Table of Contents





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|UNITED STATES SECURITIES AND EXCHANGE COMMISSION
|Washington, D.C. 20549                          

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FORM 10-Q

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|                                                                      |                                                                                           | 
|--------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | 
|(Mark One)                                                            |                                                                                          
|                                                                      |                                                                                           | 
|                                                                      | xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934 | 
|                                                                      |                                                                                           | 
|For the quarterly period ended March 31,
 2009                       
|                                                                      |                                                                                           | 
|                                                                      | oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE
 ACT                   | 
|                                                                      |                                                                                           | 
|For the transition period from__________, 20___, to__________, 20___.
|                                                                     
|Commission File Number: 000-31395                                    

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|------------------------------------------------------ | ------------------ | 
|                                                       | VillageEDOCS, Inc. | 
|(Exact name of Registrant as specified in its charter)

|                                                               |  |                                                     
|-------------------------------------------------------------- |  | ----------------------------------------------------
|Delaware                                                       |  | 33-0668917                                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | I.R.S. Employer Identification Number               
|                                                               |  |                                                     
|1401 N. Tustin Ave, Ste. 230, Santa Ana,
 California 92705     |  | (714) 734-1030                                      
|(Address of principal executive offices)                       |  | (Registrants telephone number, including area code)

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Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YESx

        NOo




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YESo

        NOo




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



Large Accelerated Filer

        o

        Accelerated Filer

        o

        Non-accelerated
filer

        o

        Smaller reporting company

        x(Do not check if a smallerreporting company)




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

YESo

        NOx




There were 193,046,613 shares of the Registrants common stock outstanding as of April 30, 2009





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VillageEDOCSIndex

Page No.PART I. FINANCIAL INFORMATIONItem 1.

Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets as of
 March 31, 2009 (Unaudited) and December 31, 2008 (Audited)

1Condensed Consolidated Statements of
 Operations for the three months ended March 31, 2009 and 2008 (Unaudited)

2Condensed Consolidated Statements of Cash
 Flows for the three months ended March 31, 2009 and 2008 (Unaudited)

3Notes to Unaudited Condensed Consolidated
 Financial Statements

5Item 2.

Managements Discussion and Analysis of
 Financial Condition and Results of Operations.

25Item 4.

Controls and Procedures

38PART II. OTHER
 INFORMATIONItem 1.

Legal Proceedings

39Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39Item 3.

Defaults Upon Senior Securities

39Item 4.

Submission of Matters to a Vote of Security Holders

39Item 5.

Other Information

39Item 6.

Exhibits

40Signatures

47i


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VillageEDOCS, Inc. and subsidiaries
Condensed Consolidated Balance Sheets

March 31,
 2009
 (unaudited)

December 31,
 2008
 (audited)ASSETSCurrent assets:Cash and cash equivalents

$
385,322

$
567,447Accounts receivable, net of allowance for doubtful accounts of
 approximately $26,000 and $47,000, respectively


807,699


1,093,606Inventories


34,041


41,031Prepaid expenses and other current assets


181,495


282,397Debt issuance costs, net





17,883Total current assets


1,408,557


2,002,364Property and equipment, net


364,337


388,788Other assets


26,164


28,811Goodwill


7,244,732


7,244,732Other intangibles, net


3,653,046


3,826,728$
12,696,836

$
13,491,423LIABILITIES
 AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
579,367

$
514,086Current portion of accrued expenses and other liabilities


1,697,075


1,736,419Deferred revenue


825,461


1,026,184Current portion of capital lease obligation


16,985


20,180Lines of credit


400,496


890,563Current portion of notes payable to related parties, net of
 unamortized debt discount of $47,808 and $47,808, respectively.


382,748


438,682Convertible note and accrued interest payable to related
party


179,995


178,370Total current liabilities


4,082,127


4,804,484Accrued expenses and other liabilities, net of current
portion





81,318Capital lease obligation, net of current portion





1,737Notes payable to related parties, net of current portion and
 unamortized debt discount of $63,739 and $75,690, respectively


950,705


604,310Derivative liability


4,650


Total liabilities


5,037,482


5,491,849Commitments and contingenciesStockholders equity:Series A Preferred stock, par value $0.001 per share:Authorized  48,000,000 shares Issued and outstanding  33,500,000
 shares (liquidation preference of $1,675,000)


33,500


33,500Common stock, par value $0.0001 per share:Authorized  500,000,000 shares Issued and outstanding  180,270,913
 shares


18,027


18,027Additional paid-in capital


33,696,655


33,618,742Accumulated deficit


(26,088,828
)

(25,670,695
)Total stockholders equity


7,659,354


7,999,574$
12,696,836

$
13,491,423See accompanying notes to unaudited condensed
consolidated financial statements.

1


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VillageEDOCS, Inc. and subsidiaries
Condensed Consolidated Statements of Operations(unaudited)

Three
 Months Ended March 31,2009

2008Net sales

$
3,857,949

$
3,277,985Cost of sales


1,536,553


1,373,135Gross profit


2,321,396


1,904,850Operating expenses:Product and technology development


506,992


405,933Sales and marketing


618,890


444,948General and administrative


1,344,493


1,325,126Depreciation and amortization


242,999


181,645Total operating expenses


2,713,374


2,357,652Loss from operations


(391,978
)

(452,802
)Change in fair value of derivative liability


3,100


Interest expense, net of interest income


(45,795
)

(66,248
)Other income, net


17,930


51,592Loss before provision for income taxes


(416,743
)

(467,458
)Provision for income taxes


4,000


27,377Net loss

$
(420,743
)
$
(494,835
)Basic and diluted loss available to common stockholders per common
 share:

$


$
Weighted average shares outstanding - basic and diluted


180,270,913


150,218,437See accompanying notes to
unaudited condensed consolidated financial statements.

2


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VillageEDOCS, Inc. and subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)

Three
 Months Ended March 31,2009

2008Cash Flows from Operating Activities:Net loss

$
(420,743
)
$
(494,835
)Adjustments to reconcile net loss to net cash provided by (used in)
 operating activities:Depreciation and amortization


242,999


181,645Recovery of doubtful accounts receivable


(22,401
)

(8,923
)Estimated fair value of stock options issued to employees for services
 rendered


82,413


69,508Estimated fair value of warrants issued to consultants


23,194


25,484Change in fair value of derivative liability


(3,100
)

Amortization of debt discount and debt issuance costs


29,834


53,666Changes in operating assets and liabilities, net of acquisitions and
 divestitures:Accounts receivable


308,308


96,408Inventories


6,990


2,670Prepaid expenses and other current assets


67,790


7,369Other assets


2,647


1,341Accounts payable


65,281


20,010Accrued expenses, other liabilities and interest


(119,037
)

(203,466
)Deferred revenue


(200,723
)

48,770Net
 cash provided by (used in) operating activities


63,452


(200,353
)Cash Flows from Investing Activities:Purchases of property and equipment


(29,088
)

(60,954
)Cash acquired from sale of PFI





53,832Net cash used in investing activities


(29,088
)

(7,122
)Cash Flows from Financing Activities:Proceeds from lines of credit, net of repayments


(60,067
)

56,580Cash paid for debt issuance costs





(65,000
)Payments on capital lease obligation


(4,932
)

(4,646
)Principal payments on notes payable to related parties


(151,490
)

Net
 cash used in financing activities


(216,489
)

(13,066
)Net change in cash and cash equivalents


(182,125
)

(220,541
)Cash and cash equivalents, beginning of period


567,447


749,911Cash and cash equivalents, end of period

$
385,322

$
529,370Supplemental disclosure of cash flow information - Cash paid during
 the year for:Interest

$
14,336

$
22,352Income taxes

$
30,486

$
47,400continued

3


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Three
 Months Ended March 31,2009

2008Supplemental Schedule of Noncash Investing and Financing Activities:Cumulative effect of accounting change to accumulated deficit for
 derivative liabilities

$
2,610

$
Cumulative effect of accounting change to additional paid-in capital
 for derivative liabilities

$
6,200

$
Estimated fair value of warrants issued as debt issuance
costs

$


$
149,661Reclassification of warrant from accrued liabilities to additional
 paid-in capital

$


$
50,000Repayment of line of credit with issuance of related party debt (see
 Notes 6 and 11)

$
430,000

$
See
accompanying notes to unaudited condensed consolidated financial statements.

4


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VillageEDOCS,
Inc.Notes to Unaudited Condensed Consolidated Financial
Statements 
March 31, 2009 and 2008

1.
Managements RepresentationThe
accompanying unaudited condensed consolidated financial statements have been
prepared by VillageEDOCS, Inc. (the Company or VillageEDOCS)) in accordance
with accounting principles generally accepted in the United States of America
for interim financial information, and pursuant to the instructions to Form
10-Q and Article 8 of Regulation S-X promulgated by the Securities and Exchange
Commission (SEC). Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statement presentation. In the opinion
of management, all adjustments (consisting primarily of normal recurring
accruals) considered necessary for a fair presentation have been included.
These financial statements should be read in conjunction with the Companys
audited consolidated financial statements and notes thereto for the year ended
December 31, 2008, contained in the Companys Annual Report on Form 10-K, as
filed with the SEC.

2.
Background, Organization and Basis of
 PresentationThe Company
was incorporated in 1995 in Delaware, reincorporated in California in 1997, and
reincorporated in Delaware in September 2007. The Company has historically
operated an electronic document delivery service marketed to organizations
throughout the United States and internationally. On February 17, 2004, the
Company acquired Tailored Business Systems, Inc. (TBS). TBS provides various
programming, processing and printing services to governmental entities,
including installing software, hardware, printing and mailing of property tax
forms. On June 16, 2004, the holders of a majority of the voting capital stock
of the Company voted to approve a Plan of Restructuring that included the
reorganization of the Companys electronic document delivery business into a
wholly owned subsidiary of the Company. In connection with the reorganization,
the Company formed MessageVision, Inc. (MVI) on October 25, 2004. Effective
April 1, 2005, the Company acquired Phoenix Forms, Inc. dba Resolutions (PFI
or Resolutions), which it subsequently sold effective December 1, 2007.
Effective May 1, 2006, the Company acquired GoSolutions, Inc. (GSI). GSI
provides enhanced voice and data communications services including
speech-driven messaging, unified communications, and audio conferencing
applications. Effective August 1, 2008, the Company acquired Decision
Management Company, Inc. dba Questys Solutions (QSI or Questys). QSI
provides products and services for document and content management, automated
data capture, electronic agenda management, and business process workflow. The
unaudited condensed consolidated financial statements include the accounts of
the Company and those of MVI, TBS, Resolutions, GSI, and QSI, its wholly owned
subsidiaries, since October 25, 2004, February 17, 2004, April 1, 2005, May 1,
2006, and August 1, 2008, respectively. See Note 5 for additional information
regarding the Companys acquisition of QSI. All significant inter-company
transactions and balances have been eliminated in consolidation.

3.
Going ConcernThe
accompanying unaudited condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The
Company has incurred significant losses since inception, and has a working
capital deficit ($2,673,570 at March 31, 2009). The Companys losses are
continuing and are expected to continue until such time as the Company is able
to sufficiently expand its existing businesses or is able to consummate
business combination transactions with other businesses whose profits are sufficient
to offset any ongoing losses from operating the holding company that owns QSI,
GSI, TBS and MVI.

The Companys
success is dependent upon numerous items, certain of which are the successful
growth of revenues from its products and services, its ability to obtain new
customers in order to achieve levels of revenues adequate to support the
Companys current and future cost structure, and its success in obtaining
financing for equipment and operations, for which there is no assurance.
Unanticipated problems, expenses, and delays are frequently encountered in
establishing and maintaining profitable operations. These include, but are not
limited to, competition, the need to develop customer support capabilities and
market expertise, setbacks in product development, technical difficulties,
market acceptance and sales and marketing. The failure of the Company to meet
any of these conditions could have a materially adverse effect on the Company
and may force the Company to reduce or curtail operations. No assurance can be
given that the Company can achieve or maintain profitable operations.

5


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The Company
believes it will have adequate cash and available borrowing under its lines of
credit to maintain operations until it achieves sustained profitability.
However, until the Company has a history of maintaining revenue levels
sufficient to support its operations and repay its working capital deficit, the
Company may require additional financing. Sources of financing could include
capital infusions, additional equity financing or debt offerings. We do not
expect to generate positive cash flows until at least the second half
of 2009. Should anticipated cash flows decrease for any reason, management
plans to obtain debt and equity financing from new and existing stockholders.
There can be no assurance that funding will be available on acceptable terms,
if at all, or that such funds, if raised, would enable the Company to achieve
or sustain profitable operations.

These factors
raise substantial doubt about the Companys ability to continue as a going
concern. The unaudited condensed consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the classification of liabilities
that might result from the outcome of these uncertainties.

