10-K

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

FORM 10-K

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

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

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

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

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

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

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

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

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

YES o NO x

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.

YES x NO o

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

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

Large Accelerated Filer o	Accelerated Filer  o	Non-accelerated filer  o	Smaller reporting company x
		(Do not check if a smaller      reporting company)

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

YES o NO x

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

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

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

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

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

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

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

IMPORTANT NOTIFICATIONS

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements that do not directly and exclusively relate to historical facts constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to put undue reliance on any forward-looking statements. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 21E of the Exchange Act. For important additional and specific information regarding these statements, we strongly urge you to refer to Item 1A “Risk Factors” as well as the caption entitled “CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS” that can be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this Annual Report on Form 10-K.

The Company’s Internet website address is www.villageedocs.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments thereto, are available free of charge on the Company’s website as soon as reasonably practical after such reports are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission.

Unless otherwise indicated by the context, “we”, “our” or the “Company” means the parent company, VillageEDOCS, Inc. and our wholly-owned subsidiaries, GoSolutions, Inc., MessageVision, Inc., Decision Management Company, Inc. dba Questys Solutions, and Tailored Business Systems, Inc. Between April 2005 and November 2007, we operated Phoenix Forms, Inc. dba Resolutions, an electronic forms business that we discontinued and sold effective December 1, 2007.

BUSINESS OVERVIEW

General

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

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

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

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

Industry Background

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

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

Business Services

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

Operating Segments

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

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

Questys Solutions – Electronic Content Management and Workflow

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

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

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

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

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

The Questys SaaS and product offerings are as follows:

• Document Management and Content Management to scan paper documents, import electronic files and email, perform OCR, edit, and store information in electronic format for secure storage and retrieval;

• Workflow to simplify the process of bringing tasks, employees, and records together to improve efficiency;

• Document Capture to intuitively recognize patterns of text in documents that eliminate the errors, time and cost that come with manual data entry and filing; and

• Legislative Agenda Management to automate the municipal government agenda process by creating staff reports, agendas and packets and facilitating real-time roll-call, vote tabulation and meeting minutes.

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

GoSolutions – Enhanced Voice and Data Communications Services

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

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

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

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

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

MessageVision - - Electronic Document Delivery Services

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

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

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

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

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

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

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

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

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

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

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

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

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

Products and Services Development

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

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

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

Competition

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

Marketing

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

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

Outlook and Strategy

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

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

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

Government Regulation

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

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

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

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

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

Research and Development

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

Employees

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

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ITEM 1A. RISK FACTORS

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

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

Risks Relating to Our Business

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

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

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

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

• our ability to attract new and repeat customers;

• our ability to keep current with the evolving requirements of our target market;

• our ability to protect our proprietary technology;

• the ability of our competitors to offer new or enhanced products or services; and

• unanticipated delays or cost increases with respect to research and development.

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

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

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

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

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

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

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

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

Weakness in the financial markets and the economy in general

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

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

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

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

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

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

We are dependent on third party technologies and services.

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

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

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

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

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

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Our business is highly dependent on our billing systems.

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

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

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

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

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

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

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

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

Our failure to manage growth effectively could impair our business.

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

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

· engage, train and manage a larger sales force and additional service personnel;

· expand the geographic coverage of our sales force;

· expand our information systems;

· identify and successfully integrate acquired businesses into our operations; and

· administer appropriate financial and administrative control procedures.

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

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

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

· diversion of management’s attention from day-to-day operational matters and current products and customers;

· lack of synergy, or the inability to realize expected synergies;

· failure to commercialize the new technology or business;

· failure to meet the expected performance of the new technology or business;

· failure to retain key employees and customer or supplier relationships;

· lower-than-expected market opportunities or market acceptance of any new products;

· unexpected reduction of sales of existing products and services by new products or services;

· inability to achieve the financial and strategic goals for the acquired and combined businesses;

· difficulty in maintaining controls, procedures and policies during the transition and integration;

· difficulty effectively integrating the acquired technologies or products with our current products and technologies, particularly where such products reside on different technology platforms;

· difficulty managing geographically-dispersed operations;

· adverse effect on our relationships with partner companies or third-party providers of technology or products; and

· failure of our due diligence process to identify significant issues with product quality, product architecture, legal or tax contingencies, and product development, among other things.

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

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

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

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

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· Loss on impairment of goodwill and/or other intangible assets;

· Changes in the useful lives or the amortization of identifiable intangible assets;

· Accrual of newly identified pre-merger contingent liabilities, in which case the related charges could be required to be included in earnings in the period in which the accrual is determined to the extent it is identified subsequent to the finalization of the purchase price allocation; and

· Charges to income to reduce our cost structure.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Changes in generally accepted accounting principles may adversely affect us.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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• Quarterly variations in operating results;

• Changes in financial estimates by securities analysts;

• Announcements by us or our competitors of new products, significant contracts, acquisitions, or strategic relationships;

• Disputes concerning our proprietary rights or any future patents, trademarks or copyrights;

• Publicity about us, our products and services, or our competitors;

• Additions or departures of key personnel;

• Any future sales of our common stock or other securities;

• Stock market price and volume fluctuations of publicly-traded companies; and

• Business combination transactions.

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

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

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

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

Our common shareholders may experience substantial dilution.

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

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

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

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

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

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

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

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

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

Significant Indebtedness

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

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

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

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

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

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

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ITEM 2. PROPERTIES.

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

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

ITEM 3. LEGAL PROCEEDINGS.

Litigation and Claims

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

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

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

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

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

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

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

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PART II

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

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

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

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

Dividend Policy

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

Recent Sales of Unregistered Securities

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

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

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

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

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

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ITEM 6. SELECTED FINANCIAL DATA.

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

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

INTRODUCTION

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

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

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

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

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

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

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

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

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BUSINESS OVERVIEW

General

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

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

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

• subscription agreements for enhanced voice, data, and conferencing services;

• usage charges for delivery, management, and other services involving electronic documents;

• usage charges for our governmental accounting and online payment hosted application services;

• recurring fixed monthly service fees for access to voice, data, or application services;

• per item and flat fee charges for volume printing services to governmental entities;

• fees for professional service;

• wholesale enhanced voicemail services;

• the sale of licenses for proprietary software and third party software;

• fees for maintenance and support agreements;

• installation services;

• sales of third party computer hardware; and

• fees for training.

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Our Objective

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

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

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

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

Key Items in 2008

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

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

Growth Strategy

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

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

• Web Content Management;

• Digital Asset Management;

• Email Management;

• Records Management;

• Documentation Management;

• Information Indexing;

• Categorization/Taxonomy;

• Recognition;

• Document Imaging;

• Form Processing;

• Scanning;

• Collaboration;

• Repositories;

• Storage;

• Long Term Archival;

• Content Integration;

• Search and Retrieval;

• Content Syndication;

• Localization and Personalization; and

• Publication (paper or electronic).

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

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

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Capital Formation

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

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

Organizational Enhancements

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

Challenges and Risks

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

Weakness in the financial markets and the economy in general

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

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Increased Competition and Capabilities in the Marketplace

We face strong competition from well-established national and global companies as well as from relatively new companies. We must continue to selectively expand into other profitable segments of our markets and offer powerful product and service offerings in order to increase our share of the marketplace. The introduction of new technologies could render our existing products and services obsolete or unmarketable or require us to invest in research and development at much higher rates with no assurance of developing competitive products. Changes in technologies or customer requirements also may cause the development cycle for our new products and services to be lengthy and result in significant development costs. Competitive pressures may impair our ability to achieve profitability.

