                                                                               |
| Cash,  end of period                                             |  | $           639,311                  |            | $          682,107                  |
|                                                             |  |                                                                                                  |            |                                                                                            |
| Supplemental disclosure of  cash flow information -              |  |                                                                                                  |            |                                                                                            |
| Cash  paid during the period for:                                |  |                                                                                                  |            |                                                                                            |
| Interest                                                         |  | $            37,342             |            | $           11,805             |
| Income  taxes                                                    |  | $              4,000  |            | $             2,400  |
|                                                                  |  |                                                                                                  |            |                                                                                            |

** **

----

| Supplemental Schedule of  Noncash Investing                   |  |              |                 |                     |
|---------------------------------------------------------------|--|--------------|-----------------|---------------------|
|  and Financing Activities                                |  | **2006**     | ** **      | **2005 (restated)** |
|                                                               |  |              |                 |                     |
|                                                               |  |              |                 |                     |
| Issuance  of common stock as acquisition cost                 |  | $            | 254,100    |                     | $ | 323,400  |
| Issuance  of notes payable in acquisition                     |  | $            | -          |                     | $ | 200,000  |
| Issuance  of common stock on conversion of preferred stock    |  | $            | 2,500      |                     | $ | -  |
| Issuance  of common stock for no consideration                |  | $            | -          |                     | $ | 240  |
| Issuance  of common stock on conversion of debt               |  |              |                 |                     |  |  |
| and  accrued interest                                         |  | $            | -          |                     | $ | 5,177,345  |
| Estimated  fair value of common stock issued in connection    |  |              |                 |                     |  |  |
| with  acquisition                                             |  | $            | 4,266,388  |                     | $ | -  |
| Estimated  fair value of warrants issued in connection        |  |              |                 |                     |  |  |
| with  acquisition                                             |  | $            | -          |                     | $ | 2,205,000  |
| Estimated  fair value of debt discount in in issuance of      |  |              |                 |                     |  |  |
| convertible  note payable                                     |  | $            | -          |                     | $ | 1,041,427  |
| Reclassification  of warrant liability                        |  | $            | -          |                     | $ | 7,302,899  |
| Accrual  for patent license                                   |  | $            | 250,000    |                     | $ | -  |
|                                                               |  |              |                 |                     |
| See accompanying notes to  consolidated financial statements. |  | *** *** | *** ***    |                     |

----

**VillageEDOCS**

**Notes to Unaudited Consolidated Financial Statements -June 30, 2006 and 2005**

** **

**1.          Management'sRepresentation**

The accompanying unaudited consolidated financial statementshave been prepared by VillageEDOCS (the "Company") in accordance with accountingprinciples generally accepted in the United States of America for interimfinancial information. These principles are consistent in all material respectswith those applied in the Company's financial statements contained in theCompany's annual report on Form 10-KSB for the fiscal year ended December 31,2005, and pursuant to the instructions to Form 10-QSB and Item 310(b) ofRegulation S-B promulgated by the Securities and Exchange Commission. Interimfinancial statements do not include all of the information and footnotesrequired by accounting principles generally accepted in the United States ofAmerica for complete financial statements. In the opinion of management, theaccompanying Unaudited consolidated financial statements contain all adjustments(all of which are of a normal recurring nature, including the elimination ofintercompany accounts) necessary to present fairly the financial position,results of operations and cash flows of the Company for the periods indicated.Interim results of operations are not necessarily indicative of the results tobe expected for the full year or any other interim periods. These unauditedconsolidated financial statements should be read in conjunction with thefinancial statements and footnotes thereto contained in the Company's annualreport on Form 10-KSB for the year ended December 31, 2005. 

** **

**2.          Background,Organization and Basis of Presentation**

VillageEDOCS was incorporated in 1995 in Delaware andreincorporated in California in 1997. The Company has historically operated an electronicdocument delivery service marketed to organizations throughout the UnitedStates and internationally.  On February 17, 2004, the Company acquiredTailored Business Systems, Inc. ("TBS").  TBS provides variousprogramming, processing and printing services to governmental entities,including installing software, hardware, printing and mailing of property taxforms.  On June 16, 2004, the holders of a majority of the voting capital stockof the Company voted to approve a Plan of Restructuring that included thereorganization of the Company's electronic document delivery business into awholly owned subsidiary of the Company.  In connection with the reorganization,the Company formed MessageVision, Inc. ("MVI") on October 25, 2004.  EffectiveApril 1, 2005, the Company acquired Phoenix Forms, Inc. dba Resolutions("PFI" or "Resolutions").  Resolutions provides productsfor document management, document archiving, document imaging, imagingsoftware, document scanning, e-mail archiving, document imaging software, andelectronic forms.  Effective May 1, 2006, the Company acquired GoSolutions,Inc. ("GSI").  GSI provides enhanced voice and data communicationsservices including speech-driven messaging, unified communications, and audioconferencing applications. The unaudited consolidated financial statementsinclude the accounts of the Company and those of MVI, TBS, Resolutions, and GSI,its wholly owned subsidiaries, since October 25, 2004, February 17, 2004, April1, 2005, and May 1, 2006, respectively.   All significant inter-companytransactions and balances have been eliminated in consolidation.

*Restatement of Previously Issued Financial Statements*

During the year ended December 31, 2005, the Companydetermined that the manner in which it accounted for the variable conversionrate and an embedded put option of certain of its convertible notes payable(see Note 6) was not in accordance with Statement of Financial AccountingStandards ("SFAS") No. 133 *"Accounting for DerivativeInstruments and Hedging Activities."*  The Company determined that thevariable conversion feature was an embedded derivative instrument and that theconversion option was an embedded put option pursuant to SFAS No. 133. Theaccounting treatment of derivative financial instruments required that theCompany record the derivatives and related warrants at their fair values as ofthe inception date of the note agreements and at fair value as of eachsubsequent balance sheet date.  In addition, under the provisions of theEmerging Issue Task Force ("EITF") Issue No. 00-19, *"Accountingfor Derivative Financial Instruments Indexed to, and Potentially Settled in, aCompany's Own Stock,"* as a result of entering into the convertiblenote agreements, the Company was required to classify all other non-employeewarrants as derivative liabilities and record them at their fair values at eachbalance sheet date.  Any change in fair value was recorded as non-operating,non-cash income or expense at each balance sheet date.  If the fair value ofthe derivatives was higher at the subsequent balance sheet date, the Companyrecorded a non-operating, non-cash charge.  If the fair value of thederivatives was lower at the subsequent balance sheet date, the Companyrecorded non-operating, non-cash income.  Accordingly, in connection with therestatement adjustments, the Company has appropriately reflected thenon-operating, non-cash income or expense resulting from the changes in fairvalue. The Company had previously not recorded the embedded derivativeinstruments as a liability and did not record the related changes in fairvalue. 

During the year ended December 31, 2005, the Company alsodetermined that certain transactions involving the issuance of its commonstock, warrants, and cash to employees in connection with the acquisitions ofTBS and Resolutions during 2005 and 2004 were not recorded in accordance withSFAS No. 141 *"Business Combinations."*

The following tables present asummary of the effects of the restatement adjustments on the Company'sconsolidated balance sheet at June 30, 2005 and the statements of operationsfor the three and six months ended June 30, 2005.

Consolidated balance sheet at June30, 2005:

|                                 |  |   | **As Previously Reported** | ** ** | ** ** | **Restatement Adjustments**                                                                                                                                        | ** **                                                    | ** ** | **Restated**

Debit (Credit) |
|---------------------------------|--|---|----------------------------|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------|------------|------------------------------|
|                                 |  |   | Debit (Credit) Balance     | ** ** | ** ** | Debit (Credit)                                                                                                                                                     | ** **                                                    | ** ** | Balance                      |
|                                 |  |   |                            |            |            |                                                                                                                                                                    |                                                               |            |                              |
| Goodwill                        |  | $ | 5,111,749             |            | $          | (85,240)

(139,377)                                                                                                                                                | (1)

(2)                                                      | $          | 4,887,132               |
|                                 |  |   |                            |            |            |                                                                                                                                                                    |                                                               |            |                              |
| Derivative  Liability           |  | $ | -                          |            | $          | 130,903 

(1,033,802)

(6,400,000)

7,302,899                                                                                                            | (3)

(4)

(6)

 (6)                                      | $          | -                            |
|                                 |  |   |                            |            |            |                                                                                                                                                                    |                                                               |            |                              |
| Convertible  notes payable, net |  | $ | (968,022)                  |            | $          | (157,809)

189,617                                                                                                                                            | (7)

(8)                                                      | $          | (936,214)                    |
|                                 |  |   |                            |            |            |                                                                                                                                                                    |                                                               |            |                              |
| Stockholders'  Equity           |  | $ | (5,483,937)           |            | $          | 536,390 

248,431 

59,364 

85,240 

 (130,903)

157,809 

105,000 

800,000 

(7,302,899)

5,600,000 

34,377  | (9)

(10)

(11)

(1)

 (3)

(7)

(2)

(5)

(6)

(5)

(2) | $          | (5,291,128)                  |
|                                 |  |   |                            |            |            |                                                                                                                                                                    |                                                               |            |                              |

Consolidated statement of operations for the three monthsended June 30, 2005:

|                                               |  |   | **As Previously Reported** | ** ** | ** ** | **Restatement Adjustments**   | ** ** | ** ** | **Restated**            |
|-----------------------------------------------|--|---|----------------------------|------------|------------|-------------------------------|------------|------------|-------------------------|
|                                               |  |   | Debit (Credit) Balance     | ** ** | ** ** | Debit (Credit)                | ** ** | ** ** | Debit (Credit)

Balance |
|                                               |  |   |                            |            |            |                               |            |            |                         |
| Operating  expenses                           |  | $ | 1,279,607             |            | $          | 37,777                        | (12)       | $          | 1,317,384          |
|                                               |  |   |                            |            |            |                               |            |            |                         |
| Change in  fair value of derivative liability |  | $ | -                          |            | $          | (125,580)                     | (3)        | $          | (125,580)               |
|                                               |  |   |                            |            |            |                               |            |            |                         |
| Interest  expense                             |  | $ | 1,110,475                  |            | $          | 66,728 

5,600,000  | (7)

(5)   | $          | 6,777,203          |
|                                               |  |   |                            |            |            |                               |            |            |                         |
| Net loss                                      |  | $ | 881,970                    |            | $          | 5,578,925                | (13)       | $          | 6,460,895          |
|                                               |  |   |                            |            |            |                               |            |            |                         |
| Loss per  common share - basic and diluted    |  | $ | (0.01)                     |            | $          | (0.07)                        |            | $          | (0.08)                  |
|                                               |  |   |                            |            |            |                               |            |            |                         |

Consolidated statement of operations for the six monthsended June 30, 2005:

|                                               |  |   | **As Previously Reported** | ** ** | ** ** | **Restatement Adjustments**    | ** ** | ** ** | **Restated**            |
|-----------------------------------------------|--|---|----------------------------|------------|------------|--------------------------------|------------|------------|-------------------------|
|                                               |  |   | Debit (Credit) Balance     | ** ** | ** ** | Debit (Credit)                 | ** ** | ** ** | Debit (Credit)

Balance |
|                                               |  |   |                            |            |            |                                |            |            |                         |
| Operating  expenses                           |  | $ | 2,436,000             |            | $          | 9,240 

37,777       | (1)

(12)  | $          | 2,483,017          |
|                                               |  |   |                            |            |            |                                |            |            |                         |
| Change in  fair value of derivative liability |  | $ | -                          |            | $          | (130,903)                      | (3)        | $          | (130,903)               |
|                                               |  |   |                            |            |            |                                |            |            |                         |
| Interest  expense                             |  | $ | 1,410,515             |            | $          | 157,809 

5,600,000  | (7)

(5)   | $          | 7,168,324          |
|                                               |  |   |                            |            |            |                                |            |            |                         |
| Net loss                                      |  | $ | 1,482,107             |            | $          | 5,673,923                 | (14)       | $          | 7,156,030          |
|                                               |  |   |                            |            |            |                                |            |            |                         |
| Loss per  common share - basic and diluted    |  | $ | (0.02)                     |            | $          | (0.08)                         |            | $          | (0.10)                  |
|                                               |  |   |                            |            |            |                                |            |            |                         |

1)     Torecord the reclassification of compensation paid to an employee in connectionwith the acquisition of TBS which was previously allocated to the purchaseprice to compensation expense.

2)     Torecord the reclassification of compensation paid to an employee in connectionwith the acquisition of Resolutions which was previously allocated to thepurchase price to compensation expense and record employee stock-basedcompensation as additional paid-in capital.

3)     Torecord the change in fair value of the derivative liability during 2005.

4)     Torecord the estimated fair value of the derivative liability at December 31,2004 and a $3,400 reconciling amount.

5)     Torecord the effect of EITF 00-19 on the estimated fair value of warrants issuedwith certain convertible notes.

6)     Torecord the reclassification of the derivative liability as a result of themodification of convertible notes payable to fix the variable conversion price.

7)     Recordadditional amortization of debt discount related to recording the fair value ofthe warrants, as prescribed under EITF 00-19.

8)     Torecord the additional debt discount based on the fair value of the warrants andembedded put option issued with certain convertible notes.

9)     Torecord the reclassification of the fair value of warrants issued withconvertible notes from additional paid-in capital to derivative liabilityduring prior periods.

10)  To record thechange in fair value of the derivative liability through December 31, 2004 anda $3,400 reconciling amount.

11)  Recordadditional amortization of debt discount during the year ended December 31,2004 related to recording the fair value of the warrants, as prescribed underEITF 00-19.

12)  To record thereclassification to compensation expense of compensation paid to an employee inconnection with the acquisition of Resolutions which was previously allocatedto the purchase price and a $3,400 reconciling amount.

13)  To record thenet effects of the adjustments for the three months ended June 30, 2005.

14)  To record thenet effects of the adjustments for the six months ended June 30, 2005.

 

 

**3.          GoingConcern**

The accompanying consolidated financial statements have beenprepared assuming that the Company will continue as a going concern. TheCompany has incurred significant losses since inception.  The Company's lossesare continuing and are expected to continue until such time as the Company isable to sufficiently expand its existing businesses or is able to consummatebusiness combination transactions with other businesses whose profits aresufficient to offset any ongoing losses from operating the holding company thatowns GSI, Resolutions, TBS and MVI.

The Company's success is dependent upon numerous items, certainof which are the successful growth of revenues from its products and 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 and maintaining profitable operations.  Theseinclude, but are not limited to, competition, the need to develop customersupport capabilities and market expertise, setbacks in product development,technical difficulties, market acceptance and sales and marketing.  The failureof the Company to meet any of these conditions could have a materially adverseeffect on the Company and may force the Company to reduce or curtailoperations. No assurance can be given that the Company can achieve or maintainprofitable operations.

The Company believes it will have adequate cash to sustainoperations until it achieves sustained profitability.  However, until theCompany has a history of maintaining revenue levels sufficient to support itsoperations and repay its working capital deficit, the Company may requireadditional financing. Sources of financing could include capital infusions,additional equity financing or debt offerings.  Although cash flows fromoperations have recently improved to a level sufficient to support operatingexpenses, should such cash flows decrease for any reason, management plans to obtaindebt and equity financing from new and existing stockholders.    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 or sustainprofitable operations.

These factors, among others, raise substantial doubt aboutthe Company's ability to continue as a going concern.  The consolidated financialstatements do not include any adjustments to reflect the possible futureeffects on the recoverability and classification of assets or theclassification of liabilities that might result from the outcome of theseuncertainties.

**4.           Summaryof Significant Accounting Policies**

Segments of an Enterprise andRelated Information 

TheCompany has adopted SFAS No. 131, "*Disclosures about Segments of anEnterprise and Related Information*." SFAS No. 131 requires the Companyto report information about segments of its business in annual financialstatements and requires it to report selected segment information in itsquarterly reports issued to stockholders. SFAS No. 131 also requiresentity-wide disclosures about the products and services an entity provides, thematerial countries in which it holds assets and reports revenues and its majorcustomers. The Company's five reportable segments are managed separately basedon fundamental differences in their operations. At June 30, 2006, the Company operatedin the following five reportable segments (see Note 10): 

> 
(a)  Electronic document deliveryservices,(b)  Government accounting solutions,(c)  Electronic forms,(d)  Integrated communications, and(e)  Corporate. 

TheCompany evaluates performance and allocates resources based upon operatingincome. The accounting policies of the reportable segments are the same asthose described in this summary of significant accounting policies.

Concentration of Credit Risk

TheCompany extends credit to its customers and performs ongoing credit evaluationsof such customers.  The Company does not obtain collateral to secure itsaccounts receivable.  MVI and GSI generally require a valid credit card or ACHdebit account to collateralize credit extended to non-corporate clients. TheCompany evaluates its accounts receivable on a regular basis for collectibilityand provides for an allowance for potential credit losses as deemed necessary. At June 30, 2006, the Company has recorded an allowance for doubtful accountsof $315,140.  

Forthe six months ended June 30, 2006, independent representatives of oneenterprise accounted for approximately 15% of total revenues.  There were nosuch concentrations for the six months ended June 30, 2005. 

Nosingle customer accounted for more than 10% of accounts receivable at June 30,2006.

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, inventories,recoverability of long-lived assets, valuation of stock options, warrants,derivative liabilities, and deferred tax assets.   Actual results could differfrom those estimates.

Property and Equipment

Propertyand equipment are stated at cost and are depreciated using the straight-linemethod over the estimated useful lives of the assets, ranging from three toseven years.  Equipment under capital lease obligations is depreciated over theshorter of the estimated useful life or the term of the lease.  Majorbetterments and renewals are capitalized, while routine repairs and maintenanceare charged to expense when incurred.