4.
Summary of Significant Accounting PoliciesSegments of an Enterprise and Related InformationThe Company
 has adopted Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures
 about Segments of an Enterprise and Related Information. SFAS No.
 131 requires the Company to report information about segments of its business
 in annual financial statements and requires it to report selected segment
 information in its quarterly reports issued to stockholders. SFAS No. 131
 also requires entity-wide disclosures about the products and services that an
 entity provides, the material countries in which it holds assets and reports
 revenues and its major customers. The Companys five reportable segments are
 managed separately based on fundamental differences in their operations. At
 March 31, 2009, the Company operated in the following five reportable
 segments (see Note 10):(a)
Electronic
 document delivery services,(b)
Government
 accounting solutions,(c)
Electronic
 content management solutions,(d)
Integrated
 communications, and(e)
Corporate.The Company
 evaluates performance and allocates resources based upon operating income.
 The accounting policies of the reportable segments are the same as those
 described in this summary of significant accounting policies.Concentration of Credit RiskThe Company
 extends credit to its customers and performs ongoing credit evaluations of
 such customers. The Company does not obtain collateral to secure its accounts
 receivable. MVI and GSI generally require a valid credit card or ACH debit
 account to collateralize credit extended to non-corporate clients. The
 Company evaluates its accounts receivable on a regular basis for
 collectibility and provides for an allowance for potential credit losses as
 deemed necessary. At March 31, 2009 and December 31, 2008, the Company has
 recorded an allowance for doubtful accounts of approximately $26,000 and
 $47,000, respectively.For the
 three months ended March 31, 2009 and 2008, independent representatives of
 one enterprise accounted for approximately 19% and 29% of total revenues,
 respectively. For the three months ended March 31, 2009, independent
 representatives of another enterprise accounted for approximately 17% of
 total revenue.No single
 customer accounted for more than 10% of accounts receivable at March 31, 2009
 or December 31, 2008.6


Table of Contents
At March 31,
 2009 and December 31, 2008, the Company had amounts on deposit with financial
 institutions in excess of the federally insured limits of $250,000, which
 approximated $25,000 and $44,000, respectively.Use of Estimates in the Preparation of Financial StatementsThe
 preparation of financial statements in conformity with accounting principles
 generally accepted in the United States of America requires management to
 make estimates and assumptions that affect the reported amounts of assets and
 liabilities and disclosure of contingent assets and liabilities at the date
 of the consolidated financial statements and the reported amounts of revenues
 and expenses during the reporting period. Significant estimates made by
 management are, among others, the realizability of accounts receivable, inventories,
 recoverability of long-lived assets, valuation of derivative liabilities, stock options, warrants, and deferred taxes. Actual results
 could differ from those estimates.Property and EquipmentProperty and
 equipment are stated at cost and are depreciated using the straight-line
 method over the estimated useful lives of the assets, ranging from three to
 seven years. Equipment under capital lease obligations is depreciated over
 the shorter of the estimated useful life or the term of the lease. Major
 betterments and renewals are capitalized, while routine repairs and
 maintenance are charged to expense when incurred.Revenue RecognitionThe Company
 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 when persuasive evidence of an
 arrangement exists, title transfer has occurred, or services have been
 performed, the price is fixed or readily determinable and collectibility is
 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, Modification of SOP 97-2, Software Revenue
 Recognition with Respect to Certain Transactions The SOPs
 generally require revenue earned on software arrangements involving multiple
 elements to be allocated to each element based on the relative fair market
 values of each of the elements. The fair value of an element must be based on
 vendor-specific objective evidence (VSOE) of fair value. Software license
 revenue generated by TBS and QSI allocated to a software product is recognized upon delivery of
 the product, or deferred and recognized in future periods to the extent that
 an arrangement includes one or more elements that are to be delivered at a
 future date and for which VSOE has not been established. Maintenance and
 support revenue is recognized ratably over the maintenance term. First-year
 maintenance typically is sold with the related software license and renewed
 on an annual basis thereafter. Estimated fair values of ongoing maintenance
 and support obligations are based on separate sales of renewals to other
 customers or upon renewal rates quoted in the contracts. For such
 arrangements with multiple obligations, the Company allocates revenue to each
 component of the arrangement based on the estimated fair value of the
 undelivered elements. Fair value of services, such as consulting or training,
 is based upon separate sales of these services. The Company at times may
 enter into multiple-customer contracts in which the Company allocates revenue
 based on the number of specified users at each customer, and recognizes
 revenue upon customer acceptance and satisfying the other applicable
 conditions of the above described accounting policy.Services
 revenue is recognized as the service is performed assuming that sufficient
 evidence exists to estimate the fair value of the services. Consulting and
 training services are billed based on contractual hourly rates and revenues
 are recognized as the services are performed. Consulting services primarily
 consist of implementation services related to the installation of the
 Companys products which do not require significant customization to or
 modification of the underlying software code.7


Table of Contents
Revenue from
 subscription agreements consists of fixed monthly fees and usage charges,
 generally based on per minute rates. Subscription agreement revenue related
 to MVI and GSI usage service charges are billed monthly in arrears and the
 associated revenues are recognized in the month of service. Recurring charges
 for the GoSolo (TM) platform are billed in advance on a monthly basis and
 recorded as deferred revenues. The Company recognizes subscription agreement
 revenue ratably over the service period, which management believes
 approximates the actual provision of services. Professional service fee
 revenue consists of consulting fees charged to enterprise clients for
 GoSolo(TM) platform enhancements. The Company recognizes professional service
 fee revenue on a time and materials basis over the service period, which
 management believes approximates the actual provision of services. Wholesale
 enhanced voicemail services consists of fees charged to telecommunications
 providers for use of the GoSolo(TM) platform to provide their customers with
 hosted electronic voicemail, billed monthly in arrears and the associated
 revenues are recognized in the month of service.Significant
 management judgments and estimates must be made in connection with
 determination of the revenue to be recognized in any accounting period. If
 the Company made different judgments or utilized different estimates for any
 period, material differences in the amount and timing of revenue recognized
 could result.Product and Technology
 DevelopmentProduct and technology
 development expense includes personnel costs relating to developing the
 features, content and functionality of QSIs electronic content management
 solutions, MVIs internet-enabled fax services and web site, TBSs government
 accounting software, and GSIs communications services. Product and
 technology development costs are expensed as incurred.Risks and
 UncertaintiesThe Company
 operates in industries that are subject to intense competition, government
 regulation and rapid technological change. The Companys operations are
 subject to significant risks and uncertainties including financial,
 operational, technological, regulatory and other risks associated with an
 expanding business, including the potential risk of business failure.Loss per ShareBasic loss per share is
 computed by dividing loss available to common stockholders by the weighted
 average number of common shares assumed to be outstanding during the period
 of computation. Diluted loss per share is computed similar to basic loss per
 share except that the denominator is increased to include the number of
 additional common shares that would have been outstanding if the potential
 shares had been issued and if the additional common shares were dilutive. All
 potentially dilutive shares, approximately 35,387,000 and 36,157,000 of
 potentially dilutive shares for the three months ended March 31, 2009 and
 2008, respectively, have been excluded from diluted loss per share, as their
 effect would be anti-dilutive for the periods then ended.Stock-Based CompensationAt March 31,
 2009, the Company had two stock-based compensation plans.Effective
 January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment,
 (SFAS 123(R)). SFAS 123(R) requires all share-based payments to
 employees, including grants of employee stock options and restricted stock
 grants, to be recognized in the consolidated financial statements based upon
 their fair values. The Company uses the Black-Scholes option pricing model to
 estimate the grant-date fair value of share-based awards under SFAS 123(R).
 Fair value is determined at the date of grant. In accordance with SFAS
 123(R), the consolidated financial statement effect of forfeitures is
 estimated at the time of grant and revised, if necessary, if the actual
 effect differs from those estimates. The estimated average forfeiture rate
 for the three months ended March 31, 2009 and 2008, of approximately 17% and
 12%, respectively, was based on historical forfeiture experience and estimated
 future employee forfeitures.8


Table of Contents
SFAS 123(R)
 requires the cash flows resulting from the tax benefits resulting from tax
 deductions in excess of the compensation cost recognized for those options to
 be classified as financing cash flows. Due to the Companys loss position,
 there were no such tax benefits during the three months ended March 31, 2009
 and 2008.Description of PlansThe
 Companys equity incentive plans provide for awards of common stock and
 grants of options to employees and directors of the Company to purchase the
 Companys shares, as determined by management and the board of directors, at
 or above the fair value of such shares on the grant date. The options
 generally vest over a five-year period beginning on the grant date and have a
 seven-year term. As of March 31, 2009, the Company is authorized to issue up
 to 95,000,000 shares under these plans and has approximately 46,000,000
 shares available for future issuances.Summary of Assumptions and ActivityThe fair
 value of stock-based awards to employees and directors is calculated using
 the Black-Scholes option pricing model even though the model was developed to
 estimate the fair value of freely tradeable, fully transferable options
 without vesting restrictions, which differ significantly from the Companys
 stock options. The Black-Scholes model also requires subjective assumptions,
 including future stock price volatility and expected time to exercise, which
 greatly affect the calculated values. The expected term of options granted is
 derived from historical data on employee exercises and post-vesting
 employment termination behavior. The risk-free rate selected to value any
 particular grant is based on the U.S. Treasury rate that corresponds to the
 pricing term of the grant effective as of the date of the grant. The expected
 volatility is based on the historical volatility of the Companys stock
 price. These factors could change in the future, affecting the determination
 of stock-based compensation expense in future periods.The fair
 value of options granted was estimated using the following weighted average
 assumptions:Three Months Ended
 March 31,2009

2008Stock
 options:Expected term (in years)

6.0

6.0Expected volatility

182%

273%Risk-free interest rate

1.85%

2.67%Expected dividends



9


Table of Contents
A summary of
 option activity as of March 31, 2009 and changes during the three months then
 ended, is presented below:March 31, 2009Weighted-AverageShares

Exercise
 Price

Remaining
 Contractual
 Term (Years)

Aggregate
 Intrinsic
 ValueOptions
 outstanding at January 1, 2009


42,730,939

$
0.16Options
 granted


675,000

$
0.03Options
 forfeited


(3,225,000
)
$
0.13Options
 exercised




$
Options
 outstanding at March 31, 2009


40,180,939

$
0.17


5.0

$
Options
 vested or expected to vest at March 31, 2009


38,492,051

$
0.17


4.9

$
Options
 exercisable at March 31, 2009


25,320,939

$
0.23


4.1

$
The weighted
 average grant date fair value of options granted during the three months
 March 31, 2009 and 2008 was $0.03 and $0.04 per option, respectively. Upon the exercise of options, the
 Company issues new shares from its authorized shares.As of March
 31, 2009, there was approximately $541,000 of total unrecognized compensation
 cost, net of forfeitures, related to employee and director stock option
 compensation arrangements. That cost is expected to be recognized on a
 straight-line basis over the next 1.9 weighted average years. The total fair
 value of vested options issued to employees and directors during the three
 months ended March 31, 2009 and 2008 was $82,413 and $69,508, respectively,
 net of estimated forfeitures.The expense
 was recorded in the accompanying unaudited condensed consolidated statements
 of operations as follows:Three Months Ended March 31,2009

2008Cost of sales

$
25,562

$
General and
 administrative


48,434


69,508Sales and
 marketing


4,458


Product and
 technology


3,959


$
82,413

$
69,508All
 issuances of the Companys stock for non-cash consideration have been
 assigned a dollar amount equaling either the market value of the shares
 issued or the value of consideration received whichever is more readily
 determinable. The majority of the non-cash consideration received pertains to
 services rendered by consultants and others and has been valued at the market
 value of the shares issued.The
 Companys accounting policy for equity instruments issued to consultants and
 vendors in exchange for goods and services follows the provisions of the
 Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments
 That are Issued to Other Than Employees for Acquiring, or in Conjunction with
 Selling, Goods or Services, and EITF Issue No. 00-18, Accounting
 Recognition for Certain Transactions Involving Equity Instruments Granted to
 Other Than Employees. The measurement date for the fair value of
 the equity instruments issued is determined at the earlier of (i) the date at
 which a commitment for performance by the consultant or vendor is reached or
 (ii) the date at which the consultant or vendors performance is complete. In
 the case of equity instruments issued to consultants, the fair value of the
 equity instrument is recognized over the term of the consulting agreement.10


Table of Contents
InventoriesInventories
 consist primarily of supplies, forms, envelopes, and software licenses
 purchased for resale. Cost is determined on a first-in, first-out basis. The
 Company periodically reviews its inventory quantities on hand and adjusts for
 excess and obsolete inventory based primarily on historical usage rates and
 its estimated forecast of product demand. Actual demand may differ from the
 Companys estimates. Once established, write-downs of inventory are
 considered permanent adjustments to the basis of the excess or obsolete
 inventory.Goodwill and
 Other Intangible AssetsGoodwill
 represents the excess of acquisition cost over the net assets acquired in a
 business combination and is not amortized in accordance with SFAS No. 142, Goodwill
 and Other Intangible Assets.The provisions of SFAS No. 142
 require that the Company allocate its goodwill to its various reporting
 units, determine the carrying value of those businesses, and estimate the
 fair value of the reporting units so that a two-step goodwill impairment test
 can be performed. In the first step of the goodwill impairment test, the fair
 value of each reporting unit is compared to its carrying value. Management
 reviews, on an annual basis, the carrying value of goodwill in order to
 determine whether impairment has occurred. Impairment is based on several
 factors including the Companys projection of future discounted operating
 cash flows. If an impairment of the carrying value were to be indicated by
 this review, the Company would perform the second step of the goodwill
 impairment test in order to determine the amount of goodwill impairment, if
 any.The Company
 performed an impairment test on goodwill as of December 31, 2008. Based on
 its analysis as of December 31, 2008 and review at March 31, 2009, the
 Companys management believes there is no impairment of its goodwill. There
 can be no assurance, however, that market conditions will not change or
 demand for the Companys products or services will continue, which could
 result in impairment of goodwill in the future.Identifiable
 intangibles acquired in connection with business acquisitions are recorded at
 their respective fair values (see Note 5). Deferred income taxes have been
 recorded to the extent of differences between the fair value and the tax
 basis of the assets acquired and liabilities assumed.Long-Lived
 AssetsIn the event
 that facts and circumstances indicate that equipment or other long-lived
 assets may be impaired, an evaluation of recoverability would be performed.
 If an evaluation is required, the estimated future discounted cash flows
 associated with the asset are compared to the assets carrying amount to
 determine if an impairment charge is necessary. The amount of long-lived
 asset impairment, if any, is charged to operations in the period in which
 long-lived asset impairment is determined. At March 31, 2009, management
 believes there is 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 products or services will continue, which could result in
 impairment of long-lived assets in the future.Warranty CostsThe Company provides a
 limited 90 day warranty on certain products sold. Estimated future warranty
 obligations related to certain products and services are provided by charges
 to operations in the period in which the related revenue is recognized. As of
 March 31, 2009 and December 31, 2008, management of the Company determined
 that a warranty reserve was not necessary. In addition, the charges to
 expense during the three months ended March 31, 2009 and 2008 were
 insignificant.11