Capital Resources

We believe that current and future available capital resources, including the net proceeds from sale of our products and services, will be sufficient to fund our operations at current levels for the foreseeable future, but will be insufficient to allow us to repay our debt in full. The exact amount of funds that we will require will depend upon many factors, and it is likely that we will require additional financing. Such sources of financing could include capital infusions, additional equity financing, or debt offerings. In addition, since our revenues and cash flows have historically been subject to seasonality, we believe that it is important to secure greater access to short term borrowing facilities, such as operating lines of credit. There can be no assurance that additional funding or borrowing facilities will be available to us on acceptable terms, if at all. There can be no assurance that additional funds, if raised, would enable us to achieve or maintain profitable operations. The inability to secure new sources of working capital during the remainder of 2009 or 2010 could have a material adverse effect on our business, financial condition and results of operations.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

• revenue recognition;

• stock-based compensation;

• goodwill and other intangible assets;

• long-lived assets;

• income taxes; and

• contingencies.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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RECENT ACCOUNTING STANDARDS AND PRONOUNCEMENTS

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

RESULTS OF OPERATIONS

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

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

Net Revenue from External Customers

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

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

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

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

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

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

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

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

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Cost of Sales

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

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

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

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

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

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

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

Gross Profit

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

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Operating Expenses

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

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

*calculation is not meaningful

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

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

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

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

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

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Operating Income (Loss)

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

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

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

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

Interest Expense, net of Interest Income

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

Other Income, net

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

Discontinued Operations

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

Net Loss

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

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

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

*calculation is not meaningful

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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

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

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

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

None.

ITEM 9A. – CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

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

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

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

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

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

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

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

Inherent Limitations Over Internal Controls

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

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Remediation of Material Weakness

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

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

Attestation Report of the Registered Public Accounting Firm.

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

Changes in Internal Control Over Financial Reporting.

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

ITEM 9B. OTHER.

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Directors and Executive Officers

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

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

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

Business Experience of Directors and Executive Officers

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

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

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

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

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

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Our Corporate Governance Practices

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

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

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Committees of the Board and Audit Committee Financial Expert

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

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

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

Report of the Compensation Committee on Executive Compensation

General

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

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

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Executive Compensation

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

General Compensation Philosophy

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

• Base salary;

• An executive officer bonus that is related to growth in our sales and operating earnings.

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

Base Salary and Executive Officer Bonus Target

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

Chief Executive Officer Compensation

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

Stock Options

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

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ITEM 11. EXECUTIVE COMPENSATION

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

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

SUMMARY COMPENSATION TABLE

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

(1) Effective December 31, 2007, Mr. Kendall ceased to be an officer and director of the Company.

(2) All of the shares of common stock earned by Messrs. Conner, Hill, and Richard that were issued during 2008 were valued at $0.015 per share (the estimated fair value on the measurement date) and recorded as compensation expense.

(3) Assumptions relating to the estimated fair value of stock options granted to Messrs. Conner and Hill during 2008 which we are accounting for in accordance with SFAS 123(R) are as follows: risk-free interest rate of 3.00%; expected dividend yield 0%; expected option life of 6.0 years; and volatility between 258% and 273%. Assumptions relating to the estimated fair value of stock options granted to Messrs. Kendall, Conner, Hill, and Richard during 2007, which we are accounting for in accordance with SFAS 123(R) are as follows: risk-free interest rate of 3.5%; expected dividend yield 0%; expected option life of 6.0 years; and volatility between 121% - 124%.. Please see Note 3 to our consolidated financial statements for further discussion of our assumptions relating to the estimated fair value of equity awards.

NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE

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

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

Employment agreements

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

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

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

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

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

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

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

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

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

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

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE

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

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

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

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STOCK OPTIONS

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

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

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

ADDITIONAL NARRATIVE DISCLOSURE

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

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COMPENSATION OF DIRECTORS

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

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

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

NARRATIVE DISCLOSURE TO DIRECTOR COMPENSATION TABLE

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

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

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

* Less than 1%

(1) The address of each individual is in care of the Company.

(2) Represents sole voting and investment power unless otherwise indicated.

(3) Based on 180,270,913 shares of the Company’s common stock outstanding at February 29, 2009, plus, as to each person listed, that portion of the Company’s common stock subject to outstanding options, warrants, and convertible debt which may be exercised or converted by such person, and as to all directors and executive officers as a group, unissued shares of the Company’s common stock as to which the members of such group have the right to acquire beneficial ownership upon the exercise of stock options or warrants, or conversion of convertible debt within 60 days of February 29, 2009.

(4) Excludes 35,683,578 shares reserved for issuance under outstanding options and warrants.

(5) Includes options to acquire 65,674 shares of common stock at $2.50 per share.

(6) Includes $178,370 of debt and accrued interest convertible to 1,274,072 shares of common stock at $0.14 per share and warrants to acquire 3,000,000 shares at $0.10 per share.

(7) Includes options to acquire 100,000 shares of common stock at $0.25 per share, options to acquire 65,674 shares at $2.50 per share, options to acquire 1,719,658 shares at $0.19 per share, options to acquire 3,500,000 shares at $0.15 per share, options to acquire 2,000,000 shares at $0.16 per share, options to acquire 500,000 shares at $0.02 per share, and warrants to acquire 200,000 shares at $0.15 per share.

(8) Includes options to acquire 290,000 shares of common stock at $0.02 per share, options to acquire 66,261 shares at $2.50 per share, options to acquire 918,825 shares at $0.19 per share, and options to acquire 500,000 shares at $0.15 per share.

(9) Includes options to acquire 65,674 shares at $2.50 per share, options to acquire 686,325 shares at $0.19 per share, options to acquire 1,500,000 shares at $0.18 per share, options to acquire 1,000,000 shares at $0.10 per share, options to acquire 500,000 shares at $0.15 per share, options to acquire 2,000,000 shares at $0.16 per share, options to acquire 200,000 shares at $0.015 per share, and warrants to acquire 350,000 shares at $0.15 per share.

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(10) Includes options to acquire 600,000 shares of common stock at $0.18 per share.

(11) Includes options to purchase 150,000 shares of common stock at $2.50 per share, options to purchase 387,500 shares of common stock at $0.19 per share, options to purchase 650,000 shares of common stock at $0.15 per share, and options to purchase 250,000 shares at $0.16 per share.

(12) The members of GoSolutions Equity LLC are Daniel M. Doyle, Sr., H. Scott Seltzer, Larry C. Morgan, Shaun C. Pope, Tom C. Lokey, and William Thompson Thorn, III.

(13) Excludes up to 33,500,000 shares of our common stock underlying conversion of our Convertible Series A Preferred Stock issued to Barron Partners, LP (“Barron”). We have entered into an agreement with Barron which provides that Barron will not acquire any additional shares of our common stock in the open market or convert our Convertible Series A Preferred Stock into our common stock or exercise warrants if the effect of such a purchase, exercise or conversion would be to increase Barron’s equity ownership position above 4.99%. Accordingly, because it is not anticipated that Barron will acquire beneficial ownership within the next 60 days or shares of our common stock above 4.99% of our outstanding number of shares of common stock, such securities are excluded from the above table.

Securities Authorized for Issuance Under Equity Compensation Plans

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

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

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

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

Review and Approval of Related Person Transactions.

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

• the nature of the related person’s interest in the transaction;

• the material terms of the transaction, including, without limitation, the amount and type of transaction;

• the importance of the transaction to the related person;

• the importance of the transaction to the company;

• whether the transaction would impair the judgment of a director or executive officer to act in the best interest of the company; and

• any other matters the committee deems appropriate.

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

Description of Related Party Transactions

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

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

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

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

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

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

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

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

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

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

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

Board of Director Independence

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

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

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(b) a director who receives, or whose immediate family member receives, payments of more than $120,000 (or one percent of the average of our total assets at year-end for the last three completed fiscal years, whichever is greater) during any period of twelve consecutive months from the Company, except for certain permitted payments, would not be independent for a period of three years after ceasing to receive such amount;

(c) a director who is or who has an immediate family member who is, a current partner of the Company’s outside auditor or who was, or who has an immediate family member who was, a partner or employee of the Company’s outside auditor who worked on the Company’s audit at any time during any of the past three years would not be independent until a period of three years after the termination of such relationship;

(d) a director who is, or whose immediate family member is, employed as an executive officer of another company where any of the Company’s present executive officers serve on the other company’s compensation committee would not be independent for a period of three years after the end of such relationship; and

(e) a director who is, or who has an immediate family member who is, a partner in, or a controlling shareholder or an executive officer of any organization that makes payments to, or receives payments from, the Company for property or services in an amount that, in any single fiscal year, exceeds the greater of $200,000, or 5% of such other company’s consolidated gross revenues, would not be independent until a period of three years after falling below such threshold.. In addition, no director will qualify as “independent” unless the Board affirmatively determines that the director has no material relationship with the Company (either, directly or as a partner, shareholder or officer of an organization that has a relationship with the Company).