Revenue Recognition

TheCompany recognizes revenue in accordance with Staff Accounting Bulletin ("SAB")No. 101, "*Revenue Recognition in Financial Statements,"*as revised by SAB No. 104.  As such, the Company recognizes revenue whenpersuasive evidence of an arrangement exists, title transfer has occurred, orservices have been performed, the price is fixed or readily determinable andcollectibility is probable.  Sales are recorded net of sales discounts.

TheCompany has adopted Statement of Position ("SOP") 97-2, *"SoftwareRevenue Recognition"*, as well as SOP 98-9, *"Modification ofSOP 97-2, Software Revenue Recognition with Respect to CertainTransactions."*  The SOPs generally require revenue earned onsoftware arrangements involving multiple elements to be allocated to eachelement based on the relative fair market values of each of the elements. Thefair value of an element must be based on vendor-specific objective evidence("VSOE") of fair value. Software license revenue generated by TBS andResolutions, allocated to a software product is recognized upon delivery of theproduct, or deferred and recognized in future periods to the extent that anarrangement includes one or more elements that are to be delivered at a futuredate and for which VSOE has not been established.  Maintenance and supportrevenue is recognized ratably over the maintenance term.  First-yearmaintenance typically is sold with the related software license and renewed onan annual basis thereafter. Estimated fair values of ongoing maintenance andsupport obligations are based on separate sales of renewals to other customersor upon renewal rates quoted in the contracts. For such arrangements withmultiple obligations, the Company allocates revenue to each component of thearrangement based on the estimated fair value of the undelivered elements. Fairvalue of services, such as consulting or training, is based upon separate salesof these services. The Company at times may enter into multiple-customercontracts in which the Company allocates revenue based on the number ofspecified users at each customer, and recognizes revenue upon customeracceptance and satisfying the other applicable conditions of the abovedescribed accounting policy. 

Servicesrevenue is recognized as the service is performed assuming that sufficientevidence exists to estimate the fair value of the services.  Consulting andtraining services are billed based on contractual hourly rates and revenues arerecognized as the services are performed. Consulting services primarily consistof implementation services related to the installation of the Company'sproducts which do not require significant customization to or modification ofthe underlying software code. 

Revenuefrom subscription agreements consists of fixed monthly fees and usage charges,generally based on per minute rates.  Subscription agreement revenue related toMVI and GSI usage service charges are billed monthly in arrears and theassociated revenues are recognized in the month of service. Recurring chargesfor the GoSoloTM platform are billed in advance on a monthly basis and recordedas deferred revenues. The Company recognizes subscription agreement revenueratably over the service period, which management believes approximates theactual provision of services. Professional service fee revenue consists ofconsulting fees charged to enterprise clients for GoSoloTM platformenhancements. The Company recognizes professional service fee revenue on a timeand materials basis over the service period, which management believesapproximates the actual provision of services.  Wholesale enhanced voicemailservices consists of fees charged to telecommunications providers for use ofthe GoSoloTM platform to provide their customers with hosted electronicvoicemail, billed monthly in arrears and the associated revenues are recognizedin the month of service.

Significantmanagement judgments and estimates must be made in connection with determinationof the revenue to be recognized in any accounting period. If the Company madedifferent judgments or utilized different estimates for any period, materialdifferences in the amount and timing of revenue recognized could result.

Risks andUncertainties

The Company operates inindustries that are subject to intense competition, government regulation andrapid technological change.  The Company's operations are subject tosignificant risks and uncertainties including financial, operational,technological, regulatory and other risks associated with an expandingbusiness, including the potential risk of business failure.

Loss per Share

Basic loss per share iscomputed by dividing loss available to common stockholders by the weightedaverage number of common shares assumed to be outstanding during the period ofcomputation. Diluted loss per share is computed similar to basic loss per shareexcept that the denominator is increased to include the number of additionalcommon shares that would have been outstanding if the potential shares had beenissued and if the additional common shares were dilutive.  All potentiallydilutive shares, approximately 16,000,000 and 37,821,000 as of June 30, 2006and 2005, respectively, have been excluded from diluted loss per share, astheir effect would be anti-dilutive for the periods then ended.

Software DevelopmentCosts

The Company capitalizessoftware development costs pursuant to SFAS No. 86, *"Accounting for theCosts of Computer Software to be Sold, Leased or Otherwise Marketed,"*after technological feasibility of the software is established, which isgenerally the completion of a working prototype and ends upon general releaseof the product to the Company's customers. All costs incurred in the researchand development of new software and costs incurred prior to the establishmentof technological feasibility are expensed as incurred. Capitalized costsconsist of direct costs and allocated overhead associated with the developmentof the software products.  Amortization of software development costs commenceswhen the product becomes available for general release to customers and iscomputed based on the straight-line method over the software's estimatedeconomic life of approximately three years.  The Company reviews theunamortized software development costs at each balance sheet date and, ifnecessary, will write down the balance to net realizable value if theunamortized costs exceed the net realizable value of the asset.

Inventories

Inventories consist primarily ofsupplies, forms and envelopes and are stated at the lower of cost (usingfirst-in, first-out method) or market.

Goodwill and Other IntangibleAssets

Goodwill represents the excess ofacquisition cost over the net assets acquired in a business combination and isnot amortized in accordance with SFAS No. 142, "*Goodwill and OtherIntangible Assets.*" The provisions of SFAS No. 142 require that theCompany allocate its goodwill to its various reporting units, determine thecarrying value of those businesses, and estimate the fair value of thereporting units so that a two-step goodwill impairment test can beperformed.  In the first step of the goodwill impairment test, the fairvalue of each reporting unit is compared to its carrying value.  Managementreviews, on an annual basis, the carrying value of goodwill in order todetermine whether impairment has occurred.  Impairment is based on severalfactors including the Company's projection of future discounted operating cashflows. If an impairment of the carrying value were to be indicated by thisreview, the Company would perform the second step of the goodwill impairmenttest in order to determine the amount of goodwill impairment, if any. 

Identifiable intangibles acquiredin connection with business acquisitions are recorded at their respective fairvalues (see Note 5).  Deferred income taxes have been recorded to theextent of differences between the fair value and the tax basis of the assetsacquired and liabilities assumed.  

The changes in the carrying amountof goodwill for the six months ended June 30, 2006 are as follows (see Note 5):

| Balance, December 31, 2005              |  |  $         | 5,166,132   |
|-----------------------------------------|--|-----------------|------------------|
| Goodwill acquired:                      |  |                 |
|       GSI |  | 6,661,251  |
|       TBS |  | 254,100    |
| Balance, June 30, 2006                  |  |  $         | 12,081,483  |

Long-Lived Assets

In the event that facts andcircumstances indicate that equipment or other long-lived assets may beimpaired, an evaluation of recoverability would be performed.  If anevaluation is required, the estimated future discounted cash flows associatedwith the asset are compared to the asset's carrying amount to determine if animpairment charge is necessary.  The amount of long-lived assetimpairment, if any, is charged to operations in the period in which long-livedasset impairment is determined.  At June 30, 2006, management believes thereis no impairment of its long-lived assets.  There can be no assurance,however, that market conditions will not change or demand for the Company's productsor services will continue, which could result in impairment of long-livedassets in the future.

Stock-Based Compensation

At June 30, 2006, the Company hadtwo stock-based compensation plans.

On January 1,2006, the Company adopted SFAS No. 123 (revised 2004), *Share-BasedPayment*, ("SFAS 123(R)") which establishes standards for the accounting oftransactions in which an entity exchanges its equity instruments for goods orservices, primarily focusing on accounting for transactions where an entityobtains employee services in share-based payment transactions. SFAS 123(R)requires a public entity to measure the cost of employee services received inexchange for an award of equity instruments, including stock options, based onthe grant-date fair value of the award and to recognize it as compensationexpense over the period the employee is required to provide service in exchangefor the award, usually the vesting period. SFAS 123(R) supersedes the Company'sprevious accounting under Accounting Principles Board Opinion No. 25, *Accountingfor Stock Issued to Employees,*("APB 25") for periods beginning in fiscal2006. In March 2005, the Securities and Exchange Commission issued StaffAccounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). TheCompany has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

The Company adoptedSFAS 123(R) using the modified prospective transition method, which requiresthe application of the accounting standard as of January 1, 2006, thefirst day of the Company's fiscal year 2006. The Company's consolidatedfinancial statements as of and for the three and six months ended June 30, 2006reflect the impact of SFAS 123(R). In accordance with the modified prospectivetransition method, the Company's Consolidated Financial Statements for priorperiods have not been restated to reflect, and do not include, the impact ofSFAS 123(R).

SFAS 123(R)requires companies to estimate the fair value of share-based payment awards onthe date of grant using an option-pricing model. The value of the portion ofthe award that is ultimately expected to vest is recognized as expense over therequisite service periods in the Company's consolidated statement ofoperations. Prior to the adoption of SFAS 123(R), the Company accounted forstock-based awards to employees and directors using the intrinsic value methodin accordance with APB 25 as allowed under SFAS No. 123, *Accounting forStock-Based Compensation* (SFAS 123). Under the intrinsic value method,stock-based compensation expense was recognized in the Company's consolidatedstatements of operations, other than for option grants to employees below thefair market value of the underlying stock at the date of grant.  No stock-basedemployee compensation cost was recognized in the statements of operations forthe three and six months ended June 30, 2005, as all options granted underthese plans had an exercise price equal to or greater than the fair marketvalue of the underlying common stock on the date of grant.

Stock-basedcompensation expense recognized during the period is based on the value of theportion of share-based payment awards that is ultimately expected to vestduring the period. Stock-based compensation expense recognized in the Company'sconsolidated statements of operations for the three and six months ended June30, 2006 included compensation expense for share-based payment awards grantedprior to, but not yet vested as of December 31, 2005 based on the grantdate fair value estimated in accordance with the pro forma provisions of SFAS123 and compensation expense for the share-based payment awards grantedsubsequent to December 31, 2005 based on the grant date fair valueestimated in accordance with the provisions of SFAS 123(R). As stock-basedcompensation expense recognized in the consolidated statements of operationsfor the three and six months ended June 30, 2006 is based on awards ultimatelyexpected to vest, it has been reduced for estimated forfeitures. SFAS 123(R)requires forfeitures to be estimated at the time of grant and revised, ifnecessary, in subsequent periods if actual forfeitures differ from thoseestimates. The estimated average forfeiture rate for the six months ended June30, 2006, of approximately 21% was based on historical forfeiture experience.The estimated pricing term of option grants for the six months of 2006 was fiveyears. In the Company's pro forma information required under SFAS 123 for theperiods prior to fiscal 2006, the Company accounted for forfeitures as theyoccurred.

SFAS 123(R)requires the cash flows resulting from the tax benefits resulting from taxdeductions in excess of the compensation cost recognized for those options tobe classified as financing cash flows. Due to the Company's loss position,there were no such tax benefits during the three and six months ended June 30,2006. Prior to the adoption of SFAS 123(R) those benefits would have beenreported as operating cash flows had the Company received any tax benefitsrelated to stock option exercises.

***Description of Plans***

The Company's stock option plans provide for grants of options toemployees and directors of the Company to purchase the Company's shares, asdetermined by management and the board of directors, at the fair value of suchshares on the grant date. The options generally vest over a five-year periodbeginning on the grant date and have a seven-year term. As of June 30, 2006,the Company is authorized to issue up to 60,000,000 shares under these plansand has 21,483,330 shares available for future issuances.

***Summary of Assumptions andActivity***

The fair value of stock-basedawards to employees and directors is calculated using the Black-Scholes optionpricing models. The Black-Scholes model also requires subjective assumptions,including future stock price volatility and expected time to exercise, whichgreatly affect the calculated values. The expected term of options granted isderived from historical data on employee exercises and post-vesting employmenttermination behavior. The risk-free rate selected to value any particular grantis based on the U.S. Treasury rate that corresponds to the pricing term of thegrant effective as of the date of the grant. The expected volatility is basedon the historical volatility of the Company's stock price. These factors couldchange in the future, affecting the determination of stock-based compensationexpense in future periods.

|  |                          |  |            |             |            |  |             |  |
|--|--------------------------|--|------------|-------------|------------|--|-------------|--|
|  |                          |  | ** ** | ** **  | ** ** |  |
|  |                          |  | **2006**   | ** **  | **2005**   |  |
|  | Stock options:           |  |            |             |            |  |
|  | Expected term            |  |            | 5.00  years |            |  | 5.29  years |  |
|  | Expected  volatility     |  |            | 311%        |            |  | 209%        |  |
|  | Risk-free  interest rate |  |            | 4.63%       |            |  | 3.80%       |  |
|  | Expected  dividends      |  |            | --          |            |  | --          |  |
|  |                          |  |            |             |            |  |             |  |
|  |                          |  |            |             |            |  |             |  |  |  |

The followingtable illustrates the effect on net loss and net loss per share for the threeand six months ended June 30, 2005 as if the Company had applied the fair valuerecognition provisions of SFAS 123 to options granted under the Company's stockoption plans. For purposes of this pro forma disclosure, the fair value of theoptions is estimated using the Black Scholes option-pricing model and amortizedon a straight-line basis to expense over the options' vesting period:

|                                                   |  | **Three Months** | ** **  | **Six Months**   |
|---------------------------------------------------|--|------------------|-------------|------------------|
|                                                   |  | **Ended**        | ** **  | **Ended**        |
|                                                   |  | **June 30 2005** | ** **  | **June 30 2005** |
|                                                   |  | **(restated)**   | ** **  | **(restated)**   |
|                                                   |  |                  |             |                  |
| Net loss - as reported                            |  |  $          | (6,460,895) |                  |  $ | (7,156,030) |
| Add:  Share-based employee compensation      |  |                  |             |                  |
|  expense included in net loss - as reported  |  | -           |             | -           |
| Deduct:  Share-based employee compensation   |  |                  |             |                  |
|  expense determined under fair value method, |  |                  |             |                  |
|  net of related tax effects - pro forma      |  | (135,000)        |             | (260,000)        |
| Net loss - pro forma                              |  |  $          | (6,595,895) |                  |  $ | (7,416,030) |
|                                                   |  |                  |             |                  |
| Basic and diluted loss available to common        |  |                  |             |                  |
| stockholders per common share -  as reported      |  |  $          | (0.08)      |                  |  $ | (0.10) |
|                                                   |  |                  |             |                  |
| Basic and diluted loss available to common        |  |                  |             |                  |
| stockholders per common share -  pro forma        |  |  $          | (0.08)      |                  |  $ | (0.10) |

A summary of option activity as of June 30, 2006 and changes during thesix months then ended, is presented below:

|                                        |  | **June 30, 2006** |
|----------------------------------------|--|-------------------|
|                                        |  | ** **        | **Weighted-Average** | ** ** |
|                                        |  | ** **        | ** ** | **Remaining** | **Aggregate** |
|                                        |  | ** **        | **Exercise** | **Contractual** | **Intrinsic** |
|                                        |  | **Shares**        | **Price** | **Term (Years)** | **Value** |
| Options outstanding at January 1, 2006 |  | 27,184,670   | $  0.22 |  |  |
|    Options granted      |  | 11,635,000   | $  0.15 |  |  |
|    Options forfeited    |  | (303,000)         | $  0.42 |  |  |
|    Options exercised    |  | -            | $        - |  |  |
| Options outstanding at June 30, 2006   |  | 38,516,670   | $  0.20 | 6.34 | $42,000 |
| Options exercisable at June 30, 2006   |  | 23,440,996   | $  0.26 | 4.76 | $42,000 |

Theweighted average grant date fair value of options granted during the six monthsended June 30, 2006 was $0.15 per option.  Upon the exercise of options, theCompany issues new shares from its authorized shares.

A summary of the status of the Company's non-vested stock options as ofJune 30, 2006 and changes during the six months then ended is presented below:

|                                           |  | ** **       | ** ** | **Weighted-Average**                | ** ** | ** **    |
|-------------------------------------------|--|------------------|------------|-------------------------------------|------------|---------------|
|                                           |  | ** **       | ** ** | **Grant-**                          | ** ** | ** **    | ** ** | **Remaining** |
|                                           |  | ** **       | ** ** | **Date**                            | ** ** | **Remaining** | ** ** | **Unrecognized** |
|                                           |  | ** **       | ** ** | **Fair**                            | ** ** | **Years**     | ** ** | **Compensation** |
|                                           |  | **Shares**       | ** ** | **Value**                           | ** ** | **To Vest**   | ** ** | **Cost** |
| Non-vested outstanding at January 1, 2006 |  | 5,580,952   |            | $     0.17 |            |               |  |  |
| Non-vested stock options granted          |  | 11,635,000  |            | 0.15                                |            |               |  |  |
| Vested stock options                      |  | (1,931,250)      |            | 0.16                                |            |               |  |  |
| Forfeited/cancelled stock options         |  | (209,028)        |            | 0.15                                |            |               |  |  |
| Non-vested outstanding at June 30, 2006   |  | 15,075,674  |            | $    0.17       |            | 4.4           |  | $    1,072,912 |

As of June 30, 2006, there was approximately $856,622 of totalunrecognized compensation cost related to employee and director stock optioncompensation arrangements. That cost is expected to be recognized on astraight-line basis over the next 4.39 years. The total fair value of sharesvested during the six months ended June 30, 2006 was approximately $244,600,net of an estimated forfeiture rate of 21%.

As a result of adopting SFAS 123R on January 1, 2006, the Company's lossbefore provision for income taxes and net loss for the three and six monthsended June 30, 2006 was approximately $164,400 and $244,600 higher,respectively, than if it had continued to account for share-based compensationunder APB 25. Basic and diluted net loss per ordinary share for the three and sixmonths ended June 30, 2006 was not affected by the adoption of SFAS 123R.