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Derivative LiabilityEffective January 1,
 2009, the Company adopted the provisions of EITF No. 07-5, Determining Whether an Instrument (or
 Embedded Feature) is Indexed to an Entitys Own Stock (EITF
 07-5). EITF 07-5 applies to any freestanding financial instruments or
 embedded features that have the characteristics of a derivative, as defined
 by SFAS No. 133, Accounting for Derivative Instruments and Hedging
 Activities, and to any freestanding financial instruments that are
 potentially settled in an entitys own common stock. As a result of adopting
 EITF 07-5, 310,000 of issued and outstanding common stock purchase warrants
 previously treated as equity pursuant to the derivative treatment exemption
 were no longer afforded equity treatment. These warrants have an exercise
 price of $0.01, as amended, and expire in February 2018. As such, effective
 January 1, 2009 the Company reclassified the fair value of these common stock
 purchase warrants, which have exercise price reset features, from equity to
 liability status as if these warrants were treated as a derivative liability
 since their date of issue in 2008. On January 1, 2009, the Company reclassified
 from additional paid-in capital, as a cumulative effect adjustment, $2,610 to
 beginning retained earnings and $6,200 to a long-term warrant liability to
 recognize the fair value of such warrants on such date. During the three
 months ended March 31, 2009, the Company issued an additional 155,000
 warrants valued at $1,550 using the Black-Scholes option pricing model and
 recorded as general and administrative expense on the accompanying unaudited
 condensed consolidated statements of operation and as a derivative liability
 on the accompanying unaudited condensed consolidated balance sheet. The fair
 value of the 465,000 common stock purchase warrants declined to $4,650 as of
 March 31, 2009. As such, the Company recognized a $3,100 gain from the change
 in fair value of these warrants for the three months ended March 31,
 2009.These common stock purchase
 warrants were initially issued in connection with a line of credit with a
 financial institution. The common stock purchase warrants were not issued with
 the intent of effectively hedging any future cash flow, fair value of any
 asset, liability or any net investment in a foreign operation. The warrants
 do not qualify for hedge accounting, and as such, all future changes in the
 fair value of these warrants will be recognized currently in earnings until
 such time as the warrants are exercised or expire. These common stock
 purchase warrants do not trade in an active securities market, and as such,
 the Company estimates the fair value of these warrants using the
 Black-Scholes option pricing model using the following weighted average
 assumptions:March
 31,
 2009

January
 1,
 2009Annual
 dividend yield




Expected
 life (years)

9.54


9.70Risk-free
 interest rate

2.71
%

2.46
%Expected
 volatility

189
%

190
%The expected
 life is based on the remaining term of the warrants. The risk-free interest
 rate is based on the U.S. Treasury rate that corresponds to the
 pricing term. Expected volatility is based primarily on historical
 volatility. Historical volatility was computed using daily pricing
 observations for recent periods that correspond to the expected term. The
 Company believes this method produces an estimate that is representative of
 expectations of future volatility over the expected term of these warrants.
 The Company currently has no reason to believe future volatility over the
 expected remaining life of these warrants is likely to differ materially from
 historical volatility.In
 September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
 (SFAS 157), which defines fair value, establishes a framework for measuring
 fair value in GAAP, and expands disclosures about fair value measurements.
 SFAS 157 does not require any new fair value measurements, but provides
 guidance on how to measure fair value by providing a fair value hierarchy
 used to classify the source of the information. In February 2008, the
 FASB deferred the effective date of SFAS 157 by one year for certain
 non-financial assets and non-financial liabilities, except those that are
 recognized or disclosed at fair value in the financial statements on a
 recurring basis (at least annually). On January 1, 2008, the Company
 adopted the provisions of SFAS 157, except as it applies to those nonfinancial
 assets and nonfinancial liabilities for which the effective date has been
 delayed by one year, which the Company adopted on January 1, 2009. The
 adoption of SFAS 157 did not have a material effect on our financial position
 or results of operations. The book values of cash, accounts receivable,
 accounts payable, accrued expenses, capital lease obligations, and debt
 instruments approximate their respective fair values due to the short-term
 nature of these instruments.The fair
 value hierarchy distinguishes between assumptions based on market data
 (observable inputs) and an entitys own assumptions (unobservable inputs).
 The hierarchy consists of three levels:12


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
Level one 
 Quoted market prices in active markets for identical assets or liabilities;
Level two 
 Inputs other than level one inputs that are either directly or indirectly
 observable; and
Level three
  Unobservable inputs developed using estimates and assumptions, which are
 developed by the reporting entity and reflect those assumptions that a market
 participant would use.Determining
 which category an asset or liability falls within the hierarchy requires
 significant judgment. The Company evaluates its hierarchy disclosures each
 quarter. Liabilities measured at fair value on a recurring basis are
 summarized as follows (unaudited):Level 1

Level 2

Level 3

March
 31,
 2009Fair value
 of warrants




$
4,650




$
4,650Total

$


$
4,650

$


$
4,650The Company
 has no assets that are measured at fair value on a recurring basis. There
 were no assets or liabilities measured at fair value on a non-recurring basis
 during the three months ended March 31, 2009.New Accounting
 PronouncementsIn October
 2008, the FASB issued FASB Staff Position No. 157-3, Determining Fair Value of a Financial
 Asset When the Market for That Asset is Not Active (FSP No.
 157-3). FSP No. 157-3 clarifies the application of SFAS No. 157 in a market
 that is not active, and provides an illustrative example intended to address
 certain key application issues. FSP No. 157-3 is effective immediately, and
 applies to the Companys March 31, 2009 financial statements. The Company has
 concluded that the application of FSP No. 157-3 did not have a material
 impact on its consolidated financial position and results of operations as of
 and for the three months ended March 31, 2009.In December 2007, the FASB
 issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R)
 provides companies with principles and requirements on how an acquirer
 recognizes and measures in its financial statements the identifiable assets
 acquired, liabilities assumed, and any noncontrolling interest in the
 acquiree as well as the recognition and measurement of goodwill acquired in a
 business combination. SFAS No. 141(R) also requires certain disclosures to
 enable users of the financial statements to evaluate the nature and financial
 effects of the business combination. Acquisition costs associated with the
 business combination will generally be expensed as incurred. SFAS No. 141(R)
 is effective for business combinations occurring in fiscal years beginning
 after December 15, 2008. The Company is evaluating the impact SFAS No. 141(R) will have on any future
 business combinations.Other recent accounting
 pronouncements issued by the FASB (including the EITF) and the American
 Institute of Certified Public Accountants did not or are not believed by
 management to have a material impact on the Companys present or future
 consolidated financial statements.5.
Acquisitions and Intangible AssetsAcquisition of Questys (QSI)On August 4,
 2008, the Company completed the purchase of 100% of the issued and
 outstanding capital stock of QSI, from its sole shareholder, Vojin
 Hadzi-Pavlovic and Gloria Hadzi-Pavlovic, Tenants in Common (the Pavlovics,
 Questys Shareholder). The effective date of the acquisition is August 1,
 2008.13


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The pro
 forma combined historical results, as if QSI had been acquired as of January
 1, 2008, are estimated as follows:Three Months
 Ended
 March 31, 2008Net sales

$
3,917,836Net loss

$
(688,630
)Weighted
 average common shares outstanding:basic and
 diluted


174,770,913Loss per
 share:basic and
 diluted

$
The pro
 forma information has been prepared for comparative purposes only and does not
 purport to be indicative of what would have occurred had the acquisition
 actually been made at such date, nor is it necessarily indicative of future
 operating results.Other Intangible AssetsOn May 12, 2006, the
 Company entered into a Patent License Agreement (the License Agreement)
 with Catch Curve, Inc. (Catch Curve). Pursuant to the License Agreement,
 Catch Curve granted the Company a worldwide, non-exclusive, non-divisible,
 fully paid-up license to use certain patented technology in connection with
 any facsimile products or services made or sold by the Company or its
 subsidiaries. The Company made aggregate license payments of $600,000 over
 the thirty-two month period that began on May 12, 2006 and ended December 31,
 2008. The License Agreement stipulates that $350,000 of the total license fee
 was attributable to sales of products and services prior to the date of the
 License Agreement. The remainder of $250,000 is attributable to sales of
 products and services subsequent to the date of the License Agreement.
 Accordingly, on May 12, 2006, the Company recorded an intangible asset in the
 amount of $250,000. The intangible asset is being amortized over 58 months,
 the current remaining life of the patents covered by the License Agreement.14


Table of Contents
Other
 intangibles consist of the following as of March 31, 2009:Estimated Useful
 Life
 (Years)

Gross
 Carrying
 Amount

Accumulated
 Amortization

Net
 Carrying
 AmountCorporate:License agreement

Five


$
250,000

$
(148,704
)
$
101,296TBS:Customer list

Ten


$
500,000

$
(256,250
)
$
243,750Trade name

Five



50,000


(50,000
)

$
550,000

$
(306,250
)
$
243,750QSI:Customer relationships

Ten


$
730,000

$
(48,667
)
$
681,333Technology

Five



390,000


(52,000
)

338,000Trade name

Five



210,000


(28,000
)

182,000Covenant not to compete

Two



70,000


(23,333
)

46,667$
1,400,000

$
(152,000
)
$
1,248,000GSI:Customer relationships

Ten


$
2,200,000

$
(641,667
)
$
1,558,333Technology

Five



490,000


(285,833
)

204,167Trade name

Ten



420,000


(122,500
)

297,500$
3,110,000

$
(1,050,000
)
$
2,060,000$
5,310,000

$
(1,656,954
)
$
3,653,046Amortization
 of other intangible assets was $173,682 and $117,931, respectively, during
 the three months ended March 31, 2009 and 2008. During the three months ended
 March 31, 2009, the Company did not acquire or dispose of any intangible
 assets.15


Table of Contents
Other
 intangible assets consist of the following as of December 31, 2008:Estimated Useful
 Life
 (Years)

Gross
 Carrying
 Amount

Accumulated
 Amortization

Net
 Carrying
 AmountCorporate:License agreement

Five


$
250,000

$
(135,772
)
$
114,228TBS:Customer list

Ten


$
500,000

$
(243,750
)
$
256,250Trade name

Five



50,000


(48,750
)

1,250$
550,000

$
(292,500
)
$
257,500QSI:Customer relationships

Ten


$
730,000

$
(30,417
)
$
699,583Technology

Five



390,000


(32,500
)

357,500Trade name

Five



210,000


(17,500
)

192,500Covenant not to compete

Two



70,000


(14,583
)

55,417$
1,400,000

$
(95,000
)
$
1,305,000GSI:Customer relationships

Ten


$
2,200,000

$
(586,667
)
$
1,613,333Technology

Five



490,000


(261,333
)

228,667Trade names and marks

Ten



420,000


(112,000
)

308,000$
3,110,000

$
(960,000
)
$
2,150,000$
5,310,000

$
(1,483,272
)
$
3,826,7286.
DebtBank Lines of CreditOn February 6, 2008, the
 Company and The Private Bank of The Peninsula (Bank) entered into an
 agreement for an asset based line of credit (the Line). On March 5, 2009,
 the Company received a fully executed agreement between it and the Bank to amend the agreement for the Line (the
 Amendment). The effective date of the Amendment is February 24, 2009.
 Pursuant to the Amendment, the Bank renewed the Line and modified the terms
 to include an interest rate that is floating and is calculated at Wall Street
 Journal prime plus five percent (5%) on the cash borrowed provided that the
 minimum rate will be eight and one half percent (8.5%) and minimum interest
 will be $7,000 per three month period. Interest on outstanding borrowings is
 payable monthly. In addition, the Company was required to pay an amendment
 fee of $10,000 and, upon each advance, a fee equal to one quarter of one
 percent (0.25%) of the advance, and is subject to covenants as to minimum
 quarterly income and cash flow. The Banks maximum commitment amount for the
 Line, as amended, is $1.0 million. Advances are generally limited to 80% of
 eligible domestic accounts receivable.During 2008, the Company
 paid a facility fee of $15,000 to the Bank in connection with the Line and
 paid a finders fee in the amount of $50,000 to Dragonfly Capital Partners
 LLC (Dragonfly). In addition, the Company issued the Bank and Dragonfly
 warrants to purchase shares of its common stock (see Note 7). The Company
 recorded the finders fees and warrants as debt issuance costs in the
 accompanying condensed consolidated balance sheets at March 31, 2009 and December 31,
 2008, and amortized $5,417 and $16,251, respectively, of the cash fees to
 interest expense during the three months ended March 31, 2009 and 2008.
 Effective January 1, 2009, the Company issued an additional 235,000 warrants
 to the Bank (see Note 7) and the Company reclassified the Banks warrants
 from additional paid-in capital to a derivative liability in connection with
 the adoption of EITF 07-5 and the reset features of the Banks warrant
 agreement.16


Table of Contents
Outstanding advances under
 the Line are secured by a first lien position on all of the Companys accounts
 receivable, contract rights, chattel paper, documents, and payment and by a
 second lien on its inventory, intellectual property, and equipment. As of
 March 31, 2009, there were outstanding borrowings of $296,047 on the Line and
 the Company was in compliance with all loan covenants, except a minimum
 quarterly income covenant. The Bank has not imposed any penalties or
 limitations as a result of such non-compliance. Availability on the Line as
 of March 31, 2009 was approximately $58,000.Effective September 30,
 2006, VillageEDOCS obtained a $500,000 revolving line of credit (RLOC) with
 a financial institution. The RLOC was guaranteed by a stockholder of the
 Company. Interest on outstanding borrowings was payable monthly at an annual
 rate of interest equal to LIBOR plus 2% (2.56% at March 31, 2009). As of
 March 31, 2009, there were outstanding borrowings of $434,449 on the RLOC and
 the Company was in compliance with all loan covenants. On May 8, 2009,
 the Company retired the RLOC using the proceeds of a note payable financing
 provided by a related party (see Note 11). The terms of the note payable
 financing were deemed more favorable to the Company than the renewal terms
 offered by the financial institution.Effective November 28,
 2005, TBS renewed a $100,000 revolving line of credit (TBS RLOC) with a
 financial institution. The TBS RLOC is guaranteed by the assets of TBS.
 Interest on outstanding borrowings is payable monthly at a variable annual
 rate equal to the financial institutions prime rate in effect (3.25% at
 March 31, 2009). As of March 31, 2009, the Company had not utilized the TBS
 RLOC and was in compliance with all loan covenants.QSI has an unsecured line
 of credit agreement with a financial institution for borrowings up to the maximum
 of $100,000 with no maturity date (QSI RLOC). Borrowings bear interest at
 the prime rate, plus 2.775% (6.025% at March 31, 2009). QSI had borrowings
 totaling $100,000 at March 31, 2009 and had $0 available for future
 borrowings under the line of credit. Pursuant to the QSI acquisition
 agreements, the Company has agreed to repay all outstanding borrowings under
 the QSI RLOC on or before August 1, 2009.Vojin
 Hadzi-Pavlovic and Gloria Hadzi-PavlovicEffective
 August 1, 2008 and in connection with the acquisition of Questys (see Note
 5), the Company issued a secured promissory note to the Pavlovics (the
 Pavlovic Note) in the amount of $900,000. The Pavlovics are a related party
 as a result of the common stock issued to them by the Company in connection
 with the acquisition of Questys. The Pavlovic Note is non-interest bearing
 and may be prepaid in whole or in part at any time without penalty and is due
 on August 1, 2011. Principal payments are due in three equal annual
 installments of $300,000 each on August 1, 2009, August 1, 2010, and August
 1, 2011. The Pavlovic Note is secured by certain assets of Questys as defined
 in a Security Agreement dated as of August 1, 2008. Payment obligations under
 the Pavlovic Note are subordinate in certain respects to the rights of the
 Bank  to the extent set forth in a Subordination
 Agreement dated as of August 1, 2008.In
 connection with the issuance of the Pavlovic Note, the Company recorded a
 debt discount of $126,871 as a result of imputed interest. The Company is
 amortizing the discount using the effective interest method through August 1,
 2011. During the three months ended March 31, 2009, $10,573 of interest
 expense was recognized in connection with the amortization of debt discount
 related to this note.Prior to
 August 1, 2008 (effective date of acquisition of Questys), the Pavlovics made
 aggregate advances to Questys in the amount of $115,000, which were assumed
 in the acquisition (the Pavlovic Shareholder Debt). The Pavlovic
 Shareholder Debt is non-interest bearing and the Company and the Pavlovics
 have agreed to the repayment of the outstanding balance as follows: (i)
 $35,000 on or before August 1, 2009, (ii) $40,000 on or before August 1,
 2010, and (iii) $40,000 on or before the August 1, 2011.In
 connection with the acquisition of the Pavlovic Shareholder Debt, the Company
 recorded a debt discount of $16,546 as a result of imputed interest. The
 Company is amortizing the discount using the effective interest method
 through August 1, 2011. During the three months ended March 31, 2009, $1,378
 of interest expense was recognized in connection with the amortization of
 debt discount related to this debt.17