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

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

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

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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

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

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

66

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

67

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

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

69

10.1	General Release and Noncompetition Agreement dated February 17, 2004 by Stephen A. Garner in favor of Tailored Business Systems, Inc. previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 18, 2004 and incorporated herein by reference. **
10.2	General Release and Noncompetition Agreement dated February 17, 2004 by James L. Campbell in favor of Tailored Business Systems, Inc. previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 18, 2004 and incorporated herein by reference. **
10.3	Lease Agreement dated February 17, 2004 by and between Perimeter Center Partners and Tailored Business Systems, Inc. previously filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on February 18, 2004 and incorporated herein by reference. **
10.4	Release of Claims Agreement dated as of April 1, 2005 by Alexander Riess in favor of Phoenix Forms, Inc. Previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 19, 2005. **
10.5	Release of Claims Agreement dated as of April 1, 2005 by William R. Falcon in favor of Phoenix Forms, Inc. Previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on April 19, 2005. **
10.6	Executive Employment Agreement, dates as of March 1, 2006, by and between the Company and Jerry T. Kendall. Previously files as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 1, 2006. **
10.7	Thor Bendickson Employment Agreement effective as of May 1, 2006. Previously filed as Exhibit 99.14 to the Company’s Current Report on Form 8-K filed on May 4, 2006. **
10.8	Patent License Agreement, dated as of May 12, 2006, by and between VillageEDOCS and Catch Curve, Inc. Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 16, 2006. **
10.9	Office Lease Agreement effective June 1, 2007 by and between the Company and Tustin Avenue Investors, LLC. Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. **
10.10	Placement Agency Agreement effective October 13, 2006 by and between the Company and Stonegate Securities, Inc. Previously filed as Exhibit 10.28 to the Company’s Quarterly Report on Form 10-QSB filed on August 14, 2007. **
10.11	Engagement Agreement effective July 10, 2007 by and between the Company and GemStone Securities, LLC. Previously filed as Exhibit 10.29 to the Company’s Quarterly Report on Form 10-QSB filed on August 14, 2007. **
10.12	Settlement Agreement dated June 6, 2007 by and among Jeffrey H. Mims, VarTec Telecom, Inc, Excel Telecommunications, Inc., VarTec Solutions, Inc., and GoSolutions, Inc. Previously filed as Exhibit 10.29 to the Company’s Quarterly Report on Form 10-QSB filed on August 14, 2007. **

70

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

71

SIGNATURES

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

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

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

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

72

EX-21

Exhibit 21.1

VillageEDOCS, Inc.

 List of Subsidiaries

	Name of Subsidiary	State or Jurisdiction of Incorporation	DBAs
1.	Tailored Business Systems, Inc.	Georgia	None.
2.	MessageVision, Inc.	California	None.
3.	GoSolutions, Inc.	Florida	GoSolo Technologies
4.	GoSolo Technologies, Inc.	Florida
5.	GoSolutions Canada, Inc.	Canada
6.	Decision Management Company, Inc.	California	Questys Solutions

EX-31.1

Exhibit 31.1

CERTIFICATION UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, K. Mason Conner, certify that:

1.      I have reviewed this Annual Report on Form 10-K of VillageEDOCS, Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.      The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 31, 2009	/s/ K. Mason Conner
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael A. Richard, certify that:

1.      I have reviewed this Annual Report on Form 10-K of VillageEDOCS;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.      The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  March 31, 2009	/s/ Michael A. Richard
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of VillageEDOCS, Inc. (the "Company") on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that::

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  March 31, 2009	/s/ K. Mason Conner
	Chief Executive Officer

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO VILLAGEEDOCS AND WILL BE RETAINED BY VILLAGEEDOCS AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of VillageEDOCS, Inc. (the "Company") on Form 10-K for the twelve months ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  March 31, 2009	/s/ Michael A. Richard
	Chief Financial Officer

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO VILLAGEEDOCS, INC. AND WILL BE RETAINED BY VILLAGEEDOCS, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

EX-99.1

Exhibit 99.1

VILLAGEEDOCS, INC.

Financial Statements
For the Years Ended December 31, 2008 and 2007
Together with Report of Independent Registered Public Accounting Firm

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of VillageEDOCS, Inc.

We have audited the accompanying consolidated balance sheets of VillageEDOCS, Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of VillageEDOCS, Inc. and subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred recurring losses from operations and has a working capital deficit of $2,802,120. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

/s/ KMJ Corbin & Company LLP
Costa Mesa, California
March 31, 2009

F-2

VillageEDOCS, Inc. and subsidiaries
Consolidated Balance Sheets

	December 31, 2008			December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	567,447		$	749,911
Accounts receivable, net of allowance for doubtful accounts of approximately $47,000 and $49,000, respectively		1,093,606			899,117
Inventories		41,031			31,988
Prepaid expenses and other current assets		282,397			193,557
Debt issuance costs, net		17,883			-
Total current assets		2,002,364			1,874,573
Property and equipment, net		388,788			379,192
Other assets		28,811			48,611
Goodwill		7,244,732			6,272,457
Other intangibles, net		3,826,728			2,993,449
	$	13,491,423		$	11,568,282
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	514,086		$	561,845
Current portion of accrued expenses and other liabilities		1,736,419			2,491,416
Deferred revenue		1,026,184			425,636
Current portion of capital lease obligation, current		20,180			19,008
Lines of credit		890,563			484,680
Current portion of notes payable to related parties, net of unamortized debt discount of $47,808		438,682			-
Convertible note and accrued interest payable to related party		178,370			171,870
Total current liabilities		4,804,484			4,154,455
Accrued expenses and other liabilities, net of current portion		81,318			-
Capital lease obligation, net of current portion		1,737			21,918
Notes payable to related parties, net of current portion and unamortized debt discount of $75,690		604,310			-
Total liabilities		5,491,849			4,176,373
Commitments and contingencies
Stockholders’ equity:
Series A Preferred stock, par value $0.001 per share:
Authorized -- 48,000,000 shares
Issued and outstanding -- 33,500,000 shares		33,500			33,500
(liquidation preference of $1,675,000)
Common stock, par value $0.0001 per share:
Authorized -- 500,000,000 shares
Issued and outstanding -- 180,270,913 and 152,770,913 shares, respectively		18,027			15,277
Additional paid-in capital		33,618,742			32,397,585
Accumulated deficit		(25,670,695	)		(25,054,453	)
Total stockholders’ equity		7,999,574			7,391,909
	$	13,491,423		$	11,568,282
See accompanying notes to consolidated financial statements.

F-3

VillageEDOCS, Inc. and subsidiaries
Consolidated Statements of Operations

	Years Ended December 31,
	2008			2007
Net sales	$	15,176,393		$	14,180,658
Cost of sales		6,330,351			5,611,387
Gross profit		8,846,042			8,569,271
Operating expenses:
Product and technology development		1,674,921			1,724,724
Sales and marketing		1,976,806			1,975,315
General and administrative		4,814,569			5,758,493
Depreciation and amortization		843,632			791,365
Total operating expenses		9,309,928			10,249,897
Loss from operations		(463,886	)		(1,680,626	)
Interest expense, net of interest income		(281,905	)		(111,561	)
Other income, net		141,747			43,381
Loss before provision (benefit) for income taxes		(604,044	)		(1,748,806	)
Provision (benefit) for income taxes		12,198			(89,000	)
Loss from continuing operations		(616,242	)		(1,659,806	)
Loss from discontinued operations (net of income tax provision of $485,000)		-			(1,625,424	)
Net loss	$	(616,242	)	$	(3,285,230	)
Basic and diluted loss available to common shareholders per common share:
Loss from continuing operations	$	-		$	(0.01	)
Loss from discontinued operations	$	-		$	(0.01	)
Net loss per share	$	-		$	(0.02	)
Weighted average shares outstanding - basic and diluted		162,595,571			150,218,437
See accompanying notes to consolidated financial statements.