The following tablesummarizes stock-based compensation expense related to stock options andemployee stock purchase plan purchases under SFAS 123(R) for the three and sixmonths ended June 30, 2006, which was allocated as follows:

| ** **                                    | ** ** | **Three Months**                       | ** ** | **Six Months**                         |
|-----------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|
| ** **                                    | ** ** | **Ended**                              | ** ** | **Ended**                              |
| ** **                                    | ** ** | **June 30,**                           | ** ** | **June 30,**                           |
| ** **                                    | ** ** | **2006**                               | ** ** | **2006**                               |
|                                               |            |                                        |            |                                        |
| Stock-based compensation expense included in: |            |                                        |            |                                        |
| General and administrative                    |            | $     164,400 |            | $     244,600 |

 

Beneficial Conversion Feature 

The convertible features ofconvertible notes provide for a rate of conversion that is below market value(see Note 6). Such feature is normally characterized as a "beneficialconversion feature" ("BCF"). Pursuant to EITF No. 98-5 *"AccountingFor Convertible Securities with Beneficial Conversion Features or ContingentlyAdjustable Conversion Ratio"* and EITF No. 00-27,*"Applicationof EITF Issue No. 98-5 To Certain Convertible Instruments,"* therelative fair values of the BCFs have been recorded as a discount from the faceamount of the respective debt instrument. The Company is amortizing thediscount using the effective interest method through maturity of suchinstruments.

Advertising

The Company expenses alladvertising costs as incurred.  Advertising costs were $58,673 and $65,181 forthe six months ended June 30, 2006 and 2005, respectively.

Product and Technology Development

Product and technology developmentexpense includes personnel costs relating to developing the features, contentand functionality of MVI's internet-enabled fax services and web site, TBS'sgovernment accounting software, Resolution's electronic form software, andGSI's communications services.  Product and technology development costs areexpensed as incurred.

Warranty Costs

The Company provides a limited 90day warranty on certain products sold. Estimated future warranty obligationsrelated to certain products and services are provided by charges to operationsin the period in which the related revenue is recognized. As of June 30, 2006,management of the Company determined that a warranty reserve was not necessary. In addition, the charges to expense during the six months ended June 30, 2006and 2005 were insignificant.

Derivative Instruments

In connection with the issuance ofcertain convertible notes payable (see Note 6), the terms of the notes payableprovided for a conversion of the notes into shares of the Company's commonstock at a rate which was determined to be variable. The Company determinedthat the variable conversion feature was an embedded derivative instrumentpursuant to SFAS No. 133, *"Accounting for Derivative Instruments andHedging Activities,"* as amended. The accounting treatment ofderivative financial instruments required that the Company record thederivatives and related warrants at their fair values as of the inception dateof the note agreements and at fair value as of each subsequent balance sheetdate. In addition, under the provisions of EITF Issue No. 00-19, *"Accountingfor Derivative Financial Instruments Indexed to, and Potentially Settled in, aCompany's Own Stock,"* as a result of entering into the noteagreements, the Company was required to classify all other non-employeewarrants as derivative liabilities and record them at their fair values at eachbalance sheet date. Any change in fair value was recorded as non-operating,non-cash income or expense at each balance sheet date. If the fair value of thederivatives was higher at the subsequent balance sheet date, the Companyrecorded a non-operating, non-cash charge. If the fair value of the derivativeswas lower at the subsequent balance sheet date, the Company recordednon-operating, non-cash income. 

During the three months ended June30, 2005, the Company recognized other income of $125,580 related to recordingthe derivative liabilities at fair value. At June 30, 2006, there are noderivative liabilities since the related variable debt instruments were settledin full in fiscal 2005. At the settlement date, the remaining derivativeliabilities with a value of $7,302,899 were reclassified to additional paid-incapital. 

Warrant-related derivatives werevalued using the Black-Scholes Option Pricing Model with the followingassumptions during the three months ended June 30, 2005: dividend yield of 0%;average annual volatility of 209%; and average risk free interest rates of3.8%.

**5.**            **Acquisitions and IntangibleAssets**

TBS

On February 17, 2004, the Companypurchased 100% of the issued and outstanding capital stock of TBS from StephenA. Garner and James L. Campbell.  On May 1, 2006 and pursuant to the TBSacquisition agreement, the Company issued 1,100,000 shares of common stock toeach of Messrs. Garner and Campbell.  The shares were valued at $0.11 per share(the estimated fair value on the date that the shares were earned) and recordedas additional purchase price.

On June 29, 2006 and in connectionwith the acquisition of TBS, the Company issued 110,000 shares of itsrestricted common stock to a non-affiliate pursuant to a finder's feeagreement.  The shares were valued at $0.11 per share (the estimated fair valueon the date that the shares were earned) and recorded as additional purchaseprice.

GSI

Effective May 1, 2006, VEDO MergerSub, Inc., a wholly owned subsidiary of VillageEDOCS, acquired 100% of theoutstanding common and preferred stock of GSI (the "Acquisition"). 

GSI is a Florida corporation formedin 2000 to acquire Go Solo Technologies, Inc., which has been operatingcontinuously since 1999.  GSI is headquartered in St. Petersburg, Florida.  

The terms of the Acquisition werethe result of arms-length negotiations.  None of the GSI shareholders werepreviously affiliated with VillageEDOCS.

GSI is an emerging integratedcommunications provider offering Web‐based communication services thatenables users to utilize naturally spoken voice commands and a telephone togain access to a wide range of vital Internet and database‐driveninformation services as well as its proprietary unified messaging and enhancedservices platform, GoSolo (TM). The GoSolo (TM) platform provides toll-freetelephone service primarily to enterprises, their independent representativesand individual consumers in the United States, Canada and Spain.  

The Company acquired GSI because itbelieves that the combined entities will be able to create a more completesuite of business products and services, more effectively sell and market itsbusiness product and service offerings, create a unified applications platform,increase the likelihood of accessing public capital markets and obtainingconventional financing from commercial banks, and respond more quickly andeffectively to technological change, increased competition and market demands.

Effective May 1, 2006, VillageEDOCSissued 42,663,879 shares of its common stock, net of approximately 17,336,121 sharesnot issued in connection with two settlements (see below), with an estimatedfair value of $4,266,388, to GSI's stockholders.  VillageEDOCS' common stockwas valued at $0.10 per share, the fair value of VillageEDOCS' common stock on thedate of the acquisition.

In connection with the Acquisition,VillageEDOCS and dissenting shareholders of GSI holding approximately 1,771,000and 3,021,000 shares of GSI's common and preferred Series A stock, respectively,entered into settlement agreements (the"Settlement Agreements").  Pursuant to the SettlementAgreements, the dissenting shareholders agreed to waive all dissenters' rightsregarding approval of the Acquisition.  In exchange for the waiver, VillageEDOCSagreed to pay cash in the amount of $965,000 in lieu of shares of its common stock. 

The Acquisition has been accountedfor using the purchase method of accounting. 

VillageEDOCS funded the requiredpayment under the Settlement Agreements with proceeds from GSI's cash balanceof $965,000, $840,000 of  which was provided by its $1,000,000 revolving lineof credit with a financial institution (see Note 6).

In connection with the Acquisition,VillageEDOCS incurred approximately $130,000 in acquisition-related costsincluding, but not limited to, expenses incurred for legal, accounting andtravel.

The acquisition price was comprisedof the following: 

| Cash in accordance with settlement agreements      |                 |  $       | 965,000    |
|----------------------------------------------------|-----------------|---------------|-----------------|
| Estimated fair value of VillageEDOCS' common stock | 4,266,388  |
| Legal, accounting, and other costs                 |                 | 130,054  |
|                                                    |                 |  $       | 5,361,442  |

The following represents anallocation of the purchase price over the historical net book value of theacquired assets and liabilities of GSI as of May 1, 2006, the effective date ofthe Acquisition:

| Cash                                      |  |  $         | 1,199,535  |
|-------------------------------------------|--|-----------------|-----------------|
| Accounts receivable, net                  |  | 332,457    |
| Prepaid expenses and other current assets |  | 68,912     |
| Property and equipment, net               |  | 240,272    |
| Other assets                              |  | 34,895     |
| Line of credit                            |  | (840,000)       |
| Deferred revenue                          |  | (1,386,194)     |
| Other liabilities                         |  | (949,686)       |
| Net liabilities assumed                   |  | (1,299,809)     |
| Goodwill                                  |  | 6,661,251  |
|                                           |  |  $         | 5,361,442  |

This allocation is preliminary andmay be subject to change upon evaluation of the fair value of GSI's acquiredassets and liabilities as of the acquisition date as well as the potentialidentification of certain intangible assets.  VillageEDOCS is in the process ofanalyzing the components of the intangible assets it acquired and willdetermine the final purchase price allocation during 2006.  

The unaudited pro forma combinedhistorical results, as if GSI had been acquired as of the beginning of theperiods presented are estimated as follows: 

|                         |  |                   |                 |                   |         | Three Months      |  | Six Months        |
|-------------------------|--|-------------------|-----------------|-------------------|---------|-------------------|--|-------------------|
|                         |  | Three Months      |                 | Six Months        |         | Ended             |  | Ended             |
|                         |  | Ended             |                 | Ended             |         | June 30, 2005     |  | June 30, 2005     |
|                         |  | June 30, 2006     |                 | June 30, 2006     |         | (restated)        |  | (restated)        |
| Net sales               |  |  $           | 4,663,964  |                   |  $ | 7,268,998    |  |  $           | 5,499,410  |  |  $ | 7,274,282  |
| Net loss                |  |  $           | (442,645)       |                   |  $ | (921,209)         |  |  $           | (6,965,219) |  |  $ | (6,751,754) |
| Weighted average common |  |                   |                 |                   |         |                   |  |                   |
| shares outstanding:     |  |                   |                 |                   |         |                   |  |                   |
| Basic and diluted       |  | 146,868,138  |                 | 144,149,954  |         | 120,124,803  |  | 111,858,233  |
| Loss per share:         |  |                   |                 |                   |         |                   |  |                   |
| Basic and diluted       |  |  $           |  --   |                   |  $ | (0.01)            |  |  $           | (0.06) |  |  $ | (0.06) |

** **

The unaudited pro forma informationhas been prepared for comparative purposes only and does not purport to beindicative of what would have occurred had the acquisition actually been madeat such date, nor is it necessarily indicative of future operating results.

*Other Intangible Assets*

Based on certain asserted claims ofpotential patent infringements from Catch Curve, Inc., a Delaware corporation ("CatchCurve"), the Company recorded an estimated expense of $325,000 at December 31,2005 related to potential settlement costs of the claims.    On May 12,2006, the Company entered into a Patent License Agreement (the "License Agreement")with Catch Curve.  Pursuant to the License Agreement, Catch Curve granted theCompany a worldwide, non-exclusive, non-divisible, fully paid-up license to usecertain patented technology in connection with any facsimile products orservices made or sold by the Company or its subsidiaries.  The Company isobligated to make aggregate license payments of $600,000 over a period of up tothirty-two months beginning on May 12, 2006, at which time no further paymentsare required under the License Agreement.   The license payment amounts due ineach of the years ended December 31, 2006, 2007, and 2008 are $240,000,$180,000, and $180,000, respectively. The License Agreement stipulates that$350,000 of the total license fee is attributable to sales of products andservices prior to the date of the License Agreement.  The remainder of $250,000is attributable to sales of products and services subsequent to the date of theLicense Agreement. Accordingly, on May 12, 2006, the Company recorded anadditional $25,000 of expense and recorded an intangible asset in the amount of$250,000.  The intangible asset will be amortized over 58 months, the currentremaining life of the patents covered by the License Agreement.  The Companyhas classified all amounts due pursuant to the License Agreement as a currentliability based on expected repayment.

Other intangible assets consist ofthe following as of June 30, 2006: 

|  |                                                                |  | Estimated Useful  Life |   | Gross  Carrying | Accumulated  | Net Carrying  |
|--|----------------------------------------------------------------|--|------------------------|---|-----------------|--------------|---------------|
|  |                                                                |  | (Years)                |   | Amount          | Amortization | Amount        |
|  | Corporate:                                                     |  |                        |   |                 |              |               |
|  |    License  agreement                           |  | Five                   | $ | 250,000    |  $      | (6,466)       |  $ | 243,534  |
|  |                                                                |  |                        |   |                 |              |               |
|  | TBS:                                                           |  |                        |   |                 |              |               |  |  |
|  |  Customer  list        |  | Ten                    | $ | 500,000    |  $      | (118,750)     |  $ | 381,250  |
|  |  Trade name                                               |  | Five                   |   | 50,000     | (23,750)     | 26,250   |
|  |                                                                |  |                        |   | 550,000    | (142,500)    | 407,500  |
|  | Resolutions:                                                   |  |                        |   |                 |              |               |
|  |  Customer relationships                                   |  | Ten                    |   | 570,000    | (71,250)     | 498,750  |
|  |  Software development                                     |  | Five                   |   | 119,125    | (28,544)     | 90,581   |
|  |  Trade name                                               |  | Five                   |   | 50,000     | (12,500)     | 37,500   |
|  |  Covenant not to compete                                  |  | Three                  |   | 26,100     | (10,875)     | 15,225   |
|  |                                                                |  |                        |   | 765,225    |              | (123,169)     |  | 642,056  |
|  |                                                                |  |                        |   |                 |              |               |  |  |
|  | Total other  intangible assets                                 |  |                        | $ | 1,565,225  |  $      | (272,135)     |  $ | 1,293,090 |
|  |                                                                |  |                        |   |                 |              |               |  |  |  |  |

Amortization of other intangibleassets was $74,316 and $37,500 during the six months ended June 30, 2006 and2005, respectively.  During the three months ended June 30, 2006, the Companycapitalized $16,144 of other intangible assets related to software developmentcosts, and $250,000 of other intangible assets in connection with a licenseagreement.

** **

** 6.           Debt**

** **           Bank Lines of Credit

In connection with the acquisitionof GSI, the Company has a $1,000,000 revolving line of credit (the"Line") with a financial institution and used the proceeds to fund arequired payment of $840,000 pursuant to the Settlement Agreements withdissenting shareholders of GSI.  The Line matures on September 12, 2007. Interest on outstanding borrowings is payable monthly at a rate of 8% per annum(rate as of June 30, 2006 and subject to adjustment).  The note iscollateralized by the assets of GSI and guaranteed by four shareholders of theCompany who were formerly shareholders of GSI.   As of June 30, 2006, noprincipal payments have been made against outstanding borrowings of $840,000.

Effective June 30, 2006,VillageEDOCS obtained a $500,000 revolving line of credit with a financialinstitution.  The line of credit is guaranteed by a shareholder of theCompany.  Interest on outstanding borrowings is payable monthly at an annual rateof interest equal to LIBOR plus 2%.  As of June 30, 2006, the Company had not utilizedthis line of credit.

Effective November 28, 2005, TBSrenewed a $100,000 revolving line of credit with a financial institution.  Theline of credit is guaranteed by the assets of TBS.   Interest on outstandingborrowings is payable monthly at a variable annual rate equal to the financialinstitution's prime rate in effect.  As of June 30, 2006, the Company had notutilized this line of credit.

Alexander Riess and WilliamFalcon

In connection with the acquisitionof Resolutions, the Company issued promissory notes in the amount of $120,000and $80,000 to Alexander Riess and William Falcon, respectively.  The notes boreinterest at 5% per annum and were paid in full in February 2006.

Also in connection with theacquisition of Resolutions, Messrs. Riess and Falcon have loaned the Company $60,000and $40,000, respectively, as of February 28, 2006.  As of June 30, 2006, theaggregate balance of these shareholder loans was $60,000.  Subject to theacquisition agreement, the Company is repaying the principal amount of theloans together with accrued interest at a rate of 7.5 percent per annum over aten-month period that began on March 1, 2006.

At June 30, 2006, the aggregated balanceof these related party notes (including the $30,000 in notes payable assumed inthe acquisition of Resolutions) was $90,000.

Zant Trust

On September 1, 2001, GSI executedand delivered a note payable to a related party in the principal amount of$500,000, which matures in September 2006, as amended.  The note bears interestat 10% per annum and is secured by the assets of GSI.  As of June 30, 2006, theunpaid principal balance of the note was $108,281. 

C. Alan and Joan P. Williams

On February 17, 2004, the Companyborrowed $1,700,000 from C. Alan and Joan P. Williams and issued a convertiblepromissory note, bearing interest at 10 percent per annum.  During 2005, allbut $65,000 of the principal amount due pursuant to this note was convertedinto shares of the Company's common stock.   The note and accrued interest aredue at the earlier of one of three events: 1) October 31, 2007; 2) acquisitionof a controlling interest in the Company by a third party; or 3) the Companyachieves equity financing of a minimum of $3,000,000.  Effective April 14,2005, pursuant to an amendment to the note, the conversion price was fixed at$0.14 per share.  As an incentive for Mr. and Mrs. Williams to provide theloan, the Company issued them a warrant to purchase 5,000,000 shares of theCompany's restricted common stock at $0.10 per share exercisable until February17, 2009.  In connection with the issuance of the note, the Company recorded adebt discount of $730,000, consisting of an embedded put option of $280,000 andthe fair value of the warrant of $450,000, which were recorded as derivativeliabilities upon note issuance and subsequently reclassified to additionalpaid-in capital (see Note 4).  The Company is amortizing the discount using theeffective interest method through October 31, 2007.

At June 30, 2006, the amount owedby the Company to the Williams pursuant to the unpaid balance of theconvertible promissory note payable was $65,000 in principal and $97,661 inunpaid interest.