Table of Contents
The Silver Lake Group, LLCThe Company
 funded the requirement for the initial $300,000 payment for the purchase of
 QSI from the proceeds of a $300,000 related party secured promissory note
 offering subscribed to by The Silver Lake Group, LLC (SLG) on August 4,
 2008 (the SLG Note). SLG is owned by Ricardo A. Salas. Mr. Salas is a
 Director of the Company. The SLG Note was originally due on October 31, 2008
 and bore interest at a rate of nine percent (9%) per annum through October
 31, 2008.On October
 30, 2008, VillageEDOCS, Inc. and SLG entered into an Amendment to Secured
 Promissory Note (Amendment) to modify the maturity date, interest rate, and
 repayment terms of the SLG Note. As of October 31, 2008, the remaining
 principal balance of the SLG Note, as amended, was $250,000 and no interest was
 outstanding. Pursuant to the Amendment, the SLG Note matured on March 31,
 2009 and bore interest from November 1, 2008 at a rate of twelve percent
 (12%) per annum. As of March 31, 2009, the the SLG Note was paid in full. The
 SLG Note was secured by the accounts receivable of GoSolutions, Inc., our
 wholly-owned subsidiary, as defined in a Security Agreement dated as of
 August 1, 2008. Payment obligations under the SLG Note were subordinate in
 certain respects to the rights of the Bank to the extent set forth in a
 Subordination Agreement entered into effective August 1, 2008.C. Alan and Joan P.
 WilliamsOn February 17, 2004, the
 Company borrowed $1,700,000 from C. Alan and Joan P. Williams and issued a
 convertible promissory note, bearing interest at 10 percent per annum. During
 2005, all but $65,000 of the principal amount due pursuant to this note was
 converted into shares of the Companys common stock. The note and accrued
 interest are due at the earlier of one of three events: 1) October 31, 2009;
 2) acquisition of a controlling interest in the Company by a third party; or
 3) the Company achieves 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 the loan, the Company issued them a warrant to
 purchase 5,000,000 shares of the Companys restricted common stock at $0.10
 per share exercisable until February 17, 2009. Effective February 17, 2009,
 the Company and the Williams agreed to extend the expiration date of the
 warrant to February 16, 2012 in exchange for the Williams agreement to
 extend their guaranty of the RLOC through December 31, 2010.
The extention of the warrants did not have a material effect on the condensed consolidated financial statements.
In connection
 with the issuance of the note, the Company recorded a debt discount of
 $730,000, consisting of an embedded put option of $280,000 and the fair value
 of the warrant of $450,000, which were recorded as derivative liabilities
 upon note issuance and subsequently reclassified to additional paid-in
 capital.During the three months
 ended March 31, 2009 and 2008, $1,625 of interest expense was recognized in
 connection with these notes.At March 31, 2009, the
 amount owed by the Company to the Williams pursuant to the unpaid balance of the
 convertible promissory note payable was $65,000 in principal and $114,995 in
 unpaid interest. The interest rate in effect as of March 31, 2009 was ten
 percent (10%) per annum.At December 31, 2008, the
 amount owed by the Company to the Williams pursuant to the unpaid balance of
 the convertible promissory note payable was $65,000 in principal and $113,370
 in unpaid interest.Interest ExpenseInterest expense recognized
 on all lines of credit and notes payable was $45,795 and $23,977, respectively,
 during the three months ended March 31, 2009 and 2008.Interest
 expense noted above included non-cash charges (related to amortization of
 debt discount and debt issuance costs) of $29,834 and $53,666, respectively,
 during the 2009 and 2008 quarters.18


Table of Contents

7.
Stockholders Equitya.
Common and
 Preferred StockThe Company issued no
 shares of its common or preferred stock during the three months ended March
 31, 2009 (see Note 11).b.
Stock
 OptionsDuring the three months
 ended March 31, 2009, the Company granted to its employees options to
 purchase shares of its common stock under the 2002 Plan as follows: 575,000
 shares at $0.03 per share, and 100,000 shares at $0.01 per share. All options
 were issued at or above fair value on the dates of grant and vest on various
 dates from the dates of grant through March 2016. During the three months
 ended March 31, 2009, options to purchase 3,225,000 shares were forfeited due
 to their expiration.c.
WarrantsFrom time to time, the Company
 issues warrants pursuant to various consulting and third party agreements.In December 2008, and in
 connection with a retainer agreement dated September 15, 2007 that was
 cancelled by the Company effective February 28, 2009, the Company issued a
 warrant to purchase 1,304,074 shares of its common stock at $0.023 per share
 (fair value on the measurement date) to a consultant in consideration for
 public relations services. The warrant vested immediately and is exercisable
 over a five year period from date of grant. The warrant was valued using the
 Black-Scholes option pricing model at $26,001, was recorded as
 prepaid consulting expense, and is being amortized to general and
 administrative expense in the Companys statements of operations over the
 three month service period that began on December 1, 2008. During the three
 months ended March 31, 2009, the Company recorded $17,334 of consulting
 expense in connection with this warrant.In consideration for the
 Line, (see Note 6) the Company issued the Bank an immediately exercisable
 warrant to purchase 75,000 shares of its restricted common stock at an
 exercise price of $0.062 per share through February 6, 2018. The warrants
 were valued using the Black-Scholes option pricing model at $4,500 and were
 recorded as debt issuance cost in the accompanying condensed
 consolidated balance sheet at December 31, 2008. The Company is amortizing
 such cost over the one-year life of the related debt instrument. During the
 three months ended March 31, 2009, the Company recorded $375 of interest
 expense in the accompanying unaudited condensed consolidated statements of
 operations. Effective January 1, 2009, the Company reclassified the fair
 value of these warrants, which have exercise price reset features, from
 equity to liability status as if these warrants were treated as a derivative
 liability since their date of issue in February 2008 and issued an additional
 390,000 warrants to the Bank pursuant to the terms of the warrant agreement
 valued at $5,860 using the Black-Scholes option pricing model (see the
 heading Derivative Liability under Note 4).As a
 finders fee for the Line (see Note 6), the Company issued Dragonfly an immediately exercisable
 warrant to purchase 2,419,355 shares of its restricted common stock at an
 exercise price of $0.062 per share through February 6, 2013. The warrants
 were valued using the Black-Scholes option pricing model at $145,161 and were
 recorded as debt issuance cost in the accompanying unaudited condensed
 consolidated balance sheet at March 31, 2009. The Company amortized such cost
 over the one-year life of the related debt instrument. During the three
 months ended March 31, 2009 and 2008, the Company recorded $12,091 and
 $36,290, respectively, of interest expense in the accompanying unaudited
 condensed consolidated statements of operations.On February 8, 2008, the
 Company issued Agile Equity LLC an immediately exercisable warrant to
 purchase 653,214 shares of its common stock at $0.077 per share through
 February 8, 2009 in consideration for consulting services rendered. The
 warrant was valued at $50,484 based on the Black-Scholes option pricing
 model. During the three months ended March 31, 2009 and 2008, the Company expensed
 consulting fees of $0 and $484, respectively, in accordance with the timing of the services
 performed.19


Table of Contents
On October 1, 2007, and in
 connection with a retainer agreement dated September 15, 2007, the Company
 issued a warrant to purchase 2,000,000 shares of its common stock at $0.05
 per share (fair value on the measurement date) to a consultant in
 consideration for public relations services. The warrants are exercisable
 over a five year period from date of grant. The warrants were valued using
 the Black-Scholes option pricing model, were valued at $100,000, and were
 recorded as general and administrative expense in the Companys statements of
 operations over the twelve month vesting period that began on September 15,
 2007. During the three months ended March 31, 2008, the Company
 recorded $25,000 of such expense in the accompanying unaudited condensed
 consolidated statements of operations.8.
Commitments and ContingenciesLeasesThe Company leases certain
 property and equipment under operating lease agreements (including three
 related party leases  see Note 9) which expire on various dates through 2015
 and provide for monthly lease payments ranging from $108 to $15,164.The Company also leases
 equipment under a related party capital lease agreement which expires in
 January 2010 and provides for a monthly lease payment of $1,746.Rent expense for the three
 months ended March 31, 2009 and 2008 was $132,298 (including $59,578 of
 related party rent) and $117,981 (including $69,667 of related party rent),
 respectively.Legal
 Proceedings and ClaimThe Company is, from time
 to time, involved in various legal and other proceedings which arise in the
 ordinary course of operating its business.In connection with the
 acquisition of GSI the Company is entitled to certain rights of
 indemnification from GoSolutions Equity, LLC, which is a former shareholder
 of GSI that became a shareholder of the Company as a result of our
 acquisition of GSI. The Company made a claim of indemnification from this
 entity in connection with the bankruptcy of one of GSIs significant
 customers  Vartec Telecom, Inc.  and the facts and circumstances relating
 to the procurement and maintenance of the Primerica Life Insurance account
 and related Citigroup affiliates. GoSolutions Equity, LLC has indicated that
 it does not believe that we have a valid basis for making such
 indemnification claims.The Company has engaged in
 limited discussions with GoSolutions Equity, LLC as it relates to the
 indemnification claims notice and their response to such claims notice.
 However, the Company is unable to advise whether it will be successful in the
 indemnification claims against GoSolutions Equity, LLC. Pursuant to the
 agreement with GSI, if the Company is successful, GoSolutions Equity, LLC
 would only be required to return up to approximately 4.4 million of our
 shares issued to that entity to satisfy such indemnification claims.
 GoSolutions Equity, LLC is not required to contribute cash to satisfy any
 indemnification claims.In the opinion of
 management, the amount of ultimate liability, if any, with respect to these
 actions will not materially affect the consolidated financial position or
 results of operations of the Company.Consulting and Employee
 AgreementsThe Company has entered
 into a variety of consulting and employee agreements for services to be
 provided to the Company in the ordinary course of business. These agreements
 call for minimum salary levels and/or option grants and/or common share
 issuances and various payments upon performance of services and/or termination
 of the agreements (except for cause).20


Table of Contents
Indemnities and GuaranteesDuring the normal course
 of business, the Company has made certain indemnities and guarantees under
 which it may be required to make payments in relation to certain
 transactions. The Company indemnifies its directors, officers, employees and
 agents to the maximum extent permitted under the laws of the States of
 California, Florida, and Georgia. These indemnities include certain
 agreements with the Companys officers under which the Company may be
 required to indemnify such person for liabilities arising out of their
 employment relationship. In connection with its facility leases, the Company
 has indemnified its lessors for certain claims arising from the use of the facilities.
 In connection with the Companys acquisition of TBS, the parties have agreed
 to indemnify each other from claims relating to the acquisition agreement to
 a maximum of $1,500,000 except in the event of fraud, willful misconduct, or
 breaches of certain representations and warranties contained in the
 agreement. In connection with the Companys acquisition of both QSI and GSI,
 the parties have agreed to indemnify each other from claims relating to the
 acquisition agreement. The duration of these indemnities and guarantees
 varies and, in certain cases, is indefinite. The majority of these
 indemnities and guarantees do not provide for any limitation of the maximum
 potential future payments the Company could be obligated to make.
 Historically, the Company has not been obligated to make significant payments
 for these obligations and no liabilities have been recorded for these
 indemnities and guarantees in the accompanying unaudited condensed
 consolidated balance sheets, respectively.9.
Related Party TransactionsThe Company has borrowed
 significantly from related parties, issued a significant number of options
 and warrants to related parties, and may in the future issued a significant
 number of shares of its common stock to related parties upon conversion of
 convertible promissory notes payable as described more fully in Notes 6 and 11.TBS has a related party
 operating lease with Perimeter Center Partners for the rental of the land and
 building occupied by TBS. The lease, as amended, commenced on February 1,
 2004 and has a term of six years, with monthly payments of $6,200. The
 Company has executed a Guaranty with respect to the lease. Perimeter Center
 Partners is owned by Stephen A. Garner and James L. Campbell, who are
 significant employees of the Company and the former owners of TBS.TBS has a related party
 capital lease with Perimeter Center Partners for an inserting machine. The
 lease commenced on May 19, 2007 and ends on January 31, 2010. Monthly
 payments are $1,746. The Company has executed a Guaranty with respect to the
 lease.GSI leases the St.
 Petersburg office space pursuant to a noncancelable operating lease agreement
 expiring on April 30, 2011 at a cost of $12,653, $13,232, $13,841, $14,485,
 and $15,164 per month for each of the twelve month periods ended April 2007,
 2008, 2009, 2010, and 2011, respectively. The building in which the office
 space is located is owned by an entity in which a member of GoSolutions
 Equity, LLC (a related party) owns an interest.10.
Segment ReportingThe Companys operations
 are classified into five principal reportable segments that provide different
 products or services. Separate management of each segment is required because
 each business unit is subject to different marketing, production, and
 technology strategies. The Company operates in the following five reportable
 segments:(a) Electronic document
 delivery services,(b) Government accounting
 solutions,(c) Electronic content
 management solutions,(d) Integrated communications, and(e) Corporate.The Company evaluates
 performance and allocates resources based upon operating income. The
 accounting policies of the reportable segments are the same as those
 described in the summary of accounting policies. Inter-segment sales are
 eliminated upon consolidation.The following table
 summarizes segment asset and operating balances by reportable segment, has
 been prepared in accordance with the internal accounting policies, and may
 not be presented in accordance with accounting principles generally accepted
 in the United States of America:21