F-4

VillageEDOCS and subsidiaries
Statements of Stockholders’ Equity
For the Years Ended December 31, 2008 and 2007

	Series A Preferred Stock				Common Stock				Additional			Accumulated
	Shares		Amount		Shares		Amount		Paid-in Capital			Deficit			Total
Balances, January 1, 2007		33,500,000	$	33,500		147,368,127	$	14,737	$	31,670,094		$	(21,769,223	)	$	9,949,108
Estimated fair value of common stock issued to employees as compensation		-		-		66,000		6		2,634			-			2,640
Estimated fair value of common stock issued as acquisition cost of TBS		-		-		2,200,000		220		87,780			-			88,000
Estimated fair value of common stock issued as acquisition cost of TBS		-		-		110,000		11		4,389			-			4,400
Estimated fair value of common stock issued in connection with consulting services		-		-		1,026,786		103		73,468			-			73,571
Issuance of common stock in consideration for exercise of common stock warrrants		-		-		2,000,000		200		199,800			-			200,000
Estimated fair value of common stock warrants issued in connection with consulting services		-		-		-		-		33,332			-			33,332
Estimated fair value of common stock warrants cancelled in disposition of PFI		-		-		-		-		(553,000	)		-			(553,000	)
Estimated fair value of vested stock options		-		-		-		-		879,088			-			879,088
Net loss						-		-		-			(3,285,230	)		(3,285,230	)
Balances, December 31, 2007		33,500,000		33,500		152,770,913		15,277		32,397,585			(25,054,453	)		7,391,909

Continued…

F-5

	Series A Preferred Stock				Common Stock				Additional		Accumulated
	Shares		Amount		Shares		Amount		Paid-in Capital		Deficit			Total
Estimated fair value of common stock issued to employees as compensation		-		-		5,500,000		550		81,950		-			82,500
Estimated fair value of common stock issued as acquisition cost of QSI		-		-		22,000,000		2,200		547,800		-			550,000
Estimated fair value of common stock warrants issued in connection with consulting services		-		-		-		-		292,814		-			292,814
Estimated fair value of vested stock options		-		-		-		-		298,593		-			298,593
Net loss						-		-		-		(616,242	)		(616,242	)
Balances, December 31, 2008		33,500,000	$	33,500		180,270,913	$	18,027	$	33,618,742	$	(25,670,695	)	$	7,999,574

See accompanying notes to consolidated financial statements

F-6

VillageEDOCS, Inc. and subsidiaries
Consolidated Statements of Cash Flows

	Years Ended December 31,
	2008			2007
Cash Flows from Operating Activities:
Net loss	$	(616,242	)	$	(3,285,230	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		843,632			909,839
Provision for (recovery of) doubtful accounts receivable		17,667			(18,368	)
Estimated fair value of stock options issued to employees for services rendered		298,593			879,088
Estimated fair value of warrants issued to consultants		75,819			33,332
Common stock issued and issuable to employees for services rendered		82,500			76,211
Amortization of debt discount and debt issuance costs		216,697			12,233
Loss on discontinued operations		-			1,404,523
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable		97,731			(250,013	)
Inventories		(9,043	)		22,960
Prepaid expenses and other current assets		(126,552	)		(180,706	)
Other assets		31,806			(11,069	)
Accounts payable		(132,250	)		(63,251	)
Accrued expenses, other liabilities and interest		(851,213	)		265,217
Deferred revenue		109,329			112,215
Net cash provided by (used in) operating activities		38,474			(93,019	)
Cash Flows from Investing Activities:
Purchases of property and equipment		(134,408	)		(147,680	)
Cash paid in acquisition of QSI, net of cash acquired		(286,435	)		-
Costs incurred for purchase of QSI		(227,291	)		-
Cash acquired from sale of PFI, net		53,832			837,510
Net cash (used in) provided by investing activities		(594,302	)		689,830
Cash Flows from Financing Activities:
Proceeds from lines of credit, net of repayments		305,883			(355,320	)
Proceeds from warrant exercise		-			200,000
Cash paid for debt issuance costs		(65,000	)		-
Payments on capital lease obligation		(19,009	)		(30,399	)
Proceeds from issuance of note payable to related party		300,000			-
Principal payments on notes payable to related parties		(148,510	)		(30,000	)
Principal payments on convertible notes to related parties		-			(200,000	)
Net cash provided by (used in) financing activities		373,364			(415,719	)
Net change in cash and cash equivalents		(182,464	)		181,092
Cash and cash equivalents, beginning of year		749,911			568,819
Cash and cash equivalents, end of year	$	567,447		$	749,911
Supplemental disclosure of cash flow information - Cash paid during the year for:
Interest	$	94,276		$	95,360
Income taxes	$	172,340		$	74,642

continued…

F-7

	Years Ended December 31,
	2008		2007
Supplemental Schedule of Noncash Investing and Financing Activities:
Estimated fair value of common stock issued in connection with acquisition	$	550,000	$	92,400
Issuance of note payable to related party in acquisition	$	773,129	$	-
Acquisition of property and equipment through capital lease obligation	$	-	$	63,175
Estimated fair value of warrants issued as debt issuance costs	$	149,661	$	-
Reclassification of warrant from accrued liabilities to additional paid-in capital	$	50,000	$	-
Estimated fair value of warrants issued in connection with consulting services	$	26,001	$	-
See accompanying notes to consolidated financial statements.

F-8

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

1. Background, Organization and Basis of Presentation

VillageEDOCS, Inc. (the “Company” or “VillageEDOCS”) 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 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. The results of operations of Resolutions are included through November 30, 2007. See Note 5 for additional information regarding the acquisition of QSI and the Company’s accounting for Resolutions as a discontinued operation. All significant inter-company transactions and balances have been eliminated in consolidation.

2. Going Concern

The accompanying 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 ($2,802,120 as of December 31, 2008). The Company’s losses are continuing and may 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.

F-9

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

The Company believes it will have adequate cash to sustain 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. Although cash flows from operations improved during 2008 to a level sufficient to support operating expenses, we do not expect that such levels will continue until at least the second half of 2009. Should such 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 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.

3. Summary of Significant Accounting Policies

a. Segments of an Enterprise and Related Information

The 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 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 December 31, 2008, the Company operated in the following five reportable segments (see Note 12):

(a) Electronic document delivery services,

(b) Government accounting solutions,

(c) Electronic content management,

(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.

F-10

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

b. Concentration of Credit Risk

The 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 December 31, 2008 and 2007, the Company has recorded an allowance for doubtful accounts of approximately $47,000 and $49,000, respectively.

For the years ended December 31, 2008 and 2007, independent representatives of one customer accounted for approximately 24% and 31%, respectively, of total revenues. For the year ended December 31, 2008, independent representatives of another customer accounted for approximately 10% of total revenues.

No single customer accounted for more than 10% of accounts receivable at December 31, 2008 or December 31, 2007.

Effective October 3, 2008, the basic limit on federal deposit insurance coverage was temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009. On January 1, 2010, FDIC deposit insurance for the Company’s deposit accounts will return to at least $100,000 per depositor.

At December 31, 2008, the Company had amounts on deposit with financial institutions in excess of the federally insured limits of $250,000, which approximated $44,000.

At December 31, 2007, the Company had amounts on deposit with financial institutions in excess of the federally insured limits of $100,000, which approximated $410,000.

c. Use of Estimates in the Preparation of Financial Statements

The 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 common stock, stock options, warrants and deferred taxes. Actual results could differ from those estimates.

d. Property and Equipment

Property 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.

F-11

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

e. Revenue Recognition

The Company recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104, Revenue Recognition. 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, QSI and Resolutions (through the date of disposal – see Note 5), 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.

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.