James L. Campbell and Stephen A.Garner

In connection with the acquisitionof TBS, the Company issued a $300,000 convertible promissory note to Stephen A.Garner and a $300,000 convertible promissory note to James L. Campbell (the"TBS Notes").  Each of the TBS Notes bears interest at 5 percent perannum and is due and payable in three equal annual installments of $100,000,with the first installment paid in February 2005, the second installment paidin March 2006 and one additional installment due on February 17, 2007.  The TBSNotes are secured by a Stock Pledge Agreement and a Security Agreement.  Inaddition, Messrs. Garner and Campbell have the right to convert the balance ofunpaid principal and interest of the TBS Notes into shares of the Company'scommon stock at the rate of 9.8 shares of common stock for each $1.00 ofprincipal and interest to be converted.

Convertible notes payable andaccrued interest payable to related parties consists of the following at June 30,2006:

| Convertible note payable and  accrued interest to Williams (net of debt discount of $19,571) |  | $             | 143,090  |
|----------------------------------------------------------------------------------------------|--|---------------|---------------|
| Convertible notes payable to  former TBS shareholders                                        |  | 200,000  |
|                                                                                              |  | $             | 343,090  |

Barron Partners, LP

On April 13, 2005, the Companyissued a convertible note payable to Barron Partners, LP ("Barron")in the principal amount of $800,000 (the "Convertible Note") which wasconverted into 16,000,000 shares of the Company's Series A preferred stock onSeptember 30, 2005.

In connection with the ConvertibleNote, the Company issued Barron a warrant ("Warrant A") to purchaseup to 32,000,000 shares of its common stock at $0.10 per share (subject toadjustment, as defined).  In addition, the Company issued Barron a warrant("Warrant B") to purchase up to 8,000,000 shares of its common stockat $0.25 per share (subject to adjustment, as defined).  Warrants A and B vestedupon grant and are exercisable through April 2010.  The warrants containcertain cashless exercise and anti-dilution provisions, as defined.

Interest Expense

Interest expense recognized on theLine and all the notes payable and convertible notes payable to related partieswas $49,667 and $7,168,324 during the six months ended June 30, 2006 and 2005,respectively.  During the 2006 period, interest charges incurred pursuant toconvertible promissory notes, including embedded derivatives, decreasedsignificantly as a result of the conversion to equity of approximately $5million in debt during 2005.  Interest expense during the six months ended June30, 2005 included non-cash charges of $6,700,417 related to the amortization ofdebt discount, $306,429 related to an inducement for the conversion ofconvertible notes payable, and $39,000 related to amortization of debt issuecosts.  

**7.           Stockholders'Equity**

a.       Preferred Stock

On May 20, 2005, stockholdersholding shares representing 74% of the votes entitled to be cast at a meetingof the Company's stockholders consented in writing to a proposal to amend theCompany's articles of incorporation to create and establish a series ofpreferred stock of the Company in connection with a private placement of the Company's$800,000 convertible promissory note. The amendment authorized 48,000,000shares of Series A Convertible Preferred Stock, par value $0.001 ("SeriesA Preferred Stock").  Each share of Series A Preferred Stock shall beconvertible into one share of Common Stock.  Series A Preferred Stock will beimmediately convertible into common stock, however, the Company is prohibitedfrom effecting any conversion of the Series A Preferred Stock, and the holdershall not have the right to convert any portion of the Series A PreferredStock, to the extent that after giving effect to such conversion, the holder(together with the holder's affiliates) would beneficially own in excess of4.99% of the number of shares of common stock outstanding immediately aftergiving effect to the conversion.  The foregoing restriction may be waived (a)upon sixty-one days prior notice from the holder to the Company and (b) shallnot apply in the event of a sale of substantially all of the assets orsecurities of the Company, a merger involving the corporation or anunderwritten public offering of the Company's common stock.  No dividends shallbe payable with respect to the Series A Preferred Stock.  The Series APreferred Stock shall have no voting rights, except with respect to changes inthe powers, preferences or rights of the Preferred Stock.   The liquidationpreference of the Series A Preferred Stock is equal to $0.05 per share (the"Liquidation Value").  Upon liquidation of the Company, holders of Series APreferred Shares will be paid the Liquidation Value prior to distribution ofany amounts to holders of our common stock.  

On March 8, 2006, the Companyaccepted a notice from Barron Partners LP of its intent to convert 2,500,000shares of the Company's Series A Preferred Stock into 2,500,000 shares of theCompany's common stock.

b.       CommonStock 

On May 1, 2006 and in connectionwith the acquisition of GSI, the Company issued 42,663,879 shares of itsrestricted common stock to approximately 37 shareholders of GSI.  The shareswere valued at $0.10 per share (the estimated fair value on the date ofacquisition).

On May 1, 2006 and in connectionwith the acquisition of TBS, the Company issued 1,100,000 shares of itsrestricted common stock to each of James L. Campbell and Stephen A. Garner,pursuant to the acquisition agreement.  The shares were valued at $0.11 pershare (the estimated fair value on the date that the shares were earned) andrecorded as additional purchase price.

On June 29, 2006 and in connectionwith the acquisition of TBS, the Company issued 66,000 shares of its restrictedcommon stock to H. Jay Hill, who is an officer and director of the Company, asa finder's fee.  The shares were valued at $0.11 per share (the estimated fairvalue on the date that the shares were earned) and recorded as compensationexpense in the accompanying statement of operations.

On June 29, 2006 and in connectionwith the acquisition of TBS, the Company issued 110,000 shares of itsrestricted common stock to a non-affiliate pursuant to a finder's feeagreement.  The shares were valued at $0.11 per share (the estimated fair valueon the date that the shares were earned) and recorded as additional purchaseprice.

On June 29, 2006, the Companyissued 160,722 shares of its restricted common stock to a non-affiliateindependent contractor for project management services rendered.  The shareswere valued at $0.14 per share (the estimated fair value on the date ofissuance) and recorded as consulting expense in the accompanying statement of operations.

On January 9, 2006, the Companyfiled a Certificate of Amendment of Articles of Incorporation with theSecretary of State of the State of California in order to increase theauthorized number of shares of common stock of the Company from 250,000,000 to400,000,000. The shareholders holding shares representing 70% of the votesentitled to be cast at a meeting of the Company's stockholders consented inwriting to the proposed actions.  The Company's Board of Directors approvedthese actions on December 6, 2005 and recommended that the Articles ofIncorporation and the Incentive Plan be amended to reflect the above action. The Secretary of State accepted the Certificate of Amendment on January 19,2006 with an effective date of January 9, 2006.

c.       Stock Options

During the three months ended June30, 2006, the Company granted to its employees options to purchase shares ofits common stock under the 2002 Plan as follows:  7,295,000 shares at $0.15 pershare and 250,000 shares at $0.16.  All options were issued above or at fairvalue on the dates of grant and vest on various dates from the date of grantthrough June 2011.

d.       Warrants

There was no warrant activityduring the six months ended June 30, 2006.

**8.           Lossper Share**

              Basicand diluted loss per common share is computed as follows:

|  |                                                                                                 | Three Months Ended | Six Months Ended           |
|--|-------------------------------------------------------------------------------------------------|--------------------|----------------------------|
|  |                                                                                                 |                    | June 30,                   |  | June 30, |
|  |                                                                                                 | June 30,           | 2005                       | June 30, | 2005 |
|  |                                                                                                 | 2006               | (restated)                 | 2006 | (restated) |
|  |                                                                                                 | ===========        | ===========                | ============ | ============ |
|  | Numerator for basic and  iluted loss per common share:                                |                    |                            |  |  |
|  |    Net loss available to common stockholders                                     |  $            | (356,693)                  |  $ | (6,460,895) |  $ | (630,082) |  $ | (7,156,030) |
|  |                                                                                                 | ===========        | ===========                | ============ | ============ |
|  |                                                                                                 |                    |                            |  |  |
|  | Denominator for basic  and diluted loss per    common share:                     |                    |                            |  |  |
|  |                                                                                                 |                    |                            |  |  |
|  |  Weighted average common  shares   outstanding                         | 146,535,158        | 77,934,956                 | 115,707,360  | 69,194,342  |
|  |                                                                                                 | ===========        | ===========                | ============ | ============ |
|  | Net loss per common     share available to    common stockholders |  $            |  --    |  $ |  (0.08)  |  $ | (0.01)  |  $ | (0.10)  |
|  |                                                                                                 | ===========        | ===========                | ============ | ============ |
|  |                                                                                                 |                    |                            |  |  |

**9.           Commitmentsand Contingencies**

Leases

The Company leases certain property and equipmentunder operating lease agreements (including a related party lease - see Note 11)which expire on various dates through 2009 and provide for monthly leasepayments ranging from $28 to $7,505.

Litigation

The Company is, from time to time, involved invarious legal and other proceedings that arise in the ordinary course ofoperating its business. In the opinion of management, the amount of ultimateliability, if any, with respect to these actions will not materially affect theconsolidated financial position or results of operations of the Company. 

Consulting and Employee Agreements

The Company has entered into a variety ofconsulting and employee agreements for services to be provided to the Companyin the ordinary course of business.  These agreements call for minimum salarylevels and/or option grants and/or common share issuances and various paymentsupon performance of services and/or termination of the agreements (except forcause).

Indemnities and Guarantees

During the normal course of business, the Companyhas made certain indemnities and guarantees under which it may be required tomake payments in relation to certain transactions.  The Company indemnifies itsdirectors, officers, employees and agents to the maximum extent permitted underthe laws of the States of California, Florida, and Georgia.  These indemnitiesinclude certain agreements with the Company's officers under which the Companymay be required to indemnify such person for liabilities arising out of theiremployment relationship.  In connection with its facility leases, the Companyhas indemnified its lessors for certain claims arising from the use of thefacilities.  In connection with the Company's acquisition of TBS, the partieshave agreed to indemnify each other from claims relating to the acquisitionagreement to a maximum of $1,500,000 except in the event of fraud, willfulmisconduct, or breaches of certain representations and warranties contained inthe agreement.  In connection with the Company's acquisitions of Resolutionsand GSI, the parties have agreed to indemnify each other from claims relatingto the acquisition agreement.  The duration of these indemnities and guaranteesvaries and, in certain cases, is indefinite.  The majority of these indemnitiesand guarantees do not provide for any limitation of the maximum potentialfuture payments the Company could be obligated to make.  Historically, theCompany has not been obligated to make significant payments for theseobligations and no liabilities have been recorded for these indemnities andguarantees in the accompanying consolidated balance sheet.

**10.           SegmentReporting**

The Company's operationsare classified into four principal reportable segments that provide differentproducts or services.  Separate management of each segment is required becauseeach business unit is subject to different marketing, production, andtechnology strategies.  The Company operates in the following five reportablesegments: 

> 
(a)  Electronic document delivery services,(b)  Government accounting solutions,(c)  Electronic forms,(d)  Integrated communications, and(e)  Corporate. 

The Company evaluatesperformance and allocates resources based upon operating income.  Theaccounting policies of the reportable segments are the same as those describedin the summary of accounting policies.  Inter-segment sales are eliminated uponconsolidation.

The following tablesummarizes segment asset and operating balances by reportable segment, has beenprepared in accordance with the internal accounting policies, and may not bepresented in accordance with generally accepted accounting principles:

|                                       |  | ** **          | ** **    | **Quarter**       | ** ** | **Six months**    | ** ** | **Six months**    |                 |
|---------------------------------------|--|---------------------|---------------|-------------------|------------|-------------------|------------|-------------------|-----------------|
|                                       |  | **Quarter ended /** | ** **    | **ended**         | ** ** | **ended /**       | ** ** | **ended**         | (1)             |
|                                       |  | **As of**           | ** **    | **June 30, 2005** | ** ** | **As of**         | ** ** | **June 30, 2005** |                 |
|                                       |  | **June 30, 2006**   | ** **    | **(restated)**    | ** ** | **June 30, 2006** | ** ** | **(restated)**    | (2)             |
|                                       |  |                     |               |                   |            |                   |            |                   |                 |
| Net revenue from external  customers: |  |                     |               |                   |            |                   |            |                   |                 |
|                                       |  |                     |               |                   |            |                   |            |                   |                 |
| Electronic document delivery          |  | $                   | 770,490  |                   | $          | 809,494      |            | $                 | 1,509,122  |  | $ | 1,583,114  |  |
| Government accounting  solutions      |  |                     | 746,928  |                   |            | 734,695      |            |                   | 1,634,699  |  |  | 1,373,057  |  |
| Electronic forms                      |  |                     | 520,597  |                   |            | 731,329      |            |                   | 962,033    |  |  | 731,329  |  |
| Integrated communications             |  |                     | 996,077  |                   |            | -            |            |                   | 996,077    |  |  | - 
Corporate

- 

- 

- 

- 

Total  net revenue from 

     external customers:

$

3,034,092 
$

2,275,518 

$

5,101,931 

$

3,687,500 

Operating income (loss):

Electronic document delivery

$

300,621 

$

231,824 

$

482,998 

$

322,515 

Government accounting  solutions

(186,927)

43,260 

(169,706)

(164,285)

Electronic forms

(32,877)

193,280 

(54,679)

193,280 

Integrated communications

145,530 

- 

145,530

- 
Corporate

(532,124)

(277,636)

(956,593)

(465,919)

Total  operating income (loss):

$

(305,777)

$

190,728 

$

(552,450)

$

(114,409)

Depreciation and  amortization

Electronic document delivery

$

13,311 

$

5,223 

$

21,809 

$

19,597 

Government accounting  solutions

35,912 

37,186 

73,257 

74,373 

Electronic forms

20,855 

71,920 

57,773 

71,919 

Integrated communications

52,262 

- 

52,262 

- 
Corporate

7,488 

- 

7,488 

- 

Total  depreciation and amortization:

$

129,828 

$

114,329 

$

212,589 

$

165,889 

Interest expense, net of  interest    income:

Electronic document delivery

$

- 

$

419 

$

1,616 

$

419 

Government accounting  solutions

- 

- 

- 

933 

Electronic forms

2,867 

- 

3,214 

- 

Integrated communications

2,178 

- 

2,178 

- 
Corporate

21,314 

6,776,784 

42,659 

7,166,972 

Total  interest expense, net of          interest income:

$

26,359 

$

6,777,203 

$

49,667 

$

7,168,324 

continued.

** **
****
** **

** **

** **

**Quarter**

** **

**Six months**

** **

**Six months**

**Quarter ended /**

** **

**ended**

** **

**ended /**

** **

**ended**

(1)

**As of**

** **

**June 30, 2005**

** **

**As of**

** **

**June 30, 2005**

**June 30, 2006**

** **

**(restated)**

** **

**June 30, 2006**

** **

**(restated)**

(2)

Net income (loss):

Electronic document delivery

$

301,064 

$

239,022 

$

482,417 

$

322,021 

Government accounting  solutions

(186,927)

43,260 

(169,706)

(165,218)

Electronic forms

(35,744)

193,280 

(57,893)

193,280 

Integrated communications

143,352 

- 

143,352 

- 
Corporate

(578,438)

(6,936,457)

(1,028,252)

(7,506,113)

Total  net loss:

$

(356,693)

$

(6,460,895)

$

(630,082)

$

(7,156,030)

Identifiable assets:

Electronic document delivery

$

2,089,227 

$

2,089,227 

Government accounting  solutions

3,665,097 

3,665,097 

Electronic forms

4,090,489 

4,090,489 

Integrated communications

6,027,850 

6,027,850 

Corporate

303,158 

303,158 

Total  identifiable assets:

$

16,175,821 

$

16,175,821 

Capital expenditures:

Electronic document delivery

$

7,025 

$

15,699 

$

22,437 

$

17,897 

Government accounting  solutions

- 

- 

- 

1,240 

Electronic forms

6,743 

8,758 

16,144 

9,998 

Integrated communications

- 

- 

- 

- 

Corporate

- 

- 

- 

- 

Total capital expenditures:

$

13,768 

$

24,457 

$

38,581 

$

29,135 

(1) 2005 period results and  balances for the Electronic forms segment are reported as of and for the  period 

   from April 1, 2005 (date  of acquisition) through June 30, 2005

(2) 2006 period results and  balances for the Integrated communications segment are reported as of and for  the period 

   from May 1, 2006 (date of  acquisition) through June 30, 2006

** **

** **

**11.           RelatedParty Transactions**

The Company has borrowed significantly from relatedparties, issued a significant number of options and warrants to relatedparties, and issued a significant number of shares of its common stock torelated parties upon conversion of convertible promissory notes payable asdescribed more fully in Notes 6 and 7.  

TBS has a related party operating lease withPerimeter Center Partners for the rental of the land and building occupied byTBS.  The lease commenced on February 1, 2004 and has a term of five years,with monthly payments of $6,200.  The Company has executed a Guaranty withrespect to the lease.  Perimeter Center Partners is owned by Stephen A. Garnerand James L. Campbell, who are significant employees of the Company and theformer owners of TBS.

**ITEM 2 - MANAGEMENT'SDISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS**

**IMPORTANT NOTIFICATIONS**

*This Quarterly Report on Form 10-QSB includes forward-lookingstatements within the meaning of Section 21E of the Securities Exchange Act of1934, as amended. All statements that do not directly and exclusively relate tohistorical facts constitute forward-looking statements within the meaning ofthe Private Securities Litigation Reform Act of 1995.  You 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.  For important additional andspecific information regarding these statements, we strongly urge you to referto the caption below entitled "**CAUTIONARY INFORMATION ABOUTFORWARD-LOOKING STATEMENTS" and the caption entitled "CERTAIN FACTORSTHAT MAY AFFECT FUTURE RESULTS" which can be found in Item 6. Management'sDiscussion and Analysis or Plan of Operations of the Annual Report on Form10-KSB filed with the U.S. Securities and Exchange Commission on April 14,2006.*

** **

The Company's Internetwebsite address is www.villageedocs.com.  The Company's annual reports on Form10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K, and allamendments thereto, are available free of charge on the Company's website assoon as reasonably practical after such reports are electronically filed with,or furnished to, the U.S. Securities and Exchange Commission.