Table of Contents
Three
 Months
 ended / As of
 March 31
 2009

Three
 Months
 ended
 March 31
 2008Net revenue from external
 customers:Electronic document delivery
 services

$
669,417

$
686,888Government accounting
 solutions


1,056,500


1,162,941Electronic content
 management


527,668


Integrated communications


1,604,364


1,428,156Corporate





Total net revenue from external customers:

$
3,857,949

$
3,277,985Income (loss) from
 operations:Electronic document
 delivery services

$
114,661

$
53,031Government accounting
 solutions


50,410


98,008Electronic content management


(239,840
)

Integrated communications


257,326


80,692Corporate


(574,535
)

(684,533
)Total loss from operations:

$
(391,978
)
$
(452,802
)Depreciation and
 amortization:Electronic document
 delivery services

$
21,663

$
19,204Government accounting
 solutions


22,901


25,270Electronic content
 management


67,016


Integrated communications


118,487


124,048Corporate


12,932


13,123Total depreciation and amortization:

$
242,999

$
181,645Interest expense, net of
 interest income:Electronic document
 delivery services

$
3,177

$
Government accounting
 solutions


4,730


591Electronic content
 management


2,927


Integrated communications





(146
)Corporate


34,961


65,803Total interest expense, net of interest
income:

$
45,795

$
66,248continued22


Table of Contents
Three
 Months
 ended / As of
 March 31
 2009

Three
 Months
 ended
 March 31
 2008Net income (loss):Electronic document
 delivery services

$
106,944

$
39,957Government accounting
 solutions


48,025


97,417Electronic content
 management


(232,603
)

Integrated communications


255,859


100,148Corporate


(598,968
)

(732,357
)Total net loss:

$
(420,743
)
$
(494,835
)Identifiable assets:Electronic document
 delivery services

$
535,410Government accounting
 solutions


3,500,079Electronic content
 management


2,494,029Integrated communications


5,975,494Corporate


191,824Total identifiable assets:

$
12,696,836Capital expenditures:Electronic document
 delivery services

$
19,668

$
17,279Government accounting
 solutions


1,352


Electronic content
 management


3,674


Integrated communications


4,394


43,675Corporate





Total capital expenditures:

$
29,088

$
60,95423


Table of Contents
11.
Subsequent EventsRelated Party Note PayableOn May 6,
 2009 the Company arranged for an unsecured promissory note financing with C.
 Alan Williams and Joan P. Williams in the amount of $430,000 (the Williams
 2009 Note). The Williams 2009 Note bears a per annum interest rate equal to
 the most favorable rate paid by the Williams plus two percent (2%). The
 Companys interest rate in effect through May 31, 2009 with respect to the
 Williams 2009 Note is 4.87%. Thereafter, the interest rate may be adjusted
 once per month. The term of the Williams 2009 Note is thirty-six (36) months,
 with monthly installments paid by the Company consisting of principal and
 interest on the first of each month, beginning on August 1, 2009. The
 Williams 2009 Note matures on August 1, 2012. Should the Company fail to make
 payments for a period of ninety (90) days, a default shall occur. Upon the
 default, the Company shall pay a penalty interest rate in the amount of the
 Williams rate plus six percent (6%) on the unpaid amounts until the default
 is cured.Payment
 obligations under the Williams 2009 Note are subordinate in certain respects
 to the rights of the Bank.The Company
 used the proceeds from the Williams 2009 Note, to retire a line of credit
 with a financial institution on May 8, 2009. The terms of the Williams 2009
 Note were deemed more favorable to the Company than the renewal terms offered
 by the financial institution.In
 accordance with SFAS No. 6, Classification of Short Term Obligations Expected
 to be Refinanced, the Company has reclassified its current and
 long-term related-party notes payable and lines of credit based on the
 subsequent issuance of the new related-party note payable and repayment of
 the line of credit.Common Stock IssuanceOn April 8,
 2009 and pursuant to the terms of their respective employment agreements, the
 Company issued 6,879,200 shares of its restricted common stock to K. Mason
 Conner, who is the Companys President and Chief Executive Officer and a
 Director, and 5,896,500 shares of its restricted common stock to H. Jay Hill,
 who is the Companys Executive Vice President of Corporate Development and a
 Director. These shares were valued at $0.01 per share (the estimated fair
 value on the measurement date).The offer
 and sale of our securities described above was made pursuant to Section 4(2)
 of the Securities Act of 1933 and Regulation D promulgated thereunder.24


Table of Contents


ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

IMPORTANT NOTIFICATIONSThis Quarterly Report on Form 10-Q includes
 forward-looking statements within the meaning of Section 21E of the
 Securities Exchange Act of 1934, as amended. All statements that do not
 directly and exclusively relate to historical facts constitute
 forward-looking statements within the meaning of the Private Securities
 Litigation Reform Act of 1995. You are cautioned not to put undue reliance on
 any forward-looking statements. For these statements, we claim the protection
 of the safe harbor for forward-looking statements contained in Section 21E of
 the Exchange Act. For important additional and specific information regarding
 these statements, we strongly urge you to refer to the caption below entitled
 CAUTIONARY INFORMATION
 ABOUT FORWARD-LOOKING STATEMENTS and the caption entitled CERTAIN FACTORS
 THAT MAY AFFECT FUTURE RESULTS which can be found in Item 6. Managements
 Discussion and Analysis of Financial Condition and Results of Operation of
 the Annual Report on Form 10-K filed with the U.S. Securities and Exchange
 Commission (SEC) on March 31, 2009.The Companys Internet website address is www.villageedocs.com. The
 Companys annual reports on Form 10-K, quarterly reports on Form 10-Q,
 current reports on Form 8-K, and all amendments thereto, are available free
 of charge on the Companys website as soon as reasonably practical after such
 reports are electronically filed with, or furnished to, the U.S. Securities
 and Exchange Commission.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 presented in the following six sections:


Business Overview
Critical Accounting Policies and Estimates
Results of Operations
Liquidity and Capital Resources
Cautionary Information About Forward-Looking Statements, and
Recent Accounting Standards and PronouncementsMD&A is provided as a supplement to, and should be read in
conjunction with, the unaudited condensed consolidated balance sheet as of
March 31, 2009, and the unaudited condensed consolidated statements of
operations for the three months ended March 31, 2009 and 2008, the unaudited
condensed consolidated statements of cash flows for the three months ended
March 31, 2009 and 2008, and the related notes thereto as well as the audited
consolidated financial statements of the Company for the year ended December 31,
2008 included in the Companys Annual Report on Form 10-K filed with the SEC on
March 31, 2009.

In MD&A, we use we, our, us, VillageEDOCS, and the
Company to refer to VillageEDOCS, Inc. and its wholly-owned subsidiaries,
unless the context requires otherwise. Amounts and percents in tables may not
total due to rounding. This discussion contains forward-looking statements
based upon current expectations that involve risks and uncertainties, such as
our plans, objectives, expectations and intentions. The Company cautions
readers that important facts and factors described in MD&A and elsewhere in
this document sometimes have affected, and in the future could affect our
actual results, and could cause our actual results for the remainder of 2009
and beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.

25


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

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

Our business and results of operations are affected by a wide variety
of factors, as we discussed under the caption Certain Factors That May Affect Future
Results in Item 6. Managements Discussion and Analysis or Plan of
Operations of our Annual Report on Form 10-K filed with the SEC on March 31,
2009 and elsewhere in this report, which could materially and adversely affect
us and our actual results. As a result of these factors, we may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect our business, financial
condition, operating results and stock price.

Effective August 1, 2008, we purchased Decision Management Company,
Inc. d/b/a Questys Solutions (Questys, QSI). This acquisition has caused
our results of operations for the first quarter of 2009 to vary significantly
from those reported for the quarter of 2008. See Note 5 to our unaudited
condensed consolidated financial statements contained elsewhere in this report
for additional information regarding the acquisition.

Any forward-looking statements herein speak only as of the date hereof.
Except as required by applicable law, we undertake no obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Please refer to the discussion
below under the caption entitled Liquidity and Capital Resources.

BUSINESS
OVERVIEW

General

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

We conduct our
business through four wholly-owned subsidiaries. QSI, our most recent
acquisition, provides electronic content management and workflow software and
services. GSI provides enhanced voice and data communications services. MVI
operates our Internet based document delivery services. TBS operates our
government accounting products and services business. We generate revenue,
operating income, and cash flows from:


subscription
 agreements for enhanced voice, data, and conferencing services;
usage
 charges for delivery, management, and other services involving electronic
 documents;
usage
 charges for our governmental accounting and online payment hosted application
 services;
recurring
 fixed monthly service fees for access to voice, data, or application
 services;
per item and
 flat fee charges for volume printing services to governmental entities;
fees for
 professional service;
wholesale
 enhanced voicemail services;
the sale of
 licenses for proprietary software and third party software;
fees for
 maintenance and support agreements;
installation
 services;
sales of third
 party computer hardware; and
fees for
 training.26


Table of Contents
Our Objective

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


communicate
 with an ever-expanding number of trading partners, customers, and enterprises;
increase the
 control, management, speed, accuracy and security of the information
 delivered;
manage an
 increasing set of methods used to communicate (print/mail, email, web, fax,
 XML, and wireless);
cost-effectively
 implement a solution that will allow the enterprise to endure the slow
 acceptance of a common set of delivery methods;
meet the
 communications challenges with a service that is more robust than available
 commercial grade proprietary technologies; and
mitigate the
 negative impact of delivery methods on workflow, business process and
 security requirements.Our target
markets include Financial Services, Healthcare, Manufacturing, and Local
Government, and we serve approximately 1,500 active clients with over 25,000
users.

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

Key Items in First
Quarter of 2009


Consolidated
 net revenue for the three months ended March 31, 2009 increased by 18% over
 the 2008 quarter;
Gross margin
 improved to 60% compared to 58% in the 2008 quarter due to sales mix differences;
Operating
 expenses increased by 15% compared to the prior year period. However, consolidated
 operating expenses during the 2009 quarter were 70% of sales compared to 72%
 of sales in the 2008 quarter;
Operating
 expenses decreased at Corporate (-16%), MVI (-20%), and TBS (-8%);
Net income
 increased significantly at GSI to $255,859 compared to $100,148 for the 2008
 quarter;
Net loss for
 the three months ended March 31, 2009 was $420,743, a 15% improvement from
 the $494,835 reported for the 2008 quarter; and
We retired approximately $261,000 in accrued
 expenses and notes payable debt, $208,500 of which existed as of December 31,
 2008, and $52,900 of which was related to management restructuring in 2009.Areas of Focus

Growth Strategy

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

27


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


Web Content
 Management;
Digital Asset
 Management;
Email
 Management;
Records
 Management;
Documentation
 Management;
Information
 Indexing;
Categorization/Taxonomy;
Recognition;
Document
 Imaging;
Form
 Processing;
Scanning;
Collaboration;
Repositories;
Storage;
Long Term
 Archival;
Content
 Integration;
Search and
 Retrieval;
Content
 Syndication;
Localization
 and Personalization; and
Publication
 (paper or electronic).We intend to
continue our focus on obtaining growth from sales of higher margin products and
services at Questys, GSI, MVI, and TBS and by acquiring companies that
consistently generate net income and positive cash flows. We believe that this
strategy offers the best opportunity for our operations to generate positive
operating income and cash flows from operations and to achieve net income.

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

Capital Formation

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

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

28


Table of Contents
Organizational
Enhancements

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

Challenges and Risks

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

Weakness in the financial markets and the
 economy in generalWeakness in
 the financial markets and in the economy as a whole has adversely affected
 and may continue to adversely affect segments of our customers, which has
 resulted and may continue to result in decreased usage levels, customer
 acquisitions and customer retention rates and, in turn, could lead to a
 decrease in our revenues or rate of revenue growth. Certain segments of our
 customers - those whose business activity is tied to the health of the credit
 markets and the broader economy, such as banks, brokerage firms and those in
 the real estate industry - have been and may continue to be adversely
 affected by the current turmoil in the credit markets and weakness in the
 general economy. To the extent our customers businesses have been adversely
 affected by these economic factors, we have and may continue to experience a
 decrease in usage-based revenue and sales of our software products. In
 addition, continued weakness in the economy has adversely affected and may
 continue to adversely affect our customer retention rates and the number of
 our new customer acquisitions. These factors have adversely impacted, and may
 continue to adversely impact, our revenues and our ability to achieve cash
 flow growth during the remainder of 2009. However, we believe increased value
 to our shareholders can still be achieved through a combination of a focus on
 innovation to support productivity and disciplined expense control, while we
 continue to invest prudently in sales and marketing and product development
 to support long-term profitable growth.Increased Competition and Capabilities in
 the MarketplaceWe face
 strong competition from well-established national and global companies as
 well as from relatively new companies. We must continue to selectively expand
 into other profitable segments of our markets and offer powerful product and
 service offerings in order to increase our share of the marketplace. The
 introduction of new technologies could render our existing products and
 services obsolete or unmarketable or require us to invest in research and
 development at much higher rates with no assurance of developing competitive
 products. Changes in technologies or customer requirements also may cause the
 development cycle for our new products and services to be lengthy and result
 in significant development costs. Competitive pressures may impair our
 ability to achieve profitability.Capital ResourcesWe believe
 that current and future available capital resources, including the net
 proceeds from sale of our products and services, will be sufficient to fund
 our operations at current levels for the foreseeable future, but will be
 insufficient to allow us to repay our debt in full. The exact amount of funds
 that we will require will depend upon many factors, and it is likely that we
 will require additional financing. Such sources of financing could include
 capital infusions, additional equity financing, or debt offerings. In
 addition, since our revenues and cash flows have historically been subject to
 seasonality, we believe that it is important to secure greater access to
 short term borrowing facilities, such as operating lines of credit. There can
 be no assurance that additional funding or borrowing facilities will be
 available to us on acceptable terms, if at all. There can be no assurance that
 additional funds, if raised, would enable us to achieve or maintain
 profitable operations. The inability to secure new sources of working capital
 during the remainder of 2009 or 2010 could have a material adverse effect on
 our business, financial condition and results of operations.29


Table of Contents
CRITICAL ACCOUNTING
POLICIES AND ESTIMATES

In preparing
our consolidated financial statements, we make estimates, assumptions and
judgments that can have a significant effect on our revenues, income/loss from
operations, and net income/net loss, as well as on the value of certain assets
on our consolidated balance sheet.