F-12

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

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.

f. Product and Technology Development

Product 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.

g. Advertising

The Company expenses all advertising costs as incurred. Advertising costs were $64,551 and $57,410 for the years ended December 31, 2008 and 2007, respectively.

h. Risks and Uncertainties

The 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 operating business, including the potential risk of business failure.

i. Fair Value of Financial Instruments

The carrying amount of certain of the Company’s financial instruments as of December 31, 2008 and 2007 approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, accounts payable, accrued expenses, capital lease obligations, lines of credit, and notes payable. The fair value of convertible notes payable to related party is not determinable as the borrowings are with a related party.

j. Loss per Share

Basic 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 35,000,000 and 2,700,000 as of December 31, 2008 and 2007, respectively, have been excluded from diluted loss per share, as their effect would be anti-dilutive for the years then ended.

F-13

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

k. Comprehensive Income

The Company has no items of comprehensive income.

l. Software Development Costs

The Company capitalizes software development costs pursuant to SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, after technological feasibility of the software is established, which is generally the completion of a working prototype and ends upon general release of the product to the Company’s customers. All costs incurred in the research and development of new software and costs incurred prior to the establishment of technological feasibility are expensed as incurred. Capitalized costs consist of direct costs and allocated overhead associated with the development of the software products. Amortization of software development costs commences when the product becomes available for general release to customers and is computed based on the straight-line method over the software’s estimated economic life of approximately three years. As of December 31, 2008, there were no capitalized software development costs.

m. Cash and Cash Equivalents

All highly liquid instruments purchased with a maturity of three months or less at the time of purchase are considered cash equivalents.

n. Income Taxes

The Company accounts for income taxes in accordance with the asset and liability method for financial accounting and reporting purposes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

o. Stock-Based Compensation

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

F-14

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

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

Description of Plans

The 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 December 31, 2008, the Company is authorized to issue up to 95,000,000 shares under these plans and has approximately 46,500,000 shares available for future issuances.

Summary of Assumptions and Activity

The 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:

F-15

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

	2008	2007
Stock options:
Expected term (in years)	6.0	6.0
Expected volatility	258% -273%	121% - 124%
Risk-free interest rate	3.0%	3.5%
Dividend yield	-	-

A summary of option activity as of December 31, 2008 and changes during the year then ended, is presented below:

	December 31, 2008
			Weighted-Average
	Shares		Exercise Price		Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at January 1, 2008	37,230,669		$	0.21
Options granted	15,025,000		$	0.05
Options forfeited	(9,524,730	)	$	0.15
Options exercised	-		$	-
Options outstanding at December 31, 2008	42,730,939		$	0.16	5.2	$	-
Options vested or expected to vest	40,224,298		$	0.16	5.1	$	-
Options exercisable at December 31, 2008	27,985,994		$	0.22	4.5	$	-

The weighted-average grant date fair value of options granted during 2008 and 2007 was $0.04 and $0.07 per option, respectively. Upon the exercise of options, the Company issues new shares from its authorized shares.

As of December 31, 2008, there was approximately $780,000 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 3.6 weighted average years. The total fair value of vested options issued to employees and directors during the years ended December 31, 2008 and 2007 was $298,593 and $879,088, respectively, net of an estimated forfeiture rate of 17% and 12%, respectively.

F-16

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

The expense was recorded in the accompanying consolidated statements of operations as follows:

	Years Ended December 31,
	2008		2007
Cost of sales	$	5,497	$	-
General and administrative		251,789		879,088
Sales and marketing		21,372		-
Product and technology		19,935		-
	$	298,593	$	879,088

All 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.

p. Inventories

Inventories 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.

q. Goodwill and Other Intangible Assets

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

F-17

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

The changes in the carrying amount of goodwill for the year ended December 31, 2008 are as follows (see Note 5):

Balance, January 1, 2008	$	6,272,457
Goodwill of QSI acquired		972,275
Balance, December 31, 2008	$	7,244,732

The Company performed an impairment test on goodwill as of December 31, 2008. Based on its analysis as of December 31, 2008, 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.

r. Beneficial Conversion Feature

The convertible note provides for a rate of conversion that could fall below market value (see Note 6). Such feature is normally characterized as a “beneficial conversion feature” (“BCF”). Pursuant to EITF Issue No. 98-5, Accounting For Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratio, and EITF Issue No. 00-27, Application of EITF Issue No. 98-5 To Certain Convertible Instruments, the relative fair value of the BCF has been recorded as a discount from the face amount of the debt instrument. The Company amortized the discount using the effective interest method through maturity of such instrument.

s. Long-Lived Assets

In 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 December 31, 2008 and 2007, 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.

F-18

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

t. Warranty Costs

The 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 December 31, 2008 and 2007, management of the Company determined that a warranty reserve was not necessary. In addition, the charges to expense during the years ended December 31, 2008 and 2007 were insignificant.

u. New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FSP 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS No. 157 for non-financial assets and liabilities to fiscal years beginning after November 15, 2008. The adoption of SFAS No. 157 related to financial assets and liabilities did not have a material impact on the Company’s consolidated financial statements. The Company is currently evaluating the impact, if any, that SFAS 157 may have on its future consolidated financial statements related to non-financial assets and liabilities.

In October 2008, the FASB issued FASB Staff Position No. 157-3, Determining the 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 2008 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 year ended December 31, 2008.

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. Early adoption of SFAS No. 141(R) is not permitted. The Company is evaluating the impact SFAS No. 141(R) will have on any future business combinations.

In June 2008, the Emerging Issues Task Force of the FASB published EITF Issue No. 07-5, Determining Whether an Instrument is Indexed to an Entity’s Own Stock (“EITF No. 07-5”) to address concerns regarding the meaning of “indexed to an entity’s own stock” contained in FASB Statement 133, Accounting for Derivative Instruments and Hedging Activities. This related to the determination of whether a free-standing equity-linked instrument should be classified as equity or debt. If an instrument is classified as debt, it is valued at fair value, and this value is re-measured on an ongoing basis, with changes recorded in earnings in each reporting period. EITF No. 07-5 is effective for years beginning after December 15, 2008 and earlier adoption is not permitted. Although EITF No. 07-5 is effective for fiscal years beginning after December 15, 2008, any outstanding instrument at the date of adoption will require a retrospective application of the accounting through a cumulative effect adjustment to retained earnings upon adoption. The Company is currently evaluating the impact of EITF No. 07-5 on its consolidated financial position and results of operations.

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.

F-19

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

4. Property and Equipment

          Property and equipment consist of the following as of December 31, 2008 and 2007:

	December 31,
	2008			2007
Equipment under capital lease	$	84,831		$	84,831
Computer equipment		1,012,229			864,955
Furniture and equipment		569,351			518,827
Automobiles		48,800			48,800
Software		203,199			171,002
		1,918,410			1,688,415
Less- accumulated depreciation		(1,529,622	)		(1,309,223	)
	$	388,788		$	379,192

	Depreciation expense for property and equipment for 2008 and 2007 was $220,399 and $259,156, respectively, for continuing operations and $0 and $29,984 for discontinued operations, respectively.
5. Acquisitions, Discontinued Operations, Dispositions, and Intangible Assets
	Acquisition 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.
	The Company purchased Questys with $300,000 in cash, a secured promissory note in the amount of $900,000 (see Note 6), and 22 million shares of the Company’s common stock.
	The terms of the purchase were the result of arms-length negotiations. The Pavlovics were not previously affiliated with the Company.
	Questys is a California corporation formed in 1981 and is co-located with Corporate and MVI in Santa Ana, California. The Company purchased Questys to add new products and services for document and content management, document archiving, document imaging, automated data capture, electronic agenda management, and business process workflow. In addition, as Questys has clients in a number of markets, including corporate, government, healthcare, financial services, education, legal, law enforcement, manufacturing, and retail, the Company expects to benefit from the potential expansion into the newly expanded customer base of several of the Company’s products and services believed to be complementary.

F-20

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

In connection with the acquisition of QSI, the Company incurred $227,291 in acquisition-related costs including, but not limited to, expenses incurred for a finder’s fee, legal, accounting and travel.