** **

** **

** **

**INTRODUCTION**

** **The following Management's Discussion and Analysis or Plan of Operations ("MD&A")is intended to help the reader understand VillageEDOCS.  MD&A is presentedin the following six sections:
-         BusinessOverview 
-         CriticalAccounting Policies 
-         Resultsof Operations 
-         Liquidityand Capital Resources 
-         CautionaryInformation About Forward-Looking Statements, and 
-         RecentAccounting Pronouncements 

MD&A is provided as a supplement to, and should be read inconjunction with, the unaudited consolidated balance sheet as of June 30, 2006,and the unaudited consolidated statements of operations for the three and six monthsended June 30, 2006 and 2005 (restated), the unaudited consolidated statementsof cash flows for the three and six months ended March 31, 2006 and 2005(restated), and the related notes thereto as well as the audited consolidated financialstatements of the Company for the years ended December 31, 2005 and 2004(restated), included in the Company's Annual Report on Form 10-KSB filed withthe Securities and Exchange Commission on April 14, 2006.

In MD&A, we use "we," "our," "us,""VillageEDOCS," and "the Company" to refer to VillageEDOCSand its wholly owned subsidiaries, unless the context requires otherwise. Amounts and percents in tables may not total due to rounding.  This discussioncontains forward-looking statements based upon current expectations thatinvolve risks and uncertainties, such as our plans, objectives, expectationsand intentions. The Company cautions readers that important facts and factorsdescribed in MD&A and elsewhere in this document sometimes have affected,and in the future could affect our actual results, and could cause our actualresults during 2006 and beyond to differ materially from those expressed in anyforward-looking statements made by, or on behalf of, the Company. 

As reported in the Report of Independent Registered PublicAccounting Firm on our December 31, 2005 consolidated financial statements, theCompany has suffered recurring losses from operations and has a working capitaldeficit that raises substantial doubt about our ability to continue as a goingconcern. 

The Company has restated and reissued its annual report for the yearended December 31, 2004, as well as the quarterly reports for the quartersended March 31, 2005, June 30, 2005 and September 30, 2005.  The unauditedconsolidated financial statements included in this quarterly report reflect alladjustments we have made to our audited and unaudited consolidated financialstatements for the aforementioned periods as a result of the restatements. Specifically, we strongly encourage you refer to Note 13, *Restatement ofPreviously Issued Financial Statements,* in the audited consolidatedfinancial statements accompanying our Annual Report for the year ended December31, 2005, and in Note 2 in the accompanying unaudited consolidated financialstatements.  We have used the restated amounts in the comparative discussionsfor the three and six months ended June 30, 2006 and 2005 that follow.

Effective April 1, 2005, we acquired Resolutions.  This acquisition hascaused our results of operations during the three and six months ended June 30,2006 to vary significantly from those reported for the 2005 periods due to theconsolidation of Resolutions during the three months ended March 31, 2006.

Effective May 1, 2006, the Company acquired GoSolutions, Inc. ("GSI"). This acquisition has caused our results of operations during the three and sixmonths ended June 30, 2006 to vary significantly from those reported for the2005 periods due to the consolidation of GSI from May 1, 2006 (date ofacquisition).  In addition, we expect our results of operations for the thirdand fourth quarters of 2006 to vary significantly from those reported in therespective 2005 periods.  Please refer to the discussion below under thecaption entitled *Liquidity and Capital Resources*.

**BUSINESS OVERVIEW**

VillageEDOCS is incorporated in the State of California andhas been in business since 1995.  We conduct our business through four whollyowned subsidiaries.  MessageVision operates our Internet based documentdelivery services.  TBS operates our government accounting solutionsbusiness.  Resolutions operates our e-forms, archiving, imaging, and workflowservices.  GSI, which we acquired on May 1, 2006, operates our integratedcommunications services.

A core component of our mission is to provide solutions thatfacilitate the movement of business information between business enterprises,using a dynamic and diverse set of delivery methods and content formats.  Ourproducts and services have been designed to help enterprises meet variouscommunications challenges, including the need to:
- communicate with an ever-expanding number of trading     partners, customers, and enterprises;
- increase the control, management, speed, accuracy and     security of the information delivered;
- manage an increasing set of methods used to communicate     (print/mail, email, web, fax, XML, and wireless);
- cost-effectively implement a solution that will allow the     enterprise to endure the slow acceptance of a common set of delivery     methods;
- meet the communications challenges with a service that is     more robust than available commercial grade proprietary technologies; and
- mitigate the negative impact of delivery methods on     workflow, business process and security requirements.

Our target markets include Financial Services, Healthcare,Manufacturing, Local Government, and Direct Sales Organizations, and we serveapproximately 1,600 active corporate clients and over 22,000 integratedcommunications clients.

In 2006, we have made progress toward achieving ourstrategic objectives by:
- acquiring GSI, a company with strategic products and     services (2005 revenue: $6,997,000);
- beginning a business integration process designed to take     advantage of the Company's growing scale of operations;
- increasing consolidated net revenue for the first half of     2006 by 38% due to a 19% increase in our TBS subsidiary, a 31% increase in     our Resolutions subsidiary resulting from the consolidation of the net     revenue of Resolutions during the first quarter of 2006, and the     consolidation of $996,077 of net revenue of GSI from May 1, 2006 (date of     acquisition); and
- reducing net loss for the first half of 2006 by $6.53 million     compared to the 2005 quarter as a result of the conversion to common stock     of all debt containing embedded derivatives.  

Our current and future growthstrategy is focused on acquiring intellectual and technology assets thatimprove our ability to take a client's unstructured content and documents anddeliver it to the other party through the method preferred by each party,presenting the content in a manner that surpasses our client's goals.  Inessence, we strive to bring a Business Process Management discipline to theirinformation.  We believe that if we are successful in executing this strategy,our clients will enjoy improved compliance, collaboration, cost containment,and superior continuity of business processes.

Our ultimate vision is to become abusiness process management/workflow service that provides competency andfunctionality in the following areas: Integrated Communications, Web ContentManagement, Digital Asset Management, Email Management,  Records Management,Documentation Management, Information Indexing, Categorization/Taxonomy,Recognition, Document Imaging, Form Processing, Scanning, Collaboration,Repositories, Storage, Long Term Archival, Content Integration, Search andRetrieval, Content Syndication, Localization and Personalization, andPublication (paper or electronic).

We intend to continue our focuson obtaining growth from sales of higher margin products and services at GSI, MVI,TBS, and Resolutions and by acquiring companies that consistently generate netincome and positive cash flows.  We believe that this strategy offers thebest opportunity for our operations to continue to generate positive operatingincome and cash flows from operations and to achieve net income. 

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

We intend to continue ourstrategy of cost containment.  Should additional growth capital becomeavailable during 2006, we intend to direct the capital toward increasing salesand marketing while holding down costs for general and administrative as wellas product and technology expenses.

During the remainder 2006, we will actively seek additionalfinancing by issuing equity or obtaining a combination of equity and debtfinancing from new shareholders and/or lenders.  If the planned financings areobtained, we believe the Company will generate adequate cash to sustainoperations at current levels until it begins to operate profitably on aconsistent, month-over-month basis. We continue to caution that there can be noassurance that funding will be available on acceptable terms, if at all, orthat any such funds we raise would enable us to maintain profitable operations.

**CriticalAccounting Policies**

In preparing our consolidated financial statements, we makeestimates, assumptions and judgments that can have a significant effect on ourrevenues, income/loss from operations, and net income/net loss, as well as onthe value of certain assets on our consolidated balance sheet.  We believe thatthere are several accounting policies that are critical to an understanding ofour historical and future performance as these policies affect the reportedamounts of revenues, expenses, and significant estimates and judgments appliedby management.  While there are a number of accounting policies, methods andestimates affecting our consolidated financial statements, areas that areparticularly significant include revenue recognition, stock-based compensation,valuation of derivative financial instruments, and goodwill and long-livedassets.  In addition, please refer to Note 4 to the accompanying consolidatedfinancial statements for further discussion of our significant accountingpolicies.

**Revenue Recognition**.  The Company recognizesrevenue in accordance with Staff Accounting Bulletin ("SAB") No. 101,"*Revenue Recognition in Financial Statements*", as revised bySAB No. 104.  As such, the Company recognizes revenue when persuasive evidenceof an arrangement exists, title transfer has occurred, or the services havebeen performed, the price is fixed or readily determinable and collectibilityis probable.  Sales are recorded net of sales discounts.  

The Company has adopted Statement of Position ("SOP") 97-2,"*Software Revenue Recognition*," as well as SOP 98-9, "*Modificationof SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions*." The SOPs generally require revenue earned on software arrangements involvingmultiple elements to be allocated to each element based on the relative fairmarket values of each of the elements. The fair value of an element must bebased on vendor-specific objective evidence ("VSOE") of fair value. Softwarelicense revenue generated by TBS and Resolutions allocated to a softwareproduct is recognized upon delivery of the product, or deferred and recognizedin future periods to the extent that an arrangement includes one or moreelements that are to be delivered at a future date and for which VSOE has notbeen established.  Maintenance and support revenue is recognized ratablyover the maintenance term.  First-year maintenance typically is sold withthe related software license and renewed on an annual basis thereafter.Estimated fair values of ongoing maintenance and support obligations are basedon separate sales of renewals to other customers or upon renewal rates quotedin the contracts. For such arrangements with multiple obligations, the Companyallocates revenue to each component of the arrangement based on the estimatedfair value of the undelivered elements. Fair value of services, such asconsulting or training, is based upon separate sales of these services. TheCompany at times may enter into multiple-customer contracts in which theCompany allocates revenue based on the number of specified users at eachcustomer, and recognizes revenue upon customer acceptance and satisfying theother applicable conditions of the above described accounting policy. 

Services revenue is recognized as the service is performedassuming that sufficient evidence exists to estimate the fair value of theservices.  Consulting and training services are billed based oncontractual hourly rates and revenues are recognized as the services areperformed. Consulting services primarily consist of implementation servicesrelated to the installation of the Company's products which do not requiresignificant customization to or modification of the underlying software code. 

Revenue from subscription agreements consists of fixedmonthly fees and usage charges, generally based on per minute rates.  Subscriptionagreement revenue related to MVI and GSI usage service charges are billedmonthly in arrears and the associated revenues are recognized in the month ofservice. Recurring charges for the GoSoloTM platform are billed in advance on amonthly basis and recorded as deferred revenues. The Company recognizessubscription agreement revenue ratably over the service period, which managementbelieves approximates the actual provision of services. Professional servicefee revenue consists of consulting fees charged to enterprise clients forGoSoloTM platform enhancements. The Company recognizes professional service feerevenue on a time and materials basis over the service period, which managementbelieves approximates the actual provision of services.  Wholesale enhancedvoicemail services consists of fees charged to telecommunications providers foruse of the GoSoloTM platform to provide their customers with hosted electronicvoicemail, billed monthly in arrears and the associated revenues are recognizedin the month of service.

Significant management judgments and estimates must be madein connection with determination of the revenue to be recognized in anyaccounting period. If the Company made different judgments or utilizeddifferent estimates for any period, material differences in the amount andtiming of revenue recognized could result. 

**Stock-Based Compensation**.  On January 1, 2006, we adopted Statement ofFinancial Accounting Standards No. 123 (revised 2004), "*Share-Based Payment*,"("SFAS 123(R)") which requires the measurement and recognition of compensationexpense for all share-based payment awards made to our employees and directorsbased on estimated fair values. We adopted SFAS 123(R) using the modifiedprospective transaction method, which requires the application of theaccounting standard as of January 1, 2006, the first day of our fiscal year2006. Our financial statements as of and for the three and six months ended June30, 2006 reflect the impact of SFAS 123(R). In accordance with the modifiedprospective transition method, our financial statements for prior periods havenot been restated to reflect, and do not include, the impact of SFAS 123(R).The value of the portion of the award that is ultimately expected to vest isrecognized as an expense over the requisite service periods in our statement ofoperations. Prior to the adoption of SFAS 123(R), we accounted for stock-basedawards to employees and directors using the intrinsic value method inaccordance with APB 25 as allowed under Statement of Financial AccountingStandards No. 123, *Accounting for Stock-Based Compensation* (SFAS 123).As stock-based compensation expense recognized in the statement of operationsfor the first quarter of fiscal 2006 is based on awards ultimately expected tovest, it has been reduced for estimated forfeitures. SFAS 123(R) requiresforfeitures to be estimated at the time of grant and revised, if necessary, insubsequent periods if actual forfeitures differ from those estimated. Weestimated forfeitures to be 21%.

Stock-based compensationexpense recognized as operating expense under SFAS 123(R) for the six monthsended June 30, 2006 was $244,591, determined by the Black-Scholes valuationmodel, and consisting of stock-based compensation expense related to employeestock options. See Note 4 to the unaudited consolidated financial statementsfor additional information.

**Software Development Costs.**  The Companycapitalizes software development costs pursuant to SFAS No. 86, "*Accountingfor the Costs of Computer Software to be Sold, Leased or Otherwise Marketed*,"after technological feasibility of the software is established, which isgenerally the completion of a working prototype and ends upon general releaseof the product to the Company's customers. All costs incurred in the researchand development of new software and costs incurred prior to the establishmentof technological feasibility are expensed as incurred. Capitalized costsconsist of direct costs and allocated overhead associated with the developmentof the software products.  Amortization of software development costs commenceswhen the product becomes available for general release to customers and iscomputed based on the straight-line method over the software's estimatedeconomic life of approximately three years.  The Company reviews theunamortized software development costs at each balance sheet date and, ifnecessary, will write down the balance to net realizable value if theunamortized costs exceed the net realizable value of the asset.

**Goodwill and Other Intangible Assets**.  Inaccordance with SFAS No. 141, "*Business Combinations*," we record theassets acquired and liabilities assumed in business combinations at theirrespective fair values at the date of acquisition, with any excess purchaseprice recorded as goodwill. Because of the expertise required to valueintangible assets, we typically engage independent valuation specialists toassist us in determining those values. Valuation of intangible assets entailssignificant estimates and assumptions including, but not limited to, estimatingfuture cash flows from product sales, developing appropriate discount rates,continuation of customer relationships and renewal of customer contracts, andapproximating the useful lives of the intangible assets acquired. To the extentactual results differ from these estimates, our future results of operationsmay be affected. The Company has adopted SFAS No. 142 "*Goodwill andOther Intangible Assets.*"  Under SFAS No. 142, goodwill and otherintangible assets with indefinite lives are no longer subject to periodicamortization but are instead reviewed annually for impairment, or morefrequently if impairment indicators arise.

We believe that the accounting estimates related toimpairment of goodwill and other intangible assets are "criticalaccounting estimates" because (1) they are highly susceptible to changefrom period to period because they requires company management to makeassumptions about future sales and cost of sales, and (2) the impact thatrecognizing an impairment would have on the assets reported on our balancesheet as well as our net loss would be material.  Management's assumptionsabout future sales prices and future sales volumes have fluctuated in the pastand are expected to continue to do so.

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

In each of the last two years, we have used the services ofindependent valuation firms to assist us with identifying and valuingintangible assets and testing the reported carrying value of our goodwill andintangible assets.  In each year we determined that, based on our assumptionsas well as the impairment analysis conducted by the valuation firm, that thesum of the expected future discounted cash flows exceeded the reported carryingvalue and therefore we did not recognize an impairment loss.

If we had been required to recognize an impairment loss onour goodwill and intangible assets, it would likely not have materiallyaffected our liquidity and capital resources because we are not subject to anyrestrictive covenants related to the net income we report in our financialstatements.

**Long-Lived Assets**.  The Company's managementassesses the recoverability of its long-lived assets by determining whether thedepreciation and amortization of long-lived assets over their remaining livescan be recovered through projected undiscounted future cash flows.  Theamount of long-lived asset impairment, if any, is measured based on fair valueand is charged to operations in the period in which long-lived asset impairmentis determined by management. 

**Beneficial Conversion Feature**.  Theconvertible feature of certain of our convertible notes provides for a rate ofconversion that is below market value. Such feature is normally characterizedas a "beneficial conversion feature" ("BCF"). Pursuant toEmerging Issues Task Force Issue No. 98-5 ("EITF 98-5"), "*AccountingFor Convertible Securities with Beneficial Conversion Features or ContingentlyAdjustable Conversion Ratio*" and Emerging Issues Task Force Issue No.00-27,"*Application of EITF Issue No. 98-5 To Certain ConvertibleInstruments,*" the relative fair values of the BCFs have been recordedas a discount from the face amount of the respective debt instrument. TheCompany is amortizing the discount using the effective interest method throughmaturity of such instruments. The Company will record the correspondingunamortized debt discount related to the BCF and warrants as interest expensewhen the related instrument is converted into the Company's common stock.

** **

**RESULTS OF OPERATIONS**
Three Months Ended June 30, 2006 Compared to Three Months Ended June 30,2005 (restated)
Net Revenue from External Customers

Net revenue from external customers forthe three months ended June 30, 2006 was $3,034,092, a 33% increase over net revenuefor the prior year quarter of $2,275,518.

For the three months ended June 30, 2006, TBS and MVI eachgenerated 25% of the Company's net revenue, GSI generated 33% of the Company'snet revenue, and Resolutions generated 17% of the Company's net revenue. During the three months ended June 30, 2005, MVI generated 36% of the Company'snet revenue, and TBS and Resolutions each contributed 32% of the Company's netrevenue.