Effective January 1,
2009, we adopted the provisions of EITF No. 07-5, Determining Whether an Instrument (or
Embedded Feature) is Indexed to an Entitys Own Stock (EITF 07-5).
EITF 07-5 applies to any freestanding financial instruments or embedded
features that have the characteristics of a derivative, as defined by SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities,
and to any freestanding financial instruments that are potentially settled in
an entitys own common stock. As a result of adopting EITF 07-5, certain of our
issued and outstanding common stock purchase warrants previously treated as
equity pursuant to the derivative treatment exemption were no longer afforded
equity treatment as more fully described in Note 4 to the accompanying
unaudited condensed consolidated financial statements.

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(SFAS 157), which defines fair value, establishes a framework for measuring
fair value in GAAP, and expands disclosures about fair value measurements. SFAS
157 does not require any new fair value measurements, but provides guidance on
how to measure fair value by providing a fair value hierarchy used to classify
the source of the information. In February 2008, the FASB deferred the
effective date of SFAS 157 by one year for certain non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least
annually). On January 1, 2008, the Company adopted the provisions of SFAS
157, except as it applies to those nonfinancial assets and nonfinancial
liabilities for which the effective date has been delayed by one year, which
the Company adopted on January 1, 2009. The adoption of SFAS 157 did not
have a material effect on our financial position or results of operations. The
book values of cash, accounts receivable, accounts payable, accrued expenses,
capital lease obligations, and debt instruments approximate their respective
fair values due to the short-term nature of these instruments.

There were no
other significant changes in critical accounting policies or estimates from those
at December 31, 2008.

RESULTS OF OPERATIONS

The following
discussion of our performance is organized by reportable operating segments,
which is consistent with the way we manage our business. Effective August 1,
2008, we completed the acquisition of QSI. Accordingly, we have included the
results of operations of QSI from the date of acquisition.

Three Months Ended
March 31, 2009 Compared to Three Months Ended March 31, 2008

Net Revenue from External Customers

Net revenue
from external customers for the three months ended March 31, 2009 was
$3,857,949, an 18% increase over net revenue for the prior year quarter of
$3,277,985.

For the three
months ended March 31, 2009, QSI, GSI, TBS, and MVI generated 14%, 42%, 27% and
17% of our net revenue, respectively. For the three months ended March 31,
2008, QSI, GSI, TBS, and MVI generated 0%, 44%, 35% and 21% of our net revenue,
respectively.

30


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

Three Months Ended
 March 31, 2009

Three Months Ended
 March 31, 2008

Variance
 Amount

PercentNet revenue
 from external customers:Electronic
 document delivery services (MVI)

$
669,417

$
686,888

$
(17,471
)
-3
%Government
 accounting solutions (TBS)


1,056,500


1,162,941


(106,441
)
-9
%Electronic
 content management (QSI)


527,668





527,668



*Integrated
 communications (GSI)


1,604,364


1,428,156


176,208

12
%Corporate












*Total net revenue from external customers

$
3,857,949

$
3,277,985

$
579,964

18
%* calculation is not meaningfulRevenue
increased 12% at GSI due to increases in user subscription fees, which were
partially offset by decreases in revenue from corporate clients.

Revenue
decreased 9% at TBS due to decreases in revenue from printing, software, and
hardware sales. These decreases were partially offset by increases in revenue
from online services and support services.

Revenue
decreased 3% at MVI due to a decrease in inbound revenue as a result of
customer attrition and reduced usage volumes.

QSI
contributed $527,668 in revenue during the three months ended March 31, 2009.

Cost of Sales

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

Three Months Ended
 March 31, 2009

Three Months Ended
 March 31, 2008

Variance
 Amount

PercentCost of
 sales:Electronic
 document delivery services (MVI)

$
287,054

$
298,857

$
(11,803
)
-4
%Government
 accounting solutions (TBS)


722,735


755,713


(32,978
)
-4
%Electronic
 content management (QSI)


240,830





240,830


*Integrated
 communications (GSI)


285,934


318,565


(32,631
)
-10
%Corporate








Total cost of sales:

$
1,536,553

$
1,373,135

$
163,418

12
%* calculation is not meaningfulTotal cost of
sales represented 40% and 42% of net sales during the 2009 and 2008 quarters,
respectively.

Cost of sales
for MVI for the three months ended March 31, 2009 represented 43% of MVIs net
sales as compared with 44% in the 2008 quarter as a result of reduced
telecommunications expenses.

Cost of sales
for TBS for the three months ended March 31, 2009 represented 68% of TBS net
sales as compared with 65% in the 2008 quarter. The increased costs at TBS were
attributable to increased costs related to providing support services.

31


Table of Contents
Cost of sales
for GSI for the three months ended March 31, 2009 represented 18% of GSIs net
sales as compared with 22% in the 2008 quarter on lower carrier usage fees as
offset by increased payphone usage charges.

Cost of sales
for QSI for the three months ended March 31, 2009 represented 46% of QSIs net
sales.

Gross Profit

Gross profit
for the three months ended March 31, 2009 increased 22% to $2,321,396 as
compared to $1,904,850 for the 2008 quarter. The increase in the 2009 quarter
of $416,546 resulted from an increase of $208,839 from GSI, which was offset by
decreases of $5,668 and 73,763 from MVI and TBS, respectively, as well as the
addition of $286,838 in gross profit from QSI. Gross profit margin for the 2009
and 2008 quarters was 60% and 58%, respectively.

Operating Expenses

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

Three Months Ended
 March 31, 2009

Three Months Ended
 March 31, 2008

Variance
 Amount

PercentOperating expensesElectronic document delivery services (MVI)

$
267,702

$
335,000

$
(67,298
)
-20
%Government accounting solutions (TBS)


283,355


309,220


(25,865
)
-8
%Electronic content management (QSI)


526,678





526,678




*Integrated communications (GSI)


1,061,104


1,028,899


32,205

3
%Corporate


574,535


684,533


(109,998
)
-16
%Total operating expenses:

$
2,713,374

$
2,357,652

$
355,722

15
%* calculation is not meaningfulDuring the
three months ended March 31, 2009, the operating expenses of Corporate
decreased 16% as a result of decreased compensation, recruiting fees, insurance,
travel, and legal expenses. These decreases were offset by increases in
filing fees and accounting fees paid for non-audit services that for compliance reasons were not included in the services performed by our independent public accountants.

During the
three months ended March 31, 2009, MVIs operating expenses decreased 20%
compared to the 2008 quarter. Product and technology development decreased
$15,670 (-14%) as a result of reduced staffing. Sales and marketing decreased
by $33,274 (-41%) as a result of reduced staff expenses and advertising.
General and administrative decreased by $20,813 (-17%) due to decreased bad
debt and recruiting fees. Depreciation and amortization expense increased
$2,459 (+13%).

During the
three months ended March 31, 2009, operating expenses at TBS decreased 8%
compared to the 2008 quarter. Product and technology development increased
$4,864 (+14%) due to staffing. Sales and marketing decreased by $39,267 (-42%)
due to lower bonus expenses and advertising. General and administrative
increased by $10,907 (+7%) on higher travel and utilities. Depreciation and
amortization expenses decreased by $2,369 (-9%).

During the
three months ended March 31, 2009, GSIs operating expenses increased 3%
compared to the 2008 quarter. Product and technology development decreased
$53,681 (-21%) due to staff attrition. Sales and marketing increased $172,949
(+74%) due to increased travel, trade show, and compensation expense. General
and administrative decreased by $81,502 (-20%) due to reduced bonus and rent
expense. Depreciation and amortization expenses decreased by $5,561 (-4%).

During the
three months ended March 31, 2009, QSI incurred $526,678 of operating expenses.
Product and technology, sales and marketing, general and administrative, and
depreciation expenses were $165,546, $92,843, $201,273, and $67,016,
respectively.

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Table of Contents
On a
consolidated basis, operating expenses in the 2009 quarter included $82,413 in
compensation expense related to the vesting of stock options, compared to
$69,508 in the 2008 quarter.

Operating Income (Loss)

As a result of
the foregoing, the Company reported an operating loss for the three months ended
March 31, 2009 of $391,978, compared to an operating loss of $452,802 for the
three months ended March 31, 2008.

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

Three Months Ended
 March 31, 2009

Three Months Ended
 March 31, 2008

Variance
 Amount

PercentOperating income (loss):Electronic document delivery services (MVI)

$
114,661

$
53,031

$
61,630

116
%Government accounting solutions (TBS)


50,410


98,008


(47,598
)
-49
%Electronic content management (QSI)


(239,840
)




(239,840
)


*Integrated communications (GSI)


257,326


80,692


176,634

219
%Corporate


(574,535
)

(684,533
)

109,998

16
%Total operating loss, net

$
(391,978
)
$
(452,802
)
$
60,824

13
%* calculation is not meaningfulEach of MVI,
GSI, and Corporate reported improvements in operating income (loss) compared to
the prior year quarter, which were offset by reduced operating income from TBS.

Interest Expense, net

Interest
expense, net for the three months ended March 31, 2009 decreased by $20,453 to
$45,795 from the $66,248 reported in the 2008 quarter. The most significant
factor in the decrease was a reduction in the amortization of debt issue costs
incurred in connection with our operating line of credit with a financial
institution.

Other Income, net

Other income,
net for the three months ended March 31, 2009 was $17,930 compared to other
income, net of $51,592 reported in the 2008 quarter. In each of the quarters,
we recorded other income and expense related to settlement of liabilities
related to prior years.

Net Loss

As a result of
the foregoing, net loss for the three months ended March 31, 2009 was $420,743,
compared to a net loss of $494,835, for the three months ended March 31, 2008.

Basic and
diluted loss per share for the three months ended March 31, 2009 and 2008 was
$0.00 in each of the respective periods on weighted average shares of
180,270,913 and 152,770,913, respectively.

33


Table of Contents
The following
is a comparison of the components of consolidated net income (loss):

Three Months Ended
 March 31, 2009

Three Months Ended
 March 31, 2008

Variance
 Amount

PercentNet income (loss):Electronic document delivery services (MVI)

$
106,944

$
39,957

$
66,987

168
%Government accounting solutions (TBS)


48,025


97,417


(49,392
)
-51
%Electronic content management (QSI)


(232,603
)




(232,603
)


*Integrated communications (GSI)


255,859


100,148


155,711

155
%Corporate


(598,968
)

(732,357
)

133,389

18
%Total net loss

$
(420,743
)
$
(494,835
)
$
74,092

15
%* calculation is not meaningfulLIQUIDITYAND
CAPITAL RESOURCES

During the three months ended March 31, 2009,
our net cash position decreased by $182,125 to $385,322. Although our operating
activities provided net cash of $63,452, our financing and investing activities
used net cash of $216,489 and $29,088, respectively.

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

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

During the first quarter of 2009, we used
cash flows generated by our operations to retire approximately $261,000 in
accrued expenses and notes payable debt, $208,500 of which existed as of
December 31, 2008, and $52,500 of which was related to management restructuring
during 2009. During 2009, we expect to use available cash to continue to reduce
accrued expenses and notes payable debt that existed as of December 31, 2008.

On February 6, 2008, we entered
into an agreement with The Private Bank of The Peninsula (Bank) for an asset
based line of credit (the Line). On March 5, 2009, we a fully executed
agreement from The Private Bank of The Peninsula (Bank) to amend the
agreement for the Line (the Amendment). The effective date of the Amendment
is February 24, 2009. Pursuant to the Amendment, the Bank renewed the Line and
modified the terms to include an interest rate that is floating and is
calculated at Wall Street Journal prime plus five percent (5%) on the cash
borrowed provided that the minimum rate will be eight and one half percent
(8.5%) and minimum interest will be $7,000 per three month period. Interest on
outstanding borrowings is payable monthly. In addition, we were required to pay
an amendment fee of $10,000 and, upon each advance, a fee equal to one quarter
of one percent (0.25%) of the advance, and is subject to covenants as to
minimum quarterly income and cash flow. The Banks maximum commitment amount
for the Line, as amended, is $1.0 million. Advances are generally limited to
80% of our eligible domestic accounts receivable.

Outstanding advances under
the Line are secured by a first lien position on all of our accounts
receivable, contract rights, chattel paper, documents, and payment and by a
second lien on its inventory, intellectual property, and equipment. As of March
31, 2009, there were outstanding borrowings of $296,047 on the Line and we were
in compliance with all loan covenants, except a minimum quarterly income
covenant. The Bank has not imposed any penalties or limitations as a result of
such non-compliance. Availability on the Line as of March 31, 2009 was
approximately $58,000.

34


Table of Contents
Effective September 30, 2006,
we obtained a $500,000 revolving line of credit (RLOC) with a financial
institution. The RLOC was guaranteed by one of our stockholders. Interest on
outstanding borrowings was payable monthly at an annual rate of interest equal
to LIBOR plus 2%. As of March 31, 2009, there were outstanding borrowings of
$434,449 on the RLOC and were in compliance with all loan covenants. On
May 8, 2009, we retired the RLOC using the proceeds of a note payable financing
provided by a related party on May 6, 2009 (see below). The terms of the note
payable financing were deemed more favorable to us than the renewal terms
offered by the financial institution.

On May 6, 2009
we arranged for an unsecured promissory note financing with C. Alan Williams
and Joan P. Williams in the amount of $430,000 (the Williams 2009 Note). The
Williams 2009 Note bears a per annum interest rate equal to the most favorable
rate paid by the Williams plus two percent (2%). Our interest rate in effect
through May 31, 2009 with respect to the Williams 2009 Note is 4.87%.
Thereafter, the interest rate may be adjusted once per month. The term of the
Williams 2009 Note is thirty-six (36) months, with monthly installments paid by
us consisting of principal and interest on the first of each month, beginning
on August 1, 2009. The Williams 2009 Note matures on August 1, 2012. Should we
fail to make payments for a period of ninety (90) days, a default shall occur.
Upon the default, we shall pay a penalty interest rate in the amount of the
Williams rate plus six percent (6%) on the unpaid amounts until the default is
cured.