The acquisition price was comprised of the following:

Cash paid at closing	$	300,000
Promissory note to seller, net of debt discount of $126,871		773,129
Estimated fair value of VillageEDOCS’ common stock		550,000
Legal, accounting, and other costs		227,291
	$	1,850,420

The following represents an allocation of the purchase price over the historical net book value of the acquired assets and liabilities of QSI as of August 1, 2008, the effective date of the acquisition:

Cash	$	13,565
Accounts receivable		309,887
Prepaid expenses and other current assets		55,298
Property and equipment		95,587
Other assets		12,006
Total liabilities		(1,008,198	)
Net tangible liabilities assumed		(521,855	)
Identifiable intangibles:
Trade name		210,000
Technology		390,000
Customer relationships		730,000
Covenant Not to Compete		70,000
Goodwill		972,275
	$	1,850,420

F-21

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

The pro forma combined historical results, as if QSI had been acquired as of January 1, 2008 and 2007, are estimated as follows:

	Year Ended December 31, 2008			Year Ended December 31, 2007
Net sales	$	16,942,123		$	17,322,472
Net loss	$	(620,065	)	$	(3,836,784	)
Weighted average common shares outstanding:
basic and diluted		175,433,927			172,218,437
Loss per share:
basic and diluted	$	-		$	(0.02	)

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.

Discontinued Operations and Disposition of Resolutions

On December 10, 2007, the Company sold substantially all of the assets of its wholly-owned subsidiary Phoenix Forms, Inc. dba Resolutions to DocPath Corp. for $970,000 in cash, plus the cancellation of 10,000,000 warrants previously issued with an exercise price of $0.15 per share. The warrants were originally issued to Alexander Riess and William Falcon as consideration in the acquisition of Phoenix Forms, Inc. by VillageEDOCS, Inc. in April 2005 and were valued at $553,000 on the date of cancellation (see below).

The Company’s Board of Directors approved the disposal of the assets on December 7, 2007 as part of a strategy to reduce debt and focus on growth at the remaining business units and growth by acquisition. The Company used $845,005 of the proceeds from the asset sale to retire a commercial note with a bank on December 11, 2007 (see Note 6).

The purchaser assumed substantially all of the employment agreements of Phoenix Forms, Inc., its office lease, accounts payable, and certain other accrued liabilities and contracts as stipulated by the Assets Purchase Agreement. Accordingly, the Company does not expect to incur significant future cash expenditures in connection with the disposal.

F-22

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

In 2007 and in connection with the disposal, the Company recorded a loss from discontinued operations of $1,625,424, net of tax of $485,000. Such loss included income from PFI’s operations of $264,099 before income taxes and a loss on the disposal of approximately $1,404,523 (which consisted of net proceeds of $926,835 (net of $43,165 of expenses), plus the fair value of the cancelled warrant of approximately $553,000, less the net assets sold of $2,884,358, which includes the carrying value of goodwill and certain intangible assets with a carrying value of $3,019,916 at the time of disposition, which were written off and $35,493 of cash retained by the seller. The Company received $873,003 in December 2007 and the remaining $53,832 in January 2008.

In accordance with SFAS No. 144, Accounting for the Impairment of Disposal of Long Lived Assets, the operations associated with this transaction and the loss on the sale have been classified as income (loss) from discontinued operations in the accompanying consolidated statements of operations.

Discontinued operations’ results were as follows:

	Year Ended December 31, 2007
Results of discontinued operations
Net sales	$	1,763,024
Income before income taxes	$	264,099
Loss on sale of discontinued operations:
Sales price, net	$	1,479,835
Net assets sold		(2,884,358	)
Loss on sale	$	(1,404,523	)
Loss from discontinued operations before income taxes	$	(1,140,424	)
Provision for income taxes		(485,000	)
Loss from discontinued operations	$	(1,625,424	)

Other Intangible Assets

On 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 is obligated to make aggregate license payments of $600,000 over a period of up to thirty-two months beginning on May 12, 2006, at which time no further payments are required under the License Agreement. The License Agreement stipulates that $350,000 of the total license fee is 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. During 2007, the Company made license payments of $180,000 under the License Agreement. At December 31, 2008, the Company had paid all amounts due pursuant to the License Agreement.

F-23

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

Other intangible assets consist of the following as of December 31, 2008:

	Estimated Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Corporate:
License agreement	Five	$	250,000	$	(135,772	)	$	114,228
TBS:
Customer list	Ten	$	500,000	$	(243,750	)	$	256,250
Trade name	Five		50,000		(48,750	)		1,250
		$	550,000	$	(292,500	)	$	257,500
QSI:
Customer relationships	Ten	$	730,000	$	(30,417	)	$	699,583
Technology	Five		390,000		(32,500	)		357,500
Trade name	Five		210,000		(17,500	)		192,500
Covenant not to compete	Two		70,000		(14,583	)		55,417
		$	1,400,000	$	(95,000	)	$	1,305,000
GSI:
Customer relationships	Ten	$	2,200,000	$	(586,667	)	$	1,613,333
Technology	Five		490,000		(261,333	)		228,667
Trade names and marks	Ten		420,000		(112,000	)		308,000
		$	3,110,000	$	(960,000	)	$	2,150,000
		$	5,310,000	$	(1,483,272	)	$	3,826,728

Amortization of other intangible assets was $566,721 and $471,724 during 2008 and 2007, respectively for continuing operations and $0 and $88,490 during 2008 and 2007, respectively, for discontinued operations. During 2007, the Company wrote off $507,489 of intangible assets in connection with the sale of PFI.

F-24

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

Other intangible assets consist of the following as of December 31, 2007:

	Estimated Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Corporate:
License agreement	Five	$	250,000	$	(84,051	)	$	165,949
TBS:
Customer list	Ten		500,000		(193,750	)		306,250
Trade name	Five		50,000		(38,750	)		11,250
			550,000		(232,500	)		317,500
GSI:
Customer relationships	Ten		2,200,000		(366,667	)		1,833,333
Technology	Five		490,000		(163,333	)		326,667
Trade names and marks	Ten		420,000		(70,000	)		350,000
			3,110,000		(600,000	)		2,510,000
Total other intangible assets		$	3,910,000	$	(916,551	)	$	2,993,449

          The estimated amortization expense for the next five years approximates:

Years Ending December 31,
2009	$	691,000
2010		675,000
2011		545,000
2012		505,000
2013		455,000
	$	2,871,000

6. Debt

Bank Lines of Credit

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

F-25

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

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

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 consolidated balance sheets at December 31, 2008, and amortized $59,583 of the cash fees to interest expense during 2008.

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

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

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 December 31, 2008). As of December 31, 2008, the Company had not utilized the TBS RLOC and was in compliance with all loan covenants.

F-26

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

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% (5.775% at December 31, 2008). QSI had borrowings totaling $100,000 at December 31, 2008 and had $0 available for future borrowings under the line of credit. Pursuant to the QSI acquisition agreements, the Company has agreed to repay all outstanding borrowings under the QSI RLOC on or before August 1, 2009.

During 2007 and as a result of the acquisition of GSI, the Company had a $1,000,000 revolving line of credit (the “GSI Line”) with a financial institution and had used the proceeds to fund a required payment of $840,000 pursuant to the Settlement Agreements with dissenting shareholders of GSI. On December 11, 2007, VillageEDOCS, Inc. paid $845,005 to the financial institution in full satisfaction of the commercial note issued in connection with the GSI Line. The GSI Line matured on December 12, 2007 and the Company did not elect to renew it. The Company elected to pay the commercial note in full from available cash in lieu of converting the GSI Line to a non-revolving term loan. Interest on outstanding borrowings had been payable monthly at a rate equal to the prime rate. During the year ended December 31, 2007, the Company paid $62,883 in interest on the GSI Line. The GSI Line had been collateralized by the assets of GSI and guaranteed by four stockholders of the Company who were formerly stockholders of GSI.

Vojin Hadzi-Pavlovic and Gloria Hadzi-Pavlovic

Effective 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 Private Bank of the Peninsula 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 2008, $17,621 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.

F-27

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

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 2008, $2,298 of interest expense was recognized in connection with the amortization of debt discount related to this debt.