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

Three Months 

Three Months Ended

Ended

June 30, 2005

Variance

June 30, 2006

(restated)

Amount

Percent

Net revenue from external customers:

Electronic document delivery services

 $

770,490 

 $

809,494 

 $

(39,004)

(5%)

Government accounting solutions

746,928 

734,695 

12,233 

2%

Electronic forms

520,597 

731,329 

(210,732)

(29%)

Integrated communications

996,077 

- 

996,077 

100%

Corporate

- 

- 

- 

Total net revenue from external  customers

 $

3,034,092 

 $

2,275,518 

 $

758,574 

33%

The increase of $758,574 in the 2006 quarter resulted from thecontribution of $996,077 in revenue from GSI, which offset a 5% decrease inrevenue from MVI that resulted from a decrease in sales staff and relatedexpenses, and a 29% decrease from Resolutions that resulted from the plannedexpiration of certain service agreements.

Cost of Sales

Cost of sales for the three months ended June 30, 2006 was $1,112,791as compared to the $767,406 reported for the three months ended June 30, 2005. The overall increase in the 2006 quarter of $345,386 resulted from a decreaseof $26,399 from MVI, an increase of $42,985 from TBS, an increase of $23,285from Resolutions, and the addition of $305,514 from GSI.  Total cost of salesduring the 2006 quarter represented 37% of net sales.  Cost of sales for MVI duringthe 2006 quarter represented 31% of net sales as compared with 33% of net salesin the 2005 quarter.  Cost of sales for TBS during the 2006 quarter represented51% of net sales as compared with 46% of net sales in the 2005 quarter.  Costof sales for Resolutions during the 2006 quarter represented 25% of net salesas compared with 22% of net sales in the 2005 quarter.  The increased costs atTBS and Resolutions reflect a change in revenue mix where sales of lowermargin, third-party services were more prominent during the 2006 quarter.  Costof sales for GSI during the 2006 quarter represented 19% of net sales, which isconsistent with prior quarters.

Gross Profit

Gross profit for the three months ended June 30, 2006increased 27% to $1,921,301 as compared to $1,508,112 for the prior yearquarter.  The increase in the 2006 quarter of $413,188 resulted from decreasesof $12,605, $30,752, and $237,017 from MVI, TBS, and Resolutions, respectively,which were offset by the addition of $690,563 from GSI.  Gross profit marginfor the 2006 quarter was 63% as compared to 66% for the 2005 quarter.

Operating Expenses

Operating expenses for the three months ended June 30, 2006increased by 69% to $2,227,078 from the $1,317,384 reported in the three monthsended June 30, 2005.  Of the total increase of $909,694, $254,488and $199,435are attributable to increases in operating expenses of corporate and TBS,respectively.  These increases were offset by decreases of $81,402 and $7,860 fromMVI and Resolutions, respectively.  In addition, GSI incurred $545,033 of operatingexpenses during the 2006 quarter.  

During the three months ended June 30, 2006, corporateincurred $524,636 in operating expenses, an increase of $247,000 from the $277,636reported in the 2005 quarter as a result of increased compensation and legaland accounting expenses, including $164,391 in stock-based compensation expenseas a result of the adoption of SFAS No. 123(R).

During the three months ended June 30, 2006, MVI incurred $230,541in operating expenses, a decrease of 26% from the $311,943 reported in the 2005quarter.  Product and technology development decreased $12,140 to $79,064 fromthe $91,204 reported in the prior year quarter as a result of reduced compensationexpenses.  Sales and marketing decreased by $88,330 to $80,182 from the $168,512reported in the prior year quarter as a result of staff reductions.  Generaland administrative decreased by $4,021 to $57,984 from the $62,005 reported inthe prior year quarter due to decreased compensation costs.  Depreciation andamortization expense decreased $23,089 as a result of an increase in fullydepreciated computer equipment.

During the three months ended June 30, 2006, TBS incurred $554,228in operating expenses, an increase of 56% as compared to the $354,793 reportedin the 2005 quarter.  Product and technology development increased $57,538 to $129,231as compared to $71,693 reported in the 2005 quarter due to consulting andsalaries expenses resulting from increased staffing.  Sales and marketing decreased$22,977 to $70,683 from the $93,660 reported in the 2005 quarter.  General andadministrative increased $181,149 to $318,402 from the $137,253 reported in the2005 quarter due to staff restructuring.  Depreciation and amortizationexpenses decreased $16,275 due to an increase in fully depreciated computerequipment.

During the three months ended June 30, 2006, Resolutionsincurred $365,152 in operating expenses, a decrease of 2% as compared to the $373,012reported in the 2005 quarter.  Product and technology development increased $69,sales and marketing increased $100,190, and general and administrative decreased$026,022 due to reallocation of staff resources.  Depreciation and amortizationexpenses decreased $51,065 due to a reduction of the carrying value ofintangible assets.

During the period from May 1, 2006 (date of acquisition)through June 30, 2006, GSI incurred $545,033 of operating expenses.  Sales andmarketing, product and technology, general and administrative, and depreciationand amortization expenses were $140,053, $259,246, $93,472, and $52,262, respectively.

Operating Income (Loss)

As a result of the foregoing, the Company reported anoperating loss for the three months ended June 30, 2006 of $305,777, comparedto an operating income of $190,728 for the three months ended June 30, 2005.  

The following is a comparison of the components ofconsolidated income (loss) from operations:

Three Months 

Three Months Ended

Ended

June 30, 2005

Variance

June 30, 2006

(restated)

Amount

Operating income (loss):

Electronic document delivery services

 $

300,621 

 $

231,824 

 $

68,797 

Government accounting solutions

(186,927)

43,260 

(230,187)

Electronic forms

(32,877)

193,280 

(226,157)

Integrated communications

145,530 

- 

145,530 

Corporate

(532,124)

(277,636)

(254,488)

Total operating loss

 $

(305,777)

 $

190,728 

 $

(496,505)

 

Change in Fair Value of Derivative Liability

During the three months ended June 30, 2005, we recognizedother income of $125,580 related to recording the derivative liability at fairvalue.  At June 30, 2006, there are no derivative liabilities since thevariable debt instruments were settled in full in fiscal 2005. 

Interest Expense

Interest expense for the quarter ended June 30, 2006decreased by $6,750,844 to $26,359 from the $6,777,203 reported in the 2005quarter.  Interest charges incurred pursuant to convertible promissory notes,including embedded derivatives, decreased significantly as a result of theconversion to equity of approximately $5 million in debt during 2005.  Interestexpense during the 2005 period included non-cash charges of $6,700,417 relatedto the amortization of debt discount.  

Other Income (Expense)

Other Income (Expense) for the quarter ended June 30, 2006increased to $23,965 from $0 reported in the 2005 quarter.  Charges incurredpursuant to a patent infringement settlement agreement were $25,000 and werepartially offset by $1,035 in miscellaneous other income. 

Net Loss

As a result of the foregoing, net loss for the three monthsended June 30, 2006 was $356,693, or $0.00 per share, compared to a net loss of$6,460,895, or $0.08 per share for the three months ended June 30, 2005 onweighted average shares of 146,535,158 and 77,934,956, respectively.

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

Three Months 

Three Months Ended

Ended

June 30, 2005

Variance

June 30, 2006

(restated)

Amount

Net income (loss):

Electronic document delivery services

 $

301,064 

 $

239,022 

 $

62,042 

Government accounting solutions

(186,927)

43,260 

(230,187)

Electronic forms

(35,744)

193,280 

(229,024)

Integrated communications

143,352 

- 

143,352 

Corporate

(578,438)

(6,936,457)

6,358,019 

Total net loss

 $

(356,693)

 $

(6,460,895)

 $

6,104,202 

 

 

**Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005(restated)**

Net Revenue from External Customers

Net revenue from external customers for the six months endedJune 30, 2006 was $5,101,931, a 38% increase over net revenue for the prioryear period of $3,687,500  

For the six months ended June 30, 2006, GSI, MVI, TBS, and Resolutionsgenerated 20%, 30%, 32%, and 19% of the Company's net revenue, respectively. During the six months ended June 30, 2005, MVI, TBS, and Resolutions generated 43%,37%, and 20% of the Company's net revenue, respectively.

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

Six Months 

Six Months Ended

Ended

June 30, 2005

Variance

June 30, 2006

(restated)

Amount

Percent

Net revenue from external customers:

Electronic document delivery services

 $

1,509,122 

 $

1,583,114 

 $

(73,992)

-5% 

Government accounting solutions

1,634,699 

1,373,057 

261,642 

19% 

Electronic forms

962,033 

731,329 

230,704 

32% 

Integrated communications

996,077 

- 

996,077 

100% 

Corporate

- 

- 

- 

Total net revenue from external  customers

 $

5,101,931 

 $

3,687,500 

 $

1,414,431 

38% 

The increase of $1,414,431 in the 2006 period resulted from thecontribution of $996,077 in revenue from GSI, a 19% increase in revenue fromTBS, and a 32% increase in revenue from Resolutions.  These increases wereoffset by a 5% decrease in revenue from MVI that resulted from a decrease insales staff and related expenses.

Cost of Sales

Cost of sales for the six months ended June 30, 2006 was $1,816,903as compared to the $1,318,892 reported for the six months ended June 30, 2005. The overall increase in the 2006 period of $498,011 resulted from a decrease of$58,193 from MVI, an increase of $96,984 from TBS, an increase of $153,706 fromResolutions, and the addition of $305,514 from GSI.  Total cost of sales duringthe 2006 period represented 36% of net sales.  Cost of sales for MVI during the2006 period represented 31% of net sales as compared with 33% of net sales inthe 2005 period.  Cost of sales for TBS during the 2006 period represented 45%of net sales as compared with 46% of net sales in the 2005 period.  Cost ofsales for Resolutions during the 2006 period represented 19% of net sales ascompared with 12% of net sales in the 2005 period.  The increased costs at TBSand Resolutions reflect a change in revenue mix where sales of lower margin,third-party services were more prominent during the 2006 period.  Cost of salesfor GSI during the 2006 period represented 19% of net sales, which isconsistent with prior periods.

Gross Profit

Gross profit for the six months ended June 30, 2006increased 39% to $3,285,028 as compared to $2,368,608 for the prior year period. The increase in the 2006 period of $916,420 resulted from the addition of$690,563 from GSI as well as increases of $164,658 and $76,998 from TBS andResolutions, respectively, which were offset by a decrease of $15,799 from MVI. Gross profit margin for the 2006 period was 64% in both the 2006 and 2005 periods.

Operating Expenses

Operating expenses for the six months ended June 30, 2006increased by 55% to $3,837,478 from the $2,483,017 reported in the six monthsended June 30, 2005.  Of the total increase of $1,354,461, $490,674, $170,079,and $324,957 are attributable to increases in operating expenses of corporate, TBS,and Resolutions, respectively.  In addition, GSI incurred $545,033 of operatingexpenses during the 2006 period.  These increases were offset by a decrease of$176,282 from MVI.  

During the six months ended June 30, 2006, corporateincurred $956,593 in operating expenses, an increase of $490,674 from the $465,919reported in the 2005 period as a result of increased compensation and legal andaccounting expenses, including $244,591 in 2006 compensation expense as aresult of the adoption of SFAS No. 123(R).

During the six months ended June 30, 2006, MVI incurred $563,239in operating expenses, a decrease of 24% from the $739,521 reported in the 2005period.  Product and technology development decreased $11,008 to $174,452 fromthe $185,460 reported in the prior year period as a result of reduced compensationexpenses.  Sales and marketing decreased by $152,151 to $203,967 from the $356,118reported in the prior year period as a result of staff reductions.  General andadministrative decreased by $15,336 to $163,011 from the $178,347 reported inthe prior year period due to decreased compensation costs.  Depreciation andamortization expense increased $2,213 as a result of capital expenditures.

During the six months ended June 30, 2006, TBS incurred $1,074,644in operating expenses, an increase of 19% as compared to the $904,565 reportedin the 2005 period.  Product and technology development increased $88,031 to $255,426as compared to $167,395 reported in the 2005 period due to increased staffing. Sales and marketing decreased $25,282 to $179,486 from the $204,768 reported inthe 2005 period and general and administrative increased $108,446 to $566,475from the $458,029 reported in the 2005 period due to staff restructuring. Depreciation and amortization expenses decreased $1,116 due to an increase in fullydepreciated computer equipment.

During the six months ended June 30, 2006, Resolutionsincurred $697,969 in operating expenses, an increase of 87% as compared to the$373,012 reported in the 2005 period.  Product and technology developmentincreased $109,574, sales and marketing increased $191,366, and general andadministrative increased $38,164 due to reallocation of staff resources. Depreciation and amortization expenses decreased $14,147 due to a reduction ofthe carrying value of intangible assets.

During the period from May 1, 2006 (date of acquisition)through June 30, 2006, GSI incurred $545,033 of operating expenses.  Sales andmarketing, product and technology, general and administrative, and depreciationand amortization expenses were $140,053, $259,246, $93,472, and $52,262,respectively.

Operating Income (Loss)

As a result of the foregoing, the Company reported anoperating loss for the six months ended June 30, 2006 of $552,450, compared toan operating loss of $114,409 for the six months ended June 30, 2005.  

The following is a comparison of the components ofconsolidated income (loss) from operations:

Six Months 

Six Months Ended

Ended

June 30, 2005

Variance

June 30, 2006

(restated)

Amount

Operating income (loss):

Electronic document delivery services

 $

482,998 

 $

322,515 

 $

160,483 

Government accounting solutions

(169,706)

(164,285)

(5,421)

Electronic forms

(54,679)

193,280 

(247,959)

Integrated communications

145,530 

- 

145,530 

Corporate

(956,593)

(465,919)

(490,674)

Total operating loss

 $

(552,450)

 $

(114,409)

 $

(438,041)

 

Change in Fair Value of Derivative Liability

During the six months ended June 30, 2005, we recognizedother income of $130,903 related to recording the derivative liability at fairvalue.  At June 30, 2006, there are no derivative liabilities since thevariable debt instruments were settled in full in fiscal 2005. 

Interest Expense

Interest expense for the period ended June 30, 2006 decreasedby $7,118,657 to $49,667 from the $7,168,324 reported in the 2005 period.  Duringthe 2006 period, interest charges incurred pursuant to convertible promissorynotes, including embedded derivatives, decreased significantly as a result ofthe conversion to equity of approximately $5 million in debt during 2005.  Interestexpense during the 2005 period included non-cash charges of $6,700,417 relatedto the amortization of debt discount, $306,429 related to an inducement for theconversion of convertible notes payable, and $39,000 related to amortization ofdebt issue costs.

Other Income (Expense)

Other Income (Expense) for the six months ended June 30,2006 increased to $23,965 from $0 reported in the 2005 period.  Chargesincurred pursuant to a patent infringement settlement agreement were $25,000and were partially offset by $1,035 in miscellaneous other income. 

Net Loss

As a result of the foregoing, net loss for the six monthsended June 30, 2006 was $630,082, or $0.01 per share, compared to a net loss of$7,156,030, or $0.10 per share for the six months ended June 30, 2005 onweighted average shares of 115,707,360 and 69,194,342, respectively.

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

 

Six Months 

Six Months Ended

Ended

June 30, 2005

Variance

June 30, 2006

(restated)

Amount

Net income (loss):

Electronic document delivery services

 $

482,417 

 $

322,021 

 $

160,396 

Government accounting solutions

(169,706)

(165,218)

(4,488)

Electronic forms

(57,893)

193,280 

(251,173)

Integrated communications

143,352 

- 

143,352 

Corporate

(1,028,252)

(7,506,113)

6,477,861 

Total net loss

 $

(630,082)

 $

(7,156,030)

 $

6,525,948 

 

** **

**LIQUIDITY****AND****CAPITAL RESOURCES**

During the six months ended June 30, 2006, the Company's netcash position decreased by $122,740 to $639,311. The Company's operating and investingactivities provided net cash of $179,641 and $65,900, respectively; however,the Company's financing activities used net cash of $368,281.

Net cash provided by operating activities for the six monthsended June 30, 2006 was $179,641, a decrease of $34,819 from the $214,460provided by operating activities for the 2005 period.

The Company's investing activities consisted of theacquisition of GSI, the purchase of computer equipment and additions tocapitalized software development costs. Net cash provided by investingactivities increased $542,844 to $65,900 from the $(476,944) used in investingactivities during the 2005 period.

Net cash used in financing activities for the six monthsended June 30, 2006 was $(368,281), and included $10,000 of proceeds from notespayable to related parties, as offset by $270,000 of payments on notes relatedto the TBS and Resolutions acquisitions, and $108,281 of payments to GSI noteholders.  Net cash provided by financing activities for the six months ended June30, 2005 was $486,582 and included proceeds from notes payable to relatedparties of $20,000 and proceeds from a note payable of $715,000, as offset by $240,000of payments on notes related to the TBS and Resolutions acquisitions. 

Effective May 1, 2006, the Companyacquired GSI.   GSI's income from operations for the year ended December 31,2005 was $743,847 on net revenue of $6,996,534.  VillageEDOCS' 2005 income fromoperations was $125,186 on net revenue of $8,768,446.  Had the acquisition beenin effect throughout all of 2005, the unaudited net revenue of VillageEDOCS andGoSolutions would have been $15,764,980.  Accordingly, we expect theacquisition of GoSolutions to have a significant and positive effect on ourresults for the third and fourth quarters of 2006.

The Company does notcurrently have any material commitments for capital expenditures other thanthose expenditures incurred in the ordinary course of business. 