Payment
obligations under the Williams 2009 Note are subordinate in certain respects to
the rights of the Private Bank of the Peninsula.

Effective November 28, 2005,
TBS renewed a $100,000 revolving line of credit (TBS RLOC) with a financial institution.
The TBS RLOC is guaranteed by the assets of TBS. Interest on outstanding
borrowings is payable monthly at a variable annual rate equal to the financial
institutions prime rate in effect. As of the date of this report, we had not
utilized the TBS RLOC and were in compliance with all loan covenants.

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

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

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

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

On October 30,
2008, VillageEDOCS, Inc. and SLG entered into an Amendment to Secured
Promissory Note (Amendment) to modify the maturity date, interest rate, and
repayment terms of the SLG Note. Pursuant to the Amendment, the SLG Note
matured on March 31, 2009 and bore interest from November 1, 2008 at a rate of
twelve percent (12%) per annum. As of March 31, 2009, the SLG Note was paid in
full. The SLG Note was secured by the accounts receivable of GoSolutions, Inc.,
our wholly-owned subsidiary, as defined in a Security Agreement dated as of
August 1, 2008. Payment obligations under the SLG Note were subordinate in
certain respects to the rights of the Bank to the extent set forth in a
Subordination Agreement to be entered into as of August 1, 2008.

35


Table of Contents
On February 17, 2004, we
borrowed $1,700,000 from C. Alan and Joan P. Williams and issued a convertible
promissory note, bearing interest at 10 percent per annum. During 2005, all but
$65,000 of the principal amount due pursuant to this note was converted into
shares of our common stock. The note and accrued interest are due at the
earlier of one of three events: 1) October 31, 2009; 2) acquisition of a controlling
interest in us by a third party; or 3) we achieve 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 the loan, we issued them a warrant to purchase
5,000,000 shares of our restricted common stock at $0.10 per share exercisable
until February 17, 2012, as amended. At March 31, 2009, the amount owed by us
to the Williams pursuant to the unpaid balance of the convertible promissory
note payable was $65,000 in principal and $114,995 in unpaid interest.

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

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

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

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

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

We believe that sustainable profitability is
achievable; however, we have a history of losses. While GSI, MVI, and TBS each
reported net income for the first quarter of 2009, this income was not
sufficient to offset the net loss of QSI, interest expense and corporate
overhead. If we are not successful in sustaining and increasing operating
profits from our four operating segments, or in reducing expenses of the
holding company as a percentage of revenue, we may not achieve profitability on
a consolidated basis.

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

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

36


Table of Contents
CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING
STATEMENTS

This Quarterly
Report on Form 10-Q includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
that do not directly and exclusively relate to historical facts constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Our forward-looking statements are based on our
plans, intentions, expectation, and belief and are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected or expressed herein. You can identify these statements by
forward-looking words such as may, will, expect, intend, anticipate,
believe, expect, plan, seek, estimate, project,
could, and
continue or similar words. You should read statements that contain these
words carefully because they discuss our expectations about our future
performance, contain projections of our future operating results or of our
future financial condition, or state other forward-looking information. These
statements include, among others, information regarding future operations,
future capital expenditures, and future net cash flow. Such statements reflect
the Companys current views with respect to future events and financial
performance and involves risks and uncertainties, including, without
limitation, general economic and business conditions, changes in foreign,
political, social and economic conditions, regulatory initiatives and
compliance with governmental regulations, the ability to achieve further market
penetration and additional customers, and various other matters, many of which
are beyond the Companys control, including, without limitation, the risks
described in Item 1A of the Companys Annual Report on Form 10-K filed with the
Commission on March 31, 2009. Our future results and stockholder values may
differ materially from those expressed in these forward- looking statements.
Many of the factors that will determine these results and values are beyond our
ability to control or predict. We assume no obligation to update any
forward-looking statements. Investors are cautioned not to put undue reliance on
any forward-looking statements, which speak only as of the date of this
Quarterly Report on Form 10-Q. Readers should also consult the cautionary
statements and risk factors listed from time to time in our Reports, and all
amendments thereto, on Forms 10-K, 10-KSB, 10-Q, 10-QSB, 8-K, and other SEC
filings. For these statements, we claim the protection of the safe harbor for
forward-looking statements contained in Section 21E of the Exchange Act.

Forward
looking statements in this Quarterly Report on Form 10-Q include, without
limitation:

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

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

37


Table of Contents
The statements
in Part II under the heading Item 4 Controls and Procedures, of our belief
that we are addressing the deficiencies that affected our internal control over
financial reporting and the time we estimate we will require before we would be
able to conclude that all material weaknesses have been remediated or our
belief regarding the potential impact to us, which statements are subject to
various risks and uncertainties including, without limitation the risk that for
financial or other reasons we will be unable to effect some or all of the
changes we believe are required within the time periods estimated, or at all.

RECENT ACCOUNTING
PRONOUNCEMENTS

In October
2008, the FASB issued FASB Staff Position No. 157-3, Determining Fair Value of a Financial
Asset When the Market for That Asset is Not Active (FSP No.
157-3). FSP No. 157-3 clarifies the application of SFAS No. 157 in a market
that is not active, and provides an illustrative example intended to address
certain key application issues. FSP No. 157-3 is effective immediately, and
applies to the Companys March 31, 2009 financial statements. The Company has
concluded that the application of FSP No. 157-3 did not have a material impact
on its consolidated financial position and results of operations as of and for
the periods ended March 31, 2009.

In December 2007, the FASB
issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R)
provides companies with principles and requirements on how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, liabilities assumed, and any noncontrolling interest in the acquiree
as well as the recognition and measurement of goodwill acquired in a business
combination. SFAS No. 141(R) also requires certain disclosures to enable users
of the financial statements to evaluate the nature and financial effects of the
business combination. Acquisition costs associated with the business
combination will generally be expensed as incurred. SFAS No. 141(R) is
effective for business combinations occurring in fiscal years beginning after
December 15, 2008. We are
currently evaluating the impact SFAS No. 141(R) will have on any future
business combinations.

ITEM 4  CONTROLS AND PROCEDURES

(a) As of March 31, 2009, an evaluation was carried out under the
supervision and with the participation of the Companys management, including
our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934). As a result of this evaluation, we identified material
weaknesses in our internal control over financial reporting as of March 31,
2009. Accordingly, although we continue to make progess in executing our plan
to remediate significant deficiencies, we concluded that our disclosure
controls and procedures were not effective as of March 31, 2009. For more
information regarding the material weaknesses identified and our remediation
plans, we encourage you to read Item 9A Controls and Procedures included in the
Annual Report on Form 10-K that we filed with the SEC on March 31, 2009.

(b) Changes in internal control over financial reporting: There were no
changes in the Companys internal control over financial reporting that
occurred during the quarter ended March 31, 2009 that have materially affected,
or are reasonably likely to materially affect, the Companys internal control
over financial reporting.

LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROLS

The Companys management, including the CEO and CFO, does not expect
that our disclosure controls and procedures or our internal control over
financial reporting will necessarily prevent all fraud and material error. An
internal control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of the control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the internal control. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time, control may
become inadequate because of changes in conditions, and/or the degree of
compliance with the policies or procedures may deteriorate.

38


Table of Contents
PART
II

ITEM
1  LEGAL PROCEEDINGS.

Claim

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

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

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

ITEM
2  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Effective January 1, 2009, we issued an immediately exercisable warrant to purchase 390,000 shares of our common stock at an exercise price of $0.01 per
share to our senior lender, the Private Bank of the Peninsula.

During the three months ended March 31, 2009, the Company granted to its employees options to purchase shares of its common stock under the 2002 Plan
as follows: 575,000 shares at $0.03 per share, and 100,000 shares at $0.01 per share.

All offers and sales of our securities described above were made pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder.

ITEM
3  DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5  OTHER INFORMATION.

None.

39


Table of Contents

ITEM 6  EXHIBITS.

2.1
Agreement
 and Plan of Merger dated January 31, 2004 by and among VillageEDOCS,
 VillageEDOCS Merger Sub, Inc., Tailored Business Systems, Inc., Stephen A.
 Garner, and James L. Campbell previously filed as Exhibit 2.1 to the Companys
 Current Report on Form 8-K filed on February 18, 2004 and incorporated herein
 by reference. **2.2
Plan of
 Internal Restructuring previously filed as Exhibit B to the Companys
 Schedule 14C Information Statement filed on July 23, 2004 and incorporated
 herein by reference. **2.3
Stock
 Purchase Agreement dated as of April 1, 2005 and executed April 15, 2005 by
 and among VillageEDOCS Acquisition Corp, Phoenix Forms, Inc., and Its
 Shareholders. Previously filed as Exhibit 2.1 to the Companys Current Report
 on Form 8-K filed on April 19, 2005.
 **2.4
Merger
 Agreement, dated as of February 17, 2006, by and among VillageEDOCS, VEDO
 Merger Sub, Inc., GoSolutions, Inc. and certain stockholders of GoSolutions.
 Previously filed as Exhibit 2.1 to the Companys Current Report on Form 8-K
 filed on February 21, 2006. **2.5
Articles of
 Merger and Plan of Merger. Previously filed as Exhibit 99.2 to the Companys
 Current Report on Form 8-K filed on May 4, 2006. **2.6
Assets
 Purchase Agreement dated December 10, 2007 by and between Phoenix Forms, Inc.
 and DocPath Corp. Previously filed as Exhibit 2.1 to the Companys Current
 Report on Form 8-K filed on December 11, 2007. **2.7
Assets
 Purchase Agreement dated December 10, 2007 by and between Phoenix Forms, Inc.
 and DocPath Corp. Previously filed as Exhibit 2.1 to the Companyss Current
 Report on Form 8-K filed on December 11, 2007.**2.8
Stock
 Purchase Agreement dated as of August 1, 2008 by and among VillageEDOCS, Inc.
 and Decision Management Company, Inc. d/b/a Questys Solutions, Inc. and Its
 Sole Shareholder, Vojin Hadzi-Pavlovic and Gloria Hadzi-Pavlovic, Tenants In
 Common. Previously filed as Exhibit 99.1 to the Companys Current Report on
 Form 8-K filed on August 6, 2008. **3.1
Articles of
 Incorporation, as amended. Previously filed with the Companys Form 10-SB
 filed on August 29, 2000. **3.2
By-laws.
 Previously filed with the Companys Form 10-SB filed on August 29, 2000. **3.3
Article of
 Amendment to Articles of Incorporation to increase authorized number of
 common shares. Previously filed with the Companys 14C Information Statement
 filed on July 23, 2004. **3.4
Article of
 Amendment to Articles of Incorporation to increase authorized number of common
 shares and to create a class of preferred stock. Previously filed with the
 Companys 14C Information Statement filed on June 7, 2005. **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. **40


Table of Contents
3.7
Form of
 Certificate of Incorporation of VillageEDOCS, Inc. Previously filed with the
 Companys Definitive Information Statement on Schedule 14A filed on May 24,
 2007.**3.8
Form of
 Bylaws of VillageEDOCS, Inc. Previously filed with the Companys Definitive
 Information Statement on Schedule 14A filed on May 24, 2007.**4.1
Letter
 Agreement dated July 30, 2002 by and between the Company, C. Alan Williams,
 and Joan P. Williams previously filed as Exhibit 4.1 to the Companys
 Quarterly Report on Form 10-QSB for the period ended June 30, 2002 and
 incorporated herein by reference. **4.2
Form of
 Unsecured Convertible Promissory Note. Previously filed as Exhibit 4.5 to the
 Registrants Quarterly Report on Form 10-QSB filed with the Securities and
 Exchange Commission on May 15, 2002 and incorporated herein by reference. **4.3
Form of
 Convertible Secured Promissory Note. Previously filed as Exhibit 4.6 to the
 Registrants Quarterly Report on Form 10-QSB filed with the Securities and
 Exchange Commission on May 15, 2002 and incorporated herein by reference. **4.4
2002 Equity
 Incentive Plan dated as of January 30, 2002. Previously filed as Exhibit 4.1
 to the Registrants Quarterly Report on Form 10-QSB filed with the Securities
 and Exchange Commission on May 15, 2002 and incorporated herein by reference. **4.5
Form of
 Stock Option Agreement. Previously filed as Exhibit 4.2 to the Registrants
 Quarterly Report on Form 10-QSB filed with the Securities and Exchange
 Commission on May 15, 2002 and incorporated herein by reference. **4.6
Promissory
 Note Modification Agreement dated May 9, 2002 by and among the Company, Joan
 P. Williams and C. Alan Williams. Previously filed as Exhibit 4.3 to the
 Registrants Quarterly Report on Form 10-QSB filed with the Securities and
 Exchange Commission on May 15, 2002 and incorporated herein by reference. **4.7
Security
 Agreement dated May 9, 2002 by and among the Company, Joan P. Williams and C.
 Alan Williams. Previously filed as Exhibit 4.4 to the Registrants Quarterly
 Report on Form 10-QSB filed with the Securities and Exchange Commission on
 May 15, 2002 and incorporated herein by reference. **4.8
Promissory
 Note to Stephen A. Garner dated February 17, 2004 previously filed as Exhibit
 4.1 to the Companys Current Report on Form 8-K filed on February 18, 2004
 and incorporated herein by reference.
 **4.9
Promissory
 Note to James L. Campbell dated February 17, 2004 previously filed as Exhibit
 4.2 to the Companys Current Report on Form 8-K filed on February 18, 2004
 and incorporated herein by reference.
 **4.10
Guaranty by
 Tailored Business Systems, Inc. to Stephen A. Garner dated February 17, 2004
 previously filed as Exhibit 4.3 to the Companys Current Report on Form 8-K
 filed on February 18, 2004 and incorporated herein by reference. **41