The Silver Lake Group, LLC

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

On October 30, 2008, VillageEDOCS, Inc. and SLG entered into an Amendment to Secured Promissory Note (“Amendment”) to modify the maturity date, interest rate, and repayment terms of the SLG Note. As of October 31, 2008, the remaining principal balance of the SLG Note, as amended, was $250,000 and no interest was outstanding. Pursuant to the Amendment, the SLG Note matures on March 31, 2009 and bears interest from November 1, 2008 at a rate of twelve percent (12%) per annum. As of February 28, 2009, the remaining principal balance of the SLG Note was approximately $50,000. The Company intends to repay the SLG Note with a final installment of principal and interest March 31, 2009. The SLG Note is secured by the accounts receivable of GoSolutions, Inc., our wholly-owned subsidiary, as defined in a Security Agreement dated as of August 1, 2008. Payment obligations under the SLG Note are subordinate in certain respects to the rights of the Bank to the extent set forth in a Subordination Agreement to be entered into as of August 1, 2008. As of December 31, 2008, the outstanding principal balance due pursuant to the SLG note was $151,490.

C. Alan and Joan P. Williams

On 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 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. 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.

F-28

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

The Company amortized the discount using the effective interest method through October 31, 2007. During 2007, $12,233 of interest expense was recognized in connection with the amortization of debt discount related to these notes.

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. The interest rate in effect as of December 31, 2008 was ten percent (10%) per annum.

At December 31, 2007, 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 $106,870 in unpaid interest.

James L. Campbell and Stephen A. Garner

In connection with the acquisition of TBS, the Company issued a $300,000 convertible promissory note to Stephen A. Garner and a $300,000 convertible promissory note to James L. Campbell (the “TBS Notes”). Messrs. Campbell and Garner are employees of TBS. Each of the TBS Notes bore interest at 5 percent per annum and was due and payable in three equal annual installments of $100,000, with the first installment paid in February 2005, the second installment paid in March 2006 and the third and final installment paid in February 2007.

Alexander Riess and William Falcon

An aggregate of $30,000 in notes payable to Messrs. Riess and Falcon were assumed in the acquisition of Resolutions. The notes were non-interest bearing. The notes were paid in full as of March 1, 2007 in accordance with the acquisition agreement.

Interest Expense

Interest expense recognized on all lines of credit and notes payable was $282,553 and $112,447, respectively, during the years ended December 31, 2008 and 2007.

Interest expense noted above included non-cash charges (related to amortization of debt discount and debt issuance costs) of $216,697 and $12,233, respectively, during 2008 and 2007.

F-29

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

7. Stockholders’ Equity

a.	Common and Preferred Stock
Effective September 7, 2007, the Company reincorporated in Delaware under the name VillageEDOCS, Inc. Pursuant to its Articles of Incorporation filed with the State of Delaware, the Company is authorized to issue two classes of shares of stock. The first class is designated as preferred stock. The total number of shares of Series A Preferred stock that the Company is authorized to issue is forty eight million (48,000,000) of $0.001 par value per share. The second class is designated as common stock. The total number of shares of common stock that the Company is authorized to issue is five hundred million (500,000,000) of $0.0001 par value.
As of May 24, 2007, a majority of the Company’s stockholders approved a proposal to increase the authorized shares of the Company to 500,000,000 from 400,000,000.
The Company is authorized to issue up to 48,000,000 shares of Series A Convertible Preferred Stock, par value $0.001 (“Series A Preferred Stock”). Each share of Series A Preferred Stock shall be convertible into one share of common stock. Series A Preferred Stock will be immediately convertible into common stock, however, the Company is prohibited from effecting any conversion of the Series A Preferred Stock, and the holder shall not have the right to convert any portion of the Series A Preferred Stock, to the extent that after giving effect to such conversion, the holder (together with the holder’s affiliates) would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to the conversion. The foregoing restriction may be waived (a) upon sixty-one days prior notice from the holder to the Company and (b) shall not apply in the event of a sale of substantially all of the assets or securities of the Company, a merger involving the corporation or an underwritten public offering of the Company’s common stock. No dividends shall be payable with respect to the Series A Preferred Stock. The Series A Preferred Stock shall have no voting rights, except with respect to changes in the powers, preferences or rights of the Preferred Stock. The liquidation preference of the Series A Preferred Stock is equal to $0.05 per share (the “Liquidation Value”). Upon liquidation of the Company, holders of Series A Preferred Shares will be paid the Liquidation Value prior to distribution of any amounts to holders of our common stock.
On November 17, 2008, the Company issued 2,500,000 shares of its common stock to K. Mason Conner pursuant to the 2002 Equity Incentive Plan. Mr. Conner is an officer and director of the Company. These shares were valued at $0.015 per share (the estimated fair value on the measurement date) and recorded as compensation expense. On November 17, 2008, the Company issued 2,000,000 shares of its common stock to H. Jay Hill pursuant to the 2002 Equity Incentive Plan. Mr. Hill is and officer and director of the Company. These shares were valued at $0.015 per share (the estimated fair value on the measurement date) and recorded as compensation expense.

F-30

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

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

On August 1, 2008 and in connection with the acquisition of Questys, the Company issued 22,000,000 shares of its common stock to the Pavlovics (see Note 5). These shares were valued at $0.025 per share (the estimated fair value on the measurement date) and recorded as additional purchase price.

On August 28, 2007, and in connection with an engagement agreement, the Company issued an aggregate of 500,000 shares of its common stock to Gemstone Securities LLC for services provided. The shares were valued at $0.06 per share (the estimated fair value on the measurement date).

On August 28, 2007, the Company issued 2,000,000 shares of its common stock to C. Alan and Joan P. Williams at $0.10 per share in consideration for $200,000 in cash proceeds to the Company from the exercise of common stock purchase warrants.

On May 7, 2007, and pursuant to the TBS acquisition agreement, the Company issued 1,100,000 shares of common stock to each of Messrs. Garner and Campbell. The shares were valued at $0.04 per share (the estimated fair value on the measurement date) and recorded as additional purchase price. No additional shares of common stock are due to Messrs. Garner and Campbell pursuant to the TBS acquisition agreement.

On May 7, 2007, and in connection with the acquisition of TBS, the Company issued 110,000 shares of its common stock to a non-affiliate pursuant to a finder’s fee agreement. The shares were valued at $0.04 per share (the estimated fair value on the measurement date) and recorded as additional purchase price.

On May 7, 2007, and in connection with the acquisition of TBS, the Company issued 66,000 shares of its common stock to H. Jay Hill, who is an officer and director of the Company, as a finder’s fee. The shares were valued at $0.04 per share (the estimated fair value on the measurement date) and were recorded as compensation expense.

On May 7, 2007, the Company issued 26,786 shares of its common stock to a non-affiliate independent contractor for project management services rendered. The shares were valued at $0.04 per share (the estimated fair value on the measurement date) and were recorded as consulting expense in June 2007.

On February 22, 2007, the Company issued an aggregate of 500,000 shares of its common stock to a consultant in connection with a placement agency agreement. The 500,000 shares were valued at $0.085 per share (fair value on the measurement date) and the Company recorded $42,500 of consulting expense in the accompanying consolidated statements of operations during the year ended December 31, 2007 in accordance with the nature of the services provided.