Due to a deficit in net tangible assets, the Company hashistorically been unable to obtain operating lines of credit from traditionalbanking institutions.  During 2005, TBS renewed a $100,000 operating line ofcredit which it has not utilized as of the date of this report.  On June 30,2006, VillageEDOCS secured a $500,000 operating line of credit guaranteed by ashareholder which it has not utilized as of the date of this report.  On June28, 2006, GSI renewed a $1,000,000 operating line of credit guaranteed by fourshareholders, $840,000 of which has been utilized as of the date of this reportin connection with the acquisition of GSI.

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

Since our inception, our operating and investing activitieshave used substantially more cash than they have generated. We believe that wehave made considerable progress toward achieving profitable operations byincreasing revenues from electronic document delivery services and through ouracquisition of TBS, Resolutions, and GSI.  In addition, we are actively seekingopportunities to acquire or otherwise combine with businesses that areoperating profitably and generating positive cash flows.  However, at presentand for the foreseeable future, we believe that we will continue to needworking capital to fund the growth of our businesses and to absorb theincreasing costs associated with operating as a fully reporting company in theprevailing regulatory environment.    Accordingly, we may experience negativeoperating and investing cash flows during certain months during the remainderof 2006 until MVI, TBS, Resolutions, and GSI consistently generate net cashflows sufficient to offset the anticipated expenses of operating the holdingcompany.  While we believe that our available cash resources combined with ourcurrent revenue streams will be sufficient to meet our anticipated workingcapital requirements for the next twelve months, we will require additionalfinancing to fund capital expenditure requirements in the ordinary course ofbusiness for 2006.  Should our current revenue streams or margins be subjectedto even minor decreases, our funding requirements could be greater.

We believe that sustainable profitability is achievable;however, we have a history of losses.  While GSI, MVI, TBS, and Resolutionshave reported both monthly operating incomes and monthly operating lossesduring 2006, operating incomes have been insufficient to offset operatinglosses, interest expense and corporate overhead.  If we are not successful insustaining and increasing operating profits from our three reporting segments(and from GSI), or reducing expenses of the holding company, we may neverachieve profitability for the Company as a whole.  Should we achieve overallprofitability in any period, we cannot be certain that we will sustain orincrease such profitability on a quarterly or annual basis.

Between November 2000 and at least December 2004, ouroperating shortfalls were funded by one shareholder, an affiliate, to whom weowe $65,000 in principal and approximately $98,000 in interest as of June 30,2006. This shareholder has no obligation to continue to fund any futureoperating shortfalls.  We may be required to alter the terms of the convertiblepromissory note held by this shareholder to induce this shareholder or othersuch potential lenders to provide additional loans, which could result in thisshareholder or other such potential lenders obtaining rights, preferences orprivileges senior to those of other creditors or our stockholders.

This estimate is a forward-looking statement that involvesrisks and uncertainties. The actual time period may differ materially from thatindicated as a result of a number of factors so that we cannot assure you thatour cash resources will be sufficient for anticipated or unanticipated workingcapital and capital expenditure requirements for this period. We have advisedthat we will need to raise additional capital in the future to meet ouroperating and investing cash requirements. Such sources of financing couldinclude capital infusions, additional equity financing, or debt offerings.There can be no assurance that additional funding will be available onacceptable terms, if at all, or that such funds if raised, would enable theCompany to achieve and maintain profitable operations. If we are not able toobtain sufficient additional funds from investors, we may be unable to sustainall or part of our operations.  If we raise additional funds through theissuance of securities, these securities may have rights, preferences orprivileges senior to those of our common stock, and our stockholders mayexperience additional dilution to their equity ownership. 

The Report of Independent Registered Public Accounting Firmon our December 31, 2005 consolidated financial statements includes anexplanatory paragraph stating that the recurring losses incurred fromoperations and a working capital deficiency raise substantial doubt about ourability to continue as a going concern. The financial statements do not includeany adjustments that might result from the outcome of this uncertainty.

**CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS**

This Quarterly Report on Form 10-QSB includesforward-looking statements within the meaning of Section 21E of the SecuritiesExchange Act of 1934, as amended. All statements that do not directly andexclusively relate to historical facts constitute forward-looking statementswithin the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements are based on our plans, intentions, expectation,and belief and are subject to certain risks and uncertainties that could causeactual results to differ materially from those projected or expressed herein.You can identify these statements by forward-looking words such as"may", "will", "expect", "intend","anticipate", "believe", "expect","plan", "seek", "estimate", "project", "could", and "continue" or similar words. You should read statements thatcontain these words carefully because they discuss our expectations about ourfuture performance, contain projections of our future operating results or ofour future financial condition, or state other "forward-looking"information. These statements include, among others, information regarding futureoperations, future capital expenditures, and future net cash flow. Suchstatements reflect the Company's current views with respect to future eventsand financial performance and involves risks and uncertainties, including,without limitation, general economic and business conditions, changes inforeign, 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 risksdescribed under the caption "*Certain Factors That May Affect FutureResults"* in Item 6 of the Company's Annual Report on Form 10-KSB filedwith the Commission on April 14, 2006. 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. We assume no obligation to updateany forward-looking statements.  Investors are cautioned not to put unduereliance on any forward-looking statements, which speak only as of the date ofthis Quarterly Report on Form 10-QSB.  Readers should also consult thecautionary statements and risk factors listed from time to time in our Reports,and all amendments thereto, on Forms 10-KSB, 10-QSB, 8-K, and other SECfilings.  For these statements, we claim the protection of the safe harbor forforward-looking statements contained in Section 21E of the Exchange Act.

Forward looking statements in this Quarterly Report on Form10-QSB include, without limitation:

The statements in MD&A under the captions *Introduction*and *Business Overview*of our strategies, beliefs, plans,expectations, anticipations and hopes with respect to (1) our expectationsabout the completion of the merger transaction with GoSolutions, (2) our beliefthat we have improved our corporate governance, (3) our current and futuregrowth strategy to acquire intellectual and technology assets and ourexpectations about the benefits we may derive, (4) our beliefs about our visionto become a business process management/workflow service and the benefits weexpect to derive, (5) our acquisition strategy, and (6) our belief thatobtaining planned financings will allow us to generate adequate cash flows tosustain operations at current levels until we being to operate profitably on aconsistent, month-over month basis, which statements are subject to variousrisks and uncertainties, including, without limitation, our limited operatinghistory, risks that we may not be able to obtain any additional financing atterms acceptable to us, or at all, risks that we may not successfully implementour acquisition program, risks associated with assimilating acquired personneland technology into the Company, and the risk that we will not be able tocompete effectively because our market place is highly competitive and has lowbarriers to entry. 

The statements in MD&A under the caption *CriticalAccounting Policies*regarding calculation of allowances, reserves, andother estimates that are based on historical experience, the judgment ofmanagement, and various other assumptions that are believed to be reasonableunder the circumstances, the results of which for the basis for makingjudgments about the carrying value of assets and liabilities that are notreadily apparent from any other sources, our beliefs about critical accountingpolicies, and the significant judgments and estimates used in the preparationof our consolidated financial statements, which statements are subject tocertain risks, including, among other things, the inaccuracy of our beliefsregarding critical accounting policies and that actual customer reserves orother estimates may be different from our estimates, requiring revisions to ourestimated allowance for doubtful accounts, additional inventory write-downs,impairment charges, restructuring charges, litigation, warranty, and otherreserves.

The statements in MD&A underthe caption *Results of Operations*of our strategies, beliefs, plans,expectations, anticipations and hopes with respect to Net Revenue, GrossProfit, Operating Expenses, Income from Operations, and Net Loss and ourstrategies, beliefs, plans, expectations, anticipations and hopes with respectto Liquidity and Capital Resources set forth in MD&A under the caption *Liquidityand Capital Resources*, including, without limitation (1) our belief that wehave made considerable progress toward achieving profitable operations byincreasing revenues from electronic document delivery services and through ourrecent acquisition of TBS, Resolutions, and GSI, (2) our strategy of activelyseeking to combine with business that operate profitably and generate positivecash flows, (3) our belief that sustainable profitability is achievable, (4)our expectations about future funding requirements, and (5) our belief thatcurrent cash position, cash generated through operations and equity offeringsand available borrowings will be sufficient to meet our needs through at leastthe next twelve months, which statements are subject to various risks anduncertainties, including, without limitation, our limited operating history,risks that we may not be able to obtain any additional financing at termsacceptable to us, or at all, the risk that we may be unable to sustain all orpart of our operations if we are not able to obtain sufficient additional fundsfrom investors, the risk that our funding requirements could be greater shouldour current revenue streams or margins decrease, risks that we may notsuccessfully implement our acquisition program, risks associated withassimilating acquired personnel and technology into the Company, and the riskthat we will not be able to compete effectively because our market place ishighly competitive and has low barriers to entry.

**RECENT ACCOUNTING PRONOUNCEMENTS**

In February 2006, the FASB issued a final FASB StaffPosition ("FSP"), FAS 123(R)-4, *"Classification of Options and SimilarInstruments Issued as Employee Compensation That Allow for Cash Settlement uponthe Occurrence of a Contingent Event"*. The guidance in this FSP FAS123(R)-4 amends paragraphs 32 and A229 of SFAS No. 123(R) to incorporate theconcept articulated in footnote 16 of SFAS No. 123(R). As a result, a cashsettlement feature that can be exercised only upon the occurrence of acontingent event that is outside the employee's control does not meet thecondition in paragraphs 32 and A229 until it becomes probable that the eventwill occur. Originally under SFAS No. 123(R), a provision in a share-basedpayment plan that required an entity to settle outstanding options in cash uponthe occurrence of any contingent event required classification and accountingfor the share based payment as a liability. This caused an issue under certainawards that require or permit, at the holder's election, cash settlement of theoption or similar instrument upon (a) a change in control or other liquidityevent of the entity or (b) death or disability of the holder. With this newFSP, these types of cash settlement features will not require liabilityaccounting so long as the feature can be exercised only upon the occurrence ofa contingent event that is outside the employee's control (such as an initialpublic offering) until it becomes probable that event will occur. The guidancein this FSP shall be applied upon initial adoption of SFAS No. 123(R). We donot anticipate that this new FSP will have any material impact on our consolidatedfinancial condition or results of operations. 

In February 2006, the FASB issued SFAS No. 155 *"Accountingfor Certain Hybrid Financial Instruments, an amendment of FASB Statements No.133 and 140"*. SFAS No. 155 amends SFAS No. 133, *"Accounting forDerivative Instruments and Hedging Activities,"* and SFAS No. 140, *"Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities."* This statement resolves issues addressed in SFAS No. 133Implementation Issue No. D1, *"Application of Statement 133 to BeneficialInterests in Securitized Financial Assets."* Among other things, thisstatement permits fair value re-measurement for any hybrid financial instrumentthat contains an embedded derivative that otherwise would require bifurcation.This statement is effective for all financial instruments acquired or issuedafter the beginning of an entity's first fiscal year that begins afterSeptember 15, 2006. Earlier adoption is permitted as of the beginning of anentity's fiscal year, provided the entity has not yet issued financialstatements, including financial statements for any interim period for thatfiscal year. Provisions of this statement may be applied to instruments that anentity holds at the date of adoption on an instrument-by-instrument basis. Weare in the process of evaluating the impact of SFAS No. 155.

**ITEM 3 - CONTROLS ANDPROCEDURES**

(a) As of June 30, 2006, anevaluation was carried out under the supervision and with the participation ofthe Company's management, including our Chief Executive Officer and our ChiefFinancial Officer, of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934).  Based upon that evaluation,the Chief Executive Officer and the Chief Financial Officer concluded that thedesign and operation of these disclosure controls and procedures during thethree months ended June 30, 2006 were effective in timely alerting them to thematerial information relating to the Company (or the Company's consolidatedsubsidiaries) required to be included in the Company's periodic filings withthe SEC, subject to the various limitations on effectiveness set forth belowunder the heading, "LIMITATIONS ON THE EFFECTIVENESS OF INTERNALCONTROLS," such that the information relating to the Company, required tobe disclosed in SEC reports (i) is recorded, processed, summarized and reportedwithin the time periods specified in SEC rules and forms, and (ii) isaccumulated and communicated to the Company's management, including our CEO andCFO, as appropriate to allow timely decisions regarding required disclosure. 

The Company's management hasconcluded that the consolidated financial statements included in this QuarterlyReport on Form 10-QSB fairly present in all material respects the Company'sfinancial condition, results of operations and cash flows for the periodspresented in conformity with accounting principles generally accepted in the UnitedStates of America.

*Remediation of MaterialWeakness in Internal Control*

As reported in our 2005 Form10-KSB, we determined at the end of 2005 that the Company's policies andprocedures did not provide for adequate management oversight and review of theCompany's accounting for (i) the identification of the variable conversionfeatures embedded within its debt instruments, (ii) stock-based compensationrelated to bonuses issued to certain executives in connection with itsacquisitions, and (iii) stock-based compensation in connection with theamendment and subsequent conversion of certain convertible promissory notes. These deficiencies resulted in the restatement of the Company's consolidatedfinancial statements for the year ended December 31, 2004 and quarterly reportsfor the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.

The foregoing led our managementto conclude that our disclosure controls and procedures were not effective asof December 31, 2005 because of a material weakness in our internal controlsover financial reporting.  

In the first quarter of 2006, weimplemented additional review procedures to ensure that a complete review isperformed on all terms of our debt instruments and stock-based compensationarrangements, and that supporting accounting documentation is available toensure that our accounting for the previously noted material weaknesses is inaccordance with accounting principles generally accepted in the United Statesof America. These review procedures were in place in connection with thepreparation of our consolidated financial statements for the first quarter of2006. As such, we believe that the remediation initiative outlined above wassufficient to eliminate the material weakness in internal control overfinancial reporting as discussed above. 

(b) Changes in internal controlover financial reporting. Other than as noted above, there were no changes inthe Company's internal control over financial reporting that occurred duringthe quarter ended June 30, 2006 that has materially affected, or are reasonablylikely to materially affect, the Company's internal control over financialreporting. 

LIMITATIONS ON THE EFFECTIVENESSOF INTERNAL CONTROLS 

The Company's management,including the CEO and CFO, does not expect that our disclosure controls andprocedures or our internal control over financial reporting will necessarilyprevent all fraud and material error. An internal control system, no matter howwell conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the control system are met. Further, thedesign of the control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to their costs.Because of the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that all control issues and instancesof fraud, if any, within the Company have been detected. These inherentlimitations include the realities that judgments in decision-making can befaulty, and that breakdowns can occur because of simple error or mistake.Additionally, controls can be circumvented by the individual acts of somepersons, by collusion of two or more people, or by management override of theinternal control. The design of any system of controls also is based in partupon certain assumptions about the likelihood of future events, and there canbe no assurance that any design will succeed in achieving its stated goals underall potential future conditions. Over time, control may become inadequatebecause of changes in conditions, and/or the degree of compliance with thepolicies or procedures may deteriorate. 

**PART II**

 

**ITEM 1 - LEGAL PROCEEDINGS.**

None.

 

**ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USEOF PROCEEDS.**

On May 1, 2006 and in connection with the acquisition ofGSI, the Company issued 42,663,879 shares of its restricted common stock toapproximately 37 shareholders of GSI.  The shares were valued at $0.10 pershare (the estimated fair value on the date of acquisition).

On May 1, 2006 and in connection with the acquisition ofTBS, the Company issued 1,100,000 shares of its restricted common stock to eachof James L. Campbell and Stephen A. Garner, pursuant to the acquisitionagreement.  The shares were valued at $0.11 per share (the estimated fair valueon the date that the shares were earned).

On June 29, 2006 and in connection with the acquisitionof TBS, the Company issued 66,000 shares of its restricted common stock to H.Jay Hill, who is an officer and director of the Company, as a finder's fee. The shares were valued at $0.11 per share (the estimated fair value on the datethat the shares were earned).

On June 29, 2006 and in connection with the acquisitionof TBS, the Company issued 110,000 shares of its restricted common stock to anon-affiliate pursuant to a finder's fee agreement.  The shares were valued at$0.11 per share (the estimated fair value on the date that the shares wereearned).

On June 29, 2006, the Company issued 160,722 shares ofits restricted common stock to a non-affiliate independent contractor forproject management services rendered.  The shares were valued at $0.14 pershare (the estimated fair value on the date of issuance).

All offers and sales of our securities described abovewere made pursuant to Section 4(2) of the Securities Act of 1933 and RegulationD promulgated thereunder.

 

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

** **None.

**ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITYHOLDERS.**

** **None.

**ITEM 5 - OTHER INFORMATION.**

None.****

**ITEM 6 - EXHIBITS.  **

 

*** ***

Exhibit No.

Description******

2.1

Agreement and Plan of Merger dated January 31, 2004 by and  among VillageEDOCS, VillageEDOCS Merger Sub, Inc., Tailored Business Systems,  Inc., Stephen A. Garner, and James L. Campbell previously filed as Exhibit  2.1 to the Company's Current Report on Form 8-K filed on February 18, 2004  and incorporated herein by reference.

2.2

Plan of Internal Restructuring previously filed as Exhibit  B to the Company's Schedule 14C Information Statement filed on July 23, 2004  and incorporated herein by reference.

2.3

Stock Purchase Agreement dated as of April 1, 2005 and  executed April 15, 2005 by and among VillageEDOCS Acquisition Corp, Phoenix  Forms, Inc., and Its Shareholders.  Previously filed as Exhibit 2.1 to the  Company's Current Report on Form 8-K filed on April 19, 2005.

2.4

Merger Agreement, dated as of February 17, 2006, by and  among VillageEDOCS, VEDO Merger Sub, Inc., GoSolutions, Inc. and certain  stockholders of GoSolutions.  Previously filed as Exhibit 2.1 to the  Company's Current Report on Form 8-K filed on February 21, 2006.

2.5

Articles of Merger and Plan of  Merger.  Previously filed as Exhibit 99.2 to the Company's Current  Report on Form 8-K filed on May 4, 2006.