Table of Contents
4.11
Guaranty by
 Tailored Business Systems, Inc. to James L. Campbell dated February 17, 2004
 previously filed as Exhibit 4.4 to the Companys Current Report on Form 8-K
 filed on February 18, 2004 and incorporated herein by reference. **4.12
Form of
 Security Agreement dated February 17, 2004 by and between Tailored Business
 Systems, Inc. and Stephen A. Garner previously filed as Exhibit 4.5 to the
 Companys Current Report on Form 8-K filed on February 18, 2004 and
 incorporated herein by reference. **4.13
Form of
 Security Agreement dated February 17, 2004 by and between Tailored Business
 Systems, Inc. and James L. Campbell previously filed as Exhibit 4.6 to the
 Companys Current Report on Form 8-K filed on February 18, 2004 and
 incorporated herein by reference. **4.14
Registration
 Rights Agreement dated February 17, 2004 by and between VillageEDOCS and
 Stephen A. Garner previously filed as Exhibit 4.7 to the Companys Current
 Report on Form 8-K filed on February 18, 2004 and incorporated herein by
 reference. **4.15
Registration
 Rights Agreement dated February 17, 2004 by and between VillageEDOCS and
 James L. Campbell previously filed as Exhibit 4.8 to the Companys Current
 Report on Form 8-K filed on February 18, 2004 and incorporated herein by
 reference. **4.16
Form of
 Stock Pledge Agreement dated February 17, 2004 by and between Tailored
 Business Systems, Inc. and Stephen A. Garner previously filed as Exhibit 4.9
 to the Companys Current Report on Form 8-K filed on February 18, 2004 and
 incorporated herein by reference. **4.17
Form of
 Stock Pledge Agreement dated February 17, 2004 by and between Tailored
 Business Systems, Inc. and James L. Campbell previously filed as Exhibit 4.10
 to the Companys Current Report on Form 8-K filed on February 18, 2004 and
 incorporated herein by reference. **4.18
Notice of
 Intent to Exercise Conversion Right dated February 10, 2005 by Joan P.
 Williams and C. Alan Williams. Previously filed as Exhibit 4.5 to the
 Companys Current Report on Form 8-K filed on February 14, 2005. **4.19
Note
 Purchase Agreement dated April 13, 2005 by and between VillageEDOCS and
 Barron Partners LP. Previously filed as Exhibit 4.5 to the Companys Current
 Report on Form 8-K filed on April 19, 2005. **4.20
Convertible
 Note to Barron Partners LP dated April 13, 2005. Previously filed as Exhibit
 4.6 to the Companys Current Report on Form 8-K filed on April 19, 2005. **4.21
Registration
 Rights Agreement dated April 13, 2005 by and between VillageEDOCS and Barron
 Partners LP. Previously filed as Exhibit 4.7 to the Companys Current Report
 on Form 8-K filed on April 19, 2005.
 **4.22
Form of
 Certificate of Designations of Preferences, Rights and Limitations of Series
 A Convertible Preferred Stock. Previously filed as Exhibit 4.8 to the
 Companys Current Report on Form 8-K filed on April 19, 2005. **4.24
Form of Note
 Assignment. Previously filed as Exhibit 4.1 to the Companys Current Report
 on Form 8-K filed on July 6, 2005. **4.25
Form of
 Promissory Note Modification Agreement. Previously filed as Exhibit 4.2 to
 the Companys Current Report on Form 8-K filed on July 6, 2005. **42


Table of Contents
4.26
Form of
 Notice of Intent to Exercise Conversion Right. Previously filed as Exhibit
 4.3 to the Companys Current Report on Form 8-K filed on July 6, 2005. **4.27
Notice of conversion
 by Barron Partners LP dated September 30, 2005. Previously filed as Exhibit
 4.6 to the Companys Current Report on Form 8-K filed on October 5, 2005. **4.28
Form of
 Convertible Secured Promissory Note by and among C. Alan Williams, Joan P. Williams,
 and the Company previously filed as Exhibit 4.19 to the Companys Annual
 Report on Form 10-KSB filed on April 14, 2006 and incorporated herein by
 reference. **4.29
Convertible
 Secured Promissory Note dated February 16, 2004 by and among C. Alan
 Williams, Joan P. Williams, and the Company previously filed as Exhibit 4.20
 to the Companys Annual Report on Form 10-KSB filed on April 14, 2006 and
 incorporated herein by reference. **4.30
Notice of
 conversion by Barron Partners LP dated October 21, 2005. Previously filed as
 Exhibit 4.1 to the Companys Current Report on Form 8-K filed on October 24,
 2005 and incorporated herein by reference. **4.31
Notice of
 conversion by Barron Partners LP dated March 8, 2006. Previously filed as Exhibit
 4.1 to the Companys Current Report on Form 8-K filed on March 9, 2006 and
 incorporated herein by reference. **4.32
Registration
 Rights Agreement dated as of April 28, 2006 by and among VillageEDOCS and the
 principal stockholders of GoSolutions, Inc. Previously filed as Exhibit 99.5
 to the Companys Current Report on Form 8-K filed on May 4, 2006. **4.33
Principal
 VEDO Stockholders Voting Agreement dated as of April 28, 2006 by and among
 Barron Partners, LP, C. Alan Williams, Joan P. Williams and GoSolutions, Inc.
 Previously filed as Exhibit 99.6 to the Companys Current Report on Form 8-K
 filed on May 4, 2006. **4.34
Indemnity/Contribution
 Agreement effective April 30, 2006, by and among VillageEDOCS, GoSolutions
 Equity, LLC (the LLC), and the principals of the LLC identified on the
 signature page thereto. Previously filed as Exhibit 99.7 to the Companys
 Current Report on Form 8-K filed on May 4, 2006. **4.35
Settlement
 and Release Agreement dated as of April 28, 2006 by and among VillageEDOCS,
 GoSolutions, Inc., The Zant Group Trust and Louis J. Zant. Previously filed
 as Exhibit 99.9 to the Companys Current Report on Form 8-K filed on May 4,
 2006. **4.36
Second
 Extension Agreement dated as of April 28, 2006 by and between The Zant Group
 Trust and GoSolutions, Inc. Previously filed as Exhibit 99.9 to the Companys
 Current Report on Form 8-K filed on May 4, 2006. **4.37
Settlement and Release Agreement dated as of June 30, 2006, by and
 among VillageEDOCS, GoSolutions, Inc., Bruce H. Bennett and Sandra G.
 Bennett. Previously filed as Exhibit 10.1 to the Companys Current Report on
 Form 8-K filed on July 12, 2006. **4.38
Warrant Exchange Agreement dated as of November 20, 2006 by and
 between the Company and Barron Partners, LP. Previously filed as Exhibit 10.1
 to the Companys Amended Current Report on Form 8-K/A filed on November 22,
 2006.**43


Table of Contents
4.39
Promissory
 Note of VillageEDOCS, Inc. dated August 1, 2008 for $900,000 held by Vojin
 Hadzi-Pavlovic and Gloria Hadzi-Pavlovic, Tenants In Common. Previously filed
 as Exhibit 99.2 to the Companys Current Report on Form 8-K filed on August
 6, 2008. **4.40
Security
 Agreement dated as of August 1, 2008, by and among VillageEDOCS, Inc,
 Decision Management Company, Inc. d/b/a Questys Solutions, Inc. and Vojin
 Hadzi-Pavlovic and Gloria Hadzi-Pavlovic, Tenants In Common. Previously filed
 as Exhibit 99.3 to the Companys Current Report on Form 8-K filed on August
 6, 2008. **4.41
Subordination
 Agreement dated as of August 1, 2008 by and between The Private Bank of the
 Peninsula and Vojin Hadzi-Pavlovic and Gloria Hadzi-Pavlovic, Tenants In
 Common. Previously filed as Exhibit 99.4 to the Companys Current Report on
 Form 8-K filed on August 6, 2008. **4.42
Form of
 Promissory Note of VillageEDOCS, Inc. dated August 1, 2008 for $300,000 held
 by The Silver Lake Group, LLC. Previously filed as Exhibit 99.6 to the
 Companys Current Report on Form 8-K filed on August 6, 2008. **4.43
Form of Security
 Agreement dated as of August 1, 2008, by and among VillageEDOCS, Inc,
 GoSolutions, Inc., and The Silver Lake Group LLC. Previously filed as Exhibit
 99.7 to the Companys Current Report on Form 8-K filed on August 6, 2008. **4.44
Form of
 Subordination Agreement dated as of August 1, 2008 by and between The Private
 Bank of the Peninsula and The Silver Lake Group LLC. Previously filed as
 Exhibit 99.8 to the Companys Current Report on Form 8-K filed on August 6,
 2008. **4.45
Amendment to
 Secured Promissory Note dated October 31, 2008 by and between VillageEDOCS,
 Inc. and The Silver Lake Group, LLC. Previously filed as Exhibit 99.1 to the
 Companys Current Report on Form 8-K filed on October 31, 2008.**4.46
Form of Loan
 and Security Agreement dated February 6, 2008 by and between The Private Bank
 of the Peninsula and each of the Registrant, MessageVision, Inc., and
 Tailored Business Systems, Inc. Previously filed as Exhibit 10.1 to the
 Companys Current Report on Form 8-K filed on February 11, 2008. **4.47
First
 Amendment to Loan and Security Agreement dated as of February 24, 2009 by and
 between The Private Bank of the Peninsula and the Registrant. Previously
 filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
 March 6, 2009. **4.48
Promissory
 Note by and between the Registrant and C. Alan Williams and Joan P. Williams
 dated May 6, 2009. Previously filed as Exhibit 99.1 to the Companys Current
 Report on Form 8-K filed on May 11, 2009.**10.1
General
 Release and Noncompetition Agreement dated February 17, 2004 by Stephen A.
 Garner in favor of Tailored Business Systems, Inc. previously filed as
 Exhibit 10.3 to the Companys Current Report on Form 8-K filed on February
 18, 2004 and incorporated herein by reference. **10.2
General
 Release and Noncompetition Agreement dated February 17, 2004 by James L.
 Campbell in favor of Tailored Business Systems, Inc. previously filed as
 Exhibit 10.4 to the Companys Current Report on Form 8-K filed on February
 18, 2004 and incorporated herein by reference. **44


Table of Contents
10.3
Lease
 Agreement dated February 17, 2004 by and between Perimeter Center Partners
 and Tailored Business Systems, Inc. previously filed as Exhibit 10.5 to the
 Companys Current Report on Form 8-K filed on February 18, 2004 and
 incorporated herein by reference. **10.4
Release of
 Claims Agreement dated as of April 1, 2005 by Alexander Riess in favor of
 Phoenix Forms, Inc. Previously filed as Exhibit 10.3 to the Companys Current
 Report on Form 8-K filed on April 19, 2005. **10.5
Release of
 Claims Agreement dated as of April 1, 2005 by William R. Falcon in favor of
 Phoenix Forms, Inc. Previously filed as Exhibit 10.4 to the Companys Current
 Report on Form 8-K filed on April 19, 2005. **10.6
Executive
 Employment Agreement, dates as of March 1, 2006, by and between the Company
 and Jerry T. Kendall. Previously files as Exhibit 10.1 to the Companys
 Current Report on Form 8-K filed on March 1, 2006. **10.7
Thor
 Bendickson Employment Agreement effective as of May 1, 2006. Previously filed
 as Exhibit 99.14 to the Companys Current Report on Form 8-K filed on May 4,
 2006. **10.8
Patent
 License Agreement, dated as of May 12, 2006, by and between VillageEDOCS and
 Catch Curve, Inc.. Previously filed as Exhibit 10.1 to the Companys Current
 Report on Form 8-K filed on May 16, 2006. **10.9
Office Lease
 Agreement effective June 1, 2007 by and between the Company and Tustin Avenue
 Investors, LLC. Previously filed as Exhibit 10.1 to the Companys Current
 Report on Form 8-K filed on April 25, 2007. **10.10
Placement
 Agency Agreement effective October 13, 2006 by and between the Company and
 Stonegate Securities, Inc. Previously filed as Exhibit 10.28 to the Companys
 Quarterly Report on Form 10-QSB filed on August 14, 2007. **10.11
Engagement
 Agreement effective July 10, 2007 by and between the Company and GemStone
 Securities, LLC. Previously filed as Exhibit 10.29 to the Companys Quarterly
 Report on Form 10-QSB filed on August 14, 2007. **10.12
Settlement
 Agreement dated June 6, 2007 by and among Jeffrey H. Mims, VarTec Telecom,
 Inc, Excel Telecommunications, Inc., VarTec Solutions, Inc., and GoSolutions,
 Inc. Previously filed as Exhibit 10.29 to the Companys Quarterly Report on
 Form 10-QSB filed on August 14, 2007. **10.13
Employment
 Agreement dated as of August 1, 2008 by and between VillageEDOCS, Inc. and
 Andre Hadzi-Pavlovic. Previously filed as Exhibit 99.5 to the Companys
 Current Report on Form 8-K filed on August 6, 2008. **10.14
Employment
 Agreement dated November 13, 2008 by and between VillageEDOCS, Inc. and K.
 Mason Conner. Previously filed as Exhibit 10.15 to the Companys Quarterly
 Report on Form 10-Q filed on November 14, 2008. **10.15
Employment
 Agreement dated November 13, 2008 by and between VillageEDOCS, Inc. and H.
 Jay Hill. Previously filed as Exhibit 10.16 to the Companys Quarterly Report
 on Form 10-Q filed on November 14, 2008.**10.16
Employment
 Agreement dated November 13, 2008 by and between VillageEDOCS, Inc. and
 Michael A. Richard. Previously filed as Exhibit 10.17 to the Companys
 Quarterly Report on Form 10-Q filed on November 14, 2008. **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. **45


Table of Contents
21.1
Subsidiaries
 of the Registrant.*31.1
Certification
 Under Section 302 of The Sarbanes-Oxley Act of 2002 signed and dated March
 15, 2009 by K. Mason Conner, Chief Executive Officer.*31.2
Certification
 Under Section 302 of The Sarbanes-Oxley Act of 2002 signed and dated March
 15, 2009 by Michael A. Richard, Chief Financial Officer.*32.1
Certification
 Pursuant To 18 U.S.C. §1350, As Adopted Pursuant To Section 906 of the
 Sarbanes-Oxley Act of 2002 signed and dated March 15, 2009 by K. Mason
 Conner, Chief Executive Officer.***32.2
Certification
 Pursuant To 18 U.S.C. §1350, As Adopted Pursuant To Section 906 of the
 Sarbanes-Oxley Act of 2002 signed and dated March 15, 2009 by Michael A.
 Richard, Chief Financial Officer.****

Filed herewith**

Previously filed***

Furnished herewith46


Table of Contents
SIGNATURES

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

VillageEDOCS (Registrant)Dated: May 15, 2009
By:
/s/ K. Mason ConnerK. Mason ConnerChief Executive Officer, President, and
 DirectorDated: May 15, 2009
By:
/s/ Michael A. RichardMichael A. RichardChief Financial Officer(Principal Accounting Officer)47