3.1

Articles of Incorporation, as amended.  Previously filed  with the Company's Form 10-SB filed on August 29, 2000. 

3.2

By-laws.  Previously filed with the Company's Form 10-SB  filed on August 29, 2000.

3.3

Article of Amendment to Articles of Incorporation to  increase authorized number of common shares.  Previously filed with the  Company's 14C Information Statement filed on July 23, 2004.

3.4

Article of Amendment to Articles of Incorporation to  increase authorized number of common shares and to create a class of  preferred stock.  Previously filed with the Company's 14C Information  Statement filed on June 7, 2005.

3.5

Form of Certificate of Designations of Preferences, Rights  and Limitations of Series A Convertible Preferred Stock.  Previously filed as  Exhibit 4.8 to the Company's Current Report on Form 8-K filed on April 19,  2005.

3.6

Certificate of Amendment of Articles of Incorporation to  increase authorized number of common shares.  Previously filed with the Company's  Current Report on Form 8-K filed on January 20, 2006.

** **

4.1

Letter Agreement dated July 30, 2002 by and between the  Company, C. Alan Williams, and Joan P. Williams previously filed as Exhibit  4.1 to the Company's Quarterly Report on Form 10-QSB for the period ended  June 30, 2002 and incorporated herein by reference.

4.2

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

4.3

Form of Unsecured Convertible Promissory Note. Previously  filed as Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-QSB  filed with the Securities and Exchange Commission on May 15, 2002 and  incorporated herein by reference.

4.4

Form of Convertible Secured Promissory Note. Previously  filed as Exhibit 4.6 to the Registrant's Quarterly Report on Form 10-QSB  filed with the Securities and Exchange Commission on May 15, 2002 and  incorporated herein by reference.

4.5

2002 Equity Incentive Plan dated as of January 30, 2002.   Previously filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form  10-QSB filed with the Securities and Exchange Commission on May 15, 2002 and  incorporated herein by reference.

4.6

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.

4.7

Promissory Note Modification Agreement dated May 9, 2002  by and among the Company, Joan P. Williams and C. Alan Williams.  Previously  filed as Exhibit 4.3 to the Registrant's Quarterly Report on Form 10-QSB  filed with the Securities and Exchange Commission on May 15, 2002 and  incorporated herein by reference.

4.8

Security Agreement dated May 9, 2002 by and among the  Company, Joan P. Williams and C. Alan Williams.  Previously filed as Exhibit  4.4 to the Registrant's Quarterly Report on Form 10-QSB filed with the  Securities and Exchange Commission on May 15, 2002 and incorporated herein by  reference.

4.9

Promissory Note to Stephen A. Garner dated February 17,  2004 previously filed as Exhibit 4.1 to the Company's Current Report on Form  8-K filed on February 18, 2004 and incorporated herein by reference.

4.10

Promissory Note to James L. Campbell dated February 17,  2004 previously filed as Exhibit 4.2 to the Company's Current Report on Form  8-K filed on February 18, 2004 and incorporated herein by reference.

4.11

Guaranty by Tailored Business Systems, Inc. to Stephen A.  Garner dated February 17, 2004 previously filed as Exhibit 4.3 to the  Company's Current Report on Form 8-K filed on February 18, 2004 and  incorporated herein by reference.

4.12

Guaranty by Tailored Business Systems, Inc. to James L.  Campbell dated February 17, 2004 previously filed as Exhibit 4.4 to the  Company's Current Report on Form 8-K filed on February 18, 2004 and  incorporated herein by reference.

4.13

Form of Security Agreement dated February 17, 2004 by and  between Tailored Business Systems, Inc. and Stephen A. Garner previously  filed as Exhibit 4.5 to the Company's Current Report on Form 8-K filed on  February 18, 2004 and incorporated herein by reference.

4.14

Form of Security Agreement dated February 17, 2004 by and  between Tailored Business Systems, Inc. and James L. Campbell previously  filed as Exhibit 4.6 to the Company's Current Report on Form 8-K filed on  February 18, 2004 and incorporated herein by reference.

4.15

Registration Rights Agreement dated February 17, 2004 by  and between VillageEDOCS and Stephen A. Garner previously filed as Exhibit  4.7 to the Company's Current Report on Form 8-K filed on February 18, 2004  and incorporated herein by reference.

4.16

Registration Rights Agreement dated February 17, 2004 by  and between VillageEDOCS and James L. Campbell previously filed as Exhibit  4.8 to the Company's Current Report on Form 8-K filed on February 18, 2004  and incorporated herein by reference.

4.17

Form of Stock Pledge Agreement dated February 17, 2004 by  and between Tailored Business Systems, Inc. and Stephen A. Garner previously  filed as Exhibit 4.9 to the Company's Current Report on Form 8-K filed on  February 18, 2004 and incorporated herein by reference.

4.18

Form of Stock Pledge Agreement dated February 17, 2004 by  and between Tailored Business Systems, Inc. and James L. Campbell previously  filed as Exhibit 4.10 to the Company's Current Report on Form 8-K filed on  February 18, 2004 and incorporated herein by reference.

4.19

Notice of Intent to Exercise Conversion Right dated  February 10, 2005 by Joan P. Williams and C. Alan Williams.  Previously filed  as Exhibit 4.5 to the Company's Current Report on Form 8-K filed on February  14, 2005.

4.20

Promissory Note to Alexander Riess dated April 15, 2005.   Previously filed as Exhibit 4.1 to the Company's Current Report on Form 8-K  filed on April 19, 2005.

4.21

Promissory Note to William R. Falcon dated April 15, 2005.   Previously filed as Exhibit 4.2 to the Company's Current Report on Form 8-K  filed on April 19, 2005.

4.22

Common Stock Purchase Warrant to Alexander Riess dated as  of April 1, 2005.  Previously filed as Exhibit 4.3 to the Company's Current  Report on Form 8-K filed on April 19, 2005.

4.23

Common Stock Purchase Warrant to William R. Falcon dated  as of April 1, 2005.  Previously filed as Exhibit 4.4 to the Company's  Current Report on Form 8-K filed on April 19, 2005.

4.24

Note Purchase Agreement dated April 13, 2005 by and  between VillageEDOCS and Barron Partners LP.  Previously filed as Exhibit 4.5  to the Company's Current Report on Form 8-K filed on April 19, 2005.

4.25

Convertible Note to Barron Partners LP dated April 13,  2005.  Previously filed as Exhibit 4.6 to the Company's Current Report on  Form 8-K filed on April 19, 2005.

4.26

Registration Rights Agreement dated April 13, 2005 by and  between VillageEDOCS and Barron Partners LP.  Previously filed as Exhibit 4.7  to the Company's Current Report on Form 8-K filed on April 19, 2005.

4.27

Form of Certificate of Designations of Preferences, Rights  and Limitations of Series A Convertible Preferred Stock.  Previously filed as  Exhibit 4.8 to the Company's Current Report on Form 8-K filed on April 19,  2005.

4.28

Stock Purchase Warrant "A" dated April 13, 2005  to Barron Partners LP.  Previously filed as Exhibit 4.9 to the Company's  Current Report on Form 8-K filed on April 19, 2005.

4.29

Stock Purchase Warrant "B" dated April 13, 2005  to Barron Partners LP.  Previously filed as Exhibit 4.10 to the Company's  Current Report on Form 8-K filed on April 19, 2005.

4.30

Form of Note Assignment.  Previously filed as Exhibit 4.1  to the Company's Current Report on Form 8-K filed on July 6, 2005.

4.31

Form of Promissory Note Modification Agreement.   Previously filed as Exhibit 4.2 to the Company's Current Report on Form 8-K  filed on July 6, 2005.

4.32

Form of Notice of Intent to Exercise Conversion Right.   Previously filed as Exhibit 4.3 to the Company's Current Report on Form 8-K  filed on July 6, 2005.

4.33

Notice of conversion by Barron Partners LP dated September  30, 2005.  Previously filed as Exhibit 4.6 to the Company's Current Report on  Form 8-K filed on October 5, 2005.

4.34

Form of Convertible Secured Promissory Note by and among  C. Alan Williams, Joan P. Williams, and the Company previously filed as  Exhibit 4.19 to the Company's Annual Report on Form 10-KSB filed on April 14,  2006 and incorporated herein by reference.

4.35

Convertible Secured Promissory Note dated February 16,  2004 by and among C. Alan Williams, Joan P. Williams, and the Company  previously filed as Exhibit 4.20 to the Company's Annual Report on Form  10-KSB filed on April 14, 2006 and incorporated herein by reference.

4.36

Notice of conversion by Barron Partners LP dated October  21, 200.  Previously filed as Exhibit 4.1 to the Company's Current Report on  Form 8-K filed on October 24, 2005 and incorporated herein by reference.

4.37

Notice of conversion by Barron Partners LP dated March 8,  2006.  Previously filed as Exhibit 4.1 to the Company's Current Report on  Form 8-K filed on March 9, 2006 and incorporated herein by reference.

4.38

Registration Rights Agreement  dated as of April 28, 2006 by and among VillageEDOCS and the principal  stockholders of GoSolutions, Inc.  Previously filed as Exhibit 99.5 to the  Company's Current Report on Form 8-K filed on May 4, 2006.

4.39

Principal VEDO Stockholders  Voting Agreement dated as of April 28, 2006 by and among Barron Partners, LP,  C. Alan Williams, Joan P. Williams and GoSolutions, Inc.  Previously filed as  Exhibit 99.6 to the Company's Current Report on Form 8-K filed on May  4, 2006.

4.40

Indemnity/Contribution Agreement  effective April 30, 2006, by and among VillageEDOCS, GoSolutions Equity, LLC  (the "LLC"), and the principals of the LLC identified on the  signature page thereto.  Previously filed as Exhibit 99.7 to the Company's  Current Report on Form 8-K filed on May 4, 2006.

4.41

Settlement and Release Agreement  dated as of April 28, 2006 by and among VillageEDOCS, GoSolutions, Inc., The  Zant Group Trust and Louis J. Zant.  Previously filed as Exhibit 99.9 to the  Company's Current Report on Form 8-K filed on May 4, 2006.

4.42

Second Extension Agreement dated  as of April 28, 2006 by and between The Zant Group Trust and GoSolutions,  Inc.  Previously filed as Exhibit 99.9 to the Company's Current Report  on Form 8-K filed on May 4, 2006.

4.43

Settlement and Release  Agreement, dated as of June 30, 2006, by and among VillageEDOCS, GoSolutions,  Inc., Bruce H. Bennett, and Sandra G. Bennett.  Previously filed as Exhibit  10.1 to the Company's Current Report on Form 8-K filed on July 12,  2006.

10.1

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 and incorporated  herein by reference.

10.2

Employment Offer Letter dated April 23, 2004 by and  between Tailored Business Systems, Inc. and James L. Kolassa.  Previously  filed as Exhibit 10.2 to the Company's Annual Report on Form 10-KSB filed on  March 31, 2005 and incorporated herein by reference.

10.3

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 and incorporated herein by  reference.

10.4

Employment Agreement dated February 17, 2004 by and  between Tailored Business Systems, Inc. and Stephen A. Garner previously  filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on  February 18, 2004 and incorporated herein by reference.

10.5

Employment Agreement dated February 17, 2004 by and  between Tailored Business Systems, Inc. and James L. Campbell previously filed  as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February  18, 2004 and incorporated herein by reference.

10.6

General Release and Noncompetition Agreement dated  February 17, 2004 by Stephen A. Garner in favor of Tailored Business Systems,  Inc. previously filed as Exhibit 10.3 to the Company's Current Report on Form  8-K filed on February 18, 2004 and incorporated herein by reference.

10.7

General Release and Noncompetition Agreement dated  February 17, 2004 by James L. Campbell in favor of Tailored Business Systems,  Inc. previously filed as Exhibit 10.4 to the Company's Current Report on Form  8-K filed on February 18, 2004 and incorporated herein by reference.

10.8

Lease Agreement dated February 17, 2004 by and between  Perimeter Center Partners and Tailored Business Systems, Inc. previously  filed as Exhibit 10.5 to the Company's Current Report on Form 8-K filed on  February 18, 2004 and incorporated herein by reference.

10.9

Employment Agreement dated June 10, 2004 by and between  the Company and K. Mason Conner previously filed as Exhibit C to the  Company's Schedule 14C Information Statement filed on July 23, 2004 and  incorporated herein by reference.

10.10

Employment Agreement dated June 10, 2004 by and between  the Company and H. Jay Hill previously filed as Exhibit D to the Company's  Schedule 14C Information Statement filed on July 23, 2004 and incorporated  herein by reference.

10.11

Employment Agreement dated June 10, 2004 by and between  the Company and Michael Richard previously filed as Exhibit E to the  Company's Schedule 14C Information Statement filed on July 23, 2004 and  incorporated herein by reference.

10.12

Employment Agreement dated as of April 1, 2005 by and  between Phoenix Forms, Inc. and Alexander Riess.  Previously filed as Exhibit  10.1 to the Company's Current Report on Form 8-K filed on April 19, 2005.

10.13

Employment Agreement dated as of April 1, 2005 by and  between Phoenix Forms, Inc. and William R Falcon.  Previously filed as  Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 19,  2005.

10.14

Release of Claims Agreement dated as of April 1, 2005 by  Alexander Riess in favor of Phoenix Forms, Inc.  Previously filed as Exhibit  10.3 to the Company's Current Report on Form 8-K filed on April 19, 2005.

10.15

Release of Claims Agreement dated as of April 1, 2005 by  William R. Falcon in favor of Phoenix Forms, Inc.  Previously filed as  Exhibit 10.4 to the Company's Current Report on Form 8-K filed on April 19,  2005.

10.16

Amendment No. 1 to Executive Employment Agreement dated  April 28, 2005 by and between the Registrant and K. Mason Conner.  Previously  filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed on  April 29, 2005.

10.17

Amendment No. 1 to Executive Employment Agreement dated  April 28, 2005 by and between the Registrant and H. Jay Hill.  Previously  filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed on  April 29, 2005.

10.18

Amendment No. 1 to Executive Employment Agreement dated  April 28, 2005 by and between the Registrant and Michael A. Richard.   Previously filed as Exhibit 10.3 to the Company's Current Report on Form 8-K  filed on April 29, 2005.

10.19

Executive Employment Agreement, dates as of March 1, 2006,  by and between the Company and Jerry T. Kendall.  Previously files as Exhibit  10.1 to the Company's Current Report on Form 8-K filed on March 1, 2006.

10.20

Amendment No. 2 to Michael  Richard Executive Employment Agreement effective as of May 1, 2006.   Previously filed as Exhibit 99.11 to the Company's Current Report on  Form 8-K filed on May 4, 2006.

10.21

Amendment No. 2 to H. Jay Hill  Executive Employment Agreement effective as of May 1, 2006.  Previously filed  as Exhibit 99.12 to the Company's Current Report on Form 8-K filed on  May 4, 2006.

10.22

Amendment No. 2 to K. Mason  Conner Executive Employment Agreement effective as of May 1, 2006.   Previously filed as Exhibit 99.13 to the Company's Current Report on  Form 8-K filed on May 4, 2006.

10.23

Thor Bendickson Employment  Agreement effective as of May 1, 2006.  Previously  filed as Exhibit 99.14 to the Company's Current Report on Form 8-K  filed on May 4, 2006.

10.24

Shaun Charles Pope Employment  Agreement effective as of May 1, 2006.  Previously filed as Exhibit 99.15 to the  Company's Current Report on Form 8-K filed on May 4, 2006.

10.25

Frederick A. Burris Employment  Agreement effective as of  May 1, 2006.  Previously filed as Exhibit 99.16 to  the Company's Current Report on Form 8-K filed on May 4, 2006.

10.26

Patent License Agreement, dated  as of May 12, 2006, by and between VillageEDOCS and Catch Curve, Inc..   Previously filed as Exhibit 10.1 to the Company's Current Report on  Form 8-K filed on May 16, 2006.

14.1

Code of Ethics.  Previously filed as Exhibit 14.1 to the  Company's Annual Report on Form 10-KSB filed on March 29, 2004 and  incorporated herein by reference.

21.1

Subsidiaries of the Registrant.*

31.1

Certification Under Section 302 of The Sarbanes-Oxley Act  of 2002 signed and dated August 16, 2006 by K. Mason Conner, Chief Executive  Officer.*

31.2

Certification Under Section 302 of The Sarbanes-Oxley Act  of 2002 signed and dated August 16, 2006 by Michael A. Richard, Chief  Financial Officer.*

32.1

Certification Pursuant To 18 U.S.C. §1350, As Adopted  Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 signed and dated August  16, 2006 by K. Mason Conner, Chief Executive Officer.**

32.2

Certification Pursuant To 18 U.S.C. §1350, As Adopted Pursuant  To Section 906 of the Sarbanes-Oxley Act of 2002 signed and dated August 16,  2006 by Michael A. Richard, Chief Financial Officer.**

*

Filed herewith

**

Furnished herewith

****

**SIGNATURES**

** **

**Pursuant to the requirementsof the Securities and Exchange Act of 1934, the Registrant has caused thisreport to be signed on its behalf by the undersigned, thereto duly authorized,in the capacities and on the dates indicated:**

** **

** **

** **

**VillageEDOCS (Registrant)**

** **

** **

** **

** **

**Dated:  August 16, 2006**

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

** **

**       K. Mason  Conner**

** **

**       Chief  Executive Officer and Director**

** **

** **

** **

** **

** **

** **

**Dated:  August 16, 2006**

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

** **

**      Michael A. Richard**

**      Chief Financial  Officer**

** **

**      (Principal  Accounting Officer)**

** **

** **

** **

** ** |