F-31

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

The Company did not issue any shares of its preferred stock during either of the years ended December 31, 2008 and 2007.
b.	Stock Options
The Company has adopted an equity incentive plan (the “2002 Plan”) that authorizes the issuance of options to acquire up to 90,000,000 shares of common stock, as amended, to employees and certain outside consultants. The 2002 Plan allows for the issuance of either non-qualified or, subject to stockholder approval, incentive stock options pursuant to Section 422 of the Internal Revenue Code. Options vest at the discretion of the Board of Directors as determined at the grant date, but not longer than a ten-year term. Under the 2002 Plan, the exercise price of each option shall not be less than fair market value on the date the option is granted. The number of options under the 2002 Plan available for grant at December 31, 2008 and 2007 was approximately 43,000,000 and 55,000,000, respectively.
During 1997, the Board of Directors of the Company adopted a stock option plan (the “1997 Plan”) that authorizes the issuance of options to acquire up to 5,000,000 shares of common stock to employees and certain outside consultants. The 1997 Plan allows for the issuance of either non-qualified or incentive stock options pursuant to Section 422 of the Internal Revenue Code. Options vest at the discretion of the Board of Directors as determined at the grant date, but not longer than a ten-year term. Under the 1997 Plan, the exercise price of each option shall not be less than 85 percent of fair market value on the date the option is granted. The number of options under the 1997 Plan available for grant at December 31, 2008 and 2007 was approximately 4,200,000 and 2,900,000, respectively.
During 2008, the Company granted to its employees options to purchase shares of its common stock under the 2002 Plan as follows: 2,075,000 shares at $0.15 per share, 1,540,000 shares at $0.05 per share, 325,000 shares at $0.04 per share, 7,300,000 shares at $0.037 per share, 600,000 shares at $0.036 per share, 570,000 shares at $0.03 per share, 425,000 shares at $0.02 per share, and 2,190,000 at $0.015 per share. All options were issued above or at the fair market value on the dates of grant and vest on various dates from the date of grant through December 2015 (see Note 3).
During 2007, the Company granted to its employees options to purchase shares of its common stock under the 2002 Plan as follows: 1,180,000 shares at $0.15 per share, and 4,242,392 shares at $0.19 per share. All options were issued above or at the fair market value on the dates of grant and vest on various dates from the date of grant through August 2015.

F-32

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

d.	Warrants
From 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, was valued at $26,001, and 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 year ended December 31, 2008, the Company recorded $8,667 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 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 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 year ended December 31, 2008, the Company recorded $4,125 of interest expense in the accompanying consolidated statements of operations.
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 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 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 year ended December 31, 2008, the Company recorded $133,070 of interest expense in the accompanying 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 years ended December 31, 2008 and 2007 the Company expensed consulting fees of $484 and $50,000 and, respectively, in accordance with the timing of the services performed.

F-33

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

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 warrant is exercisable over a five year period from date of grant. The warrant was valued using the Black-Scholes option pricing model, was valued at $100,000, and was 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 years ended December 31, 2008 and 2007, the Company recorded $66,668 and $33,332, respectively, of consulting expense in connection with this warrant.

On April 15, 2005 and in connection with the acquisition of PFI, the Company issued warrants to purchase an aggregate of 10,000,000 shares of VillageEDOCS’ common stock at $0.15 per share. The warrants were valued at $2,100,000 (estimated based on the Black-Scholes option pricing model) and included as consideration in the purchase price, and vested at various amounts during the third, twelfth, twenty-fourth, and thirty-sixth months following the date of closing. The warrants were tendered and cancelled effective December 1, 2007 in connection with the sale of Resolutions (see Note 5).

The following represents a summary of the warrants outstanding for the year ended December 31, 2008:

	Number of Warrants		Weighted Average Exercise Price Per Share
Outstanding at January 1, 2008		5,566,000	$	0.09
Granted		4,451,643		0.05
Exercised		-		-
Expired/Forfeited		-		-
Balance at December 31, 2008		10,017,643	$	0.07
Weighted average fair value of warrants granted in 2008:	$	0.05
Weighted average fair value of warrants granted in 2007:	$	0.05

F-34

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

8. Income Taxes

The components of the (benefit) provision for income taxes for December 31, 2008 and 2007 are presented in the following table:

		December 31 2008			December 31 2007
Current:
	Federal	$	(16,000	)	$	(149,000	)
	State		28,000			60,000
			12,000			(89,000	)
Deferred:
	Federal
	State
		$	12,000		$	(89,000	)

At December 31, 2008, the Company had approximately $24,693,000 and $23,529,000, respectively, of federal and state net operating loss carryforwards for tax reporting purposes available to offset future taxable income; federal and state net operating loss carryforwards expire through 2026 and 2027, respectively. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating losses carried forward may be impaired or limited in certain circumstances. Events which may cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50 percent over a three-year period. At December 31, 2008, the effect of such limitation, if imposed, has not been determined.

At December 31, 2008, the Company had approximately $22,508 of California research and development tax credit carryforwards which carry forward indefinitely.

At December 31, 2007, the Company had approximately 24,857,000 and $28,126,000, respectively, of federal and state net operating loss carryforwards for tax reporting purposes available to offset future taxable income.

F-35

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

Deferred tax assets consist primarily of the tax effect of net operating loss carryforwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding realizability. The valuation allowance (decreased) increased approximately $(779,000) and $784,000 during the years ended December 31, 2008 and 2007, respectively. Of the change in the valuation allowance from 2007 to 2008, $550,000 was due to purchase accounting for Questys.

Deferred tax assets (liabilities) consist of the following:

	December 31, 2008			December 31, 2007
Deferred tax assets:
Net operating loss carryforwards	$	9,417,000		$	9,818,000
Accrued expenses		174,000			80,000
Other		54,000			147,000
Less valuation allowance		(8,265,000	)		(9,044,000	)
	$	1,380,000		$	1,001,000
Deferred tax liabilities:
Purchased Intangibles	$	(1,246,000	)	$	(899,000	)
Property and equipment and intangibles		(134,000	)		(102,000	)
Total deferred tax liabilities		(1,380,000	)		(1,001,000	)
Net deferred tax assets (liabilities)	$	-		$	-

F-36

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

A reconciliation of income taxes from continuing operations computed at the federal statutory rate of 34% to the provision for income taxes is as follows for the years ended December 31:

	2008			2007
Computed benefit at federal statutory rate	$	(205,000	)	$	(487,000	)
State income tax benefit, net of federal effect		6,000			(26,000	)
Permanent items		196,000			303,000
Other		(11,000	)		(663,000	)
FIN 48 reserve		81,000			-
Payable adjustment		(169,000	)		-
State net operating loss adjustment		197,000			-
State effective tax rate adjustment		146,000			-
Change in valuation allowance		(229,000	)		784,000
	$	12,000		$	(89,000	)

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (“FIN No. 48”). FIN No. 48 establishes a single model to address accounting for uncertain tax positions. FIN No. 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN No. 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of FIN No. 48 on January 1, 2007. Upon adoption, the Company recognized no adjustment in the amount of unrecognized tax benefits. As of the date of adoption, the Company had no unrecognized tax benefits. The Company’s policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense.

A portion of the net operating loss carryforwards as of December 31, 2008 includes amounts related to stock option deductions. Under SFAS 123R, any excess tax benefits from share-based compensation are only realized when income taxes payable is reduces, with the corresponding credit posted to additional paid-in capital.

F-37

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

The following table summarizes the changes to unrecognized tax benefits for the years ended December 31, 2008 and 2007 (in thousands):

Balance at January 1, 2007 (FIN No. 48 adoption)	$	-
Additions based on tax positions related to the current year	-
Additions based on tax positions of prior years	-
Balance at December 31, 2007	-
Additions based on tax positions related to the current year	81
Additions based on tax positions related to the prior year	-
Reductions as a result of lapse of applicable statute of limitations	-
Balance at December 31, 2008	$	81

The Company and its subsidiaries are subject to federal income tax as well as income tax of multiple state jurisdictions. The Company is not currently under examination by the IRS, state and local taxing authorities. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where NOLs and tax credits were generated and carried forward, and make adjustments up to the amount of the carryforwards.

The Company has elected to recognize potential accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of December 31, 2008, the Company has accrued interest and penalties associated with uncertain tax positions of $18,000.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future as provided by Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions. These ownership changes may limit the amount of the net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income. Since the Company’s formation, the Company has raised capital through the issuance of capital stock on several occasions which may have resulted in a change of control, as defined by Section 382, or could result in a change of control in the future. The Company has not completed a study to assess whether a change of control has occurred or whether there have been multiple changes of control since the Company’s formation due to the significant complexity and cost associated with such study and that there could be additional changes in control in the future. If the Company has experienced a change of control at any time since Company formation, utilization of the Company’s net operating loss carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expiration of a portion of the carryforwards before utilization. Further, once a study is completed and any limitation known, the amounts currently presented as an uncertain tax position under FIN No. 48 may change. Any carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.

9. Loss per Share

Basic and diluted loss per common share is computed as follows for the years ended December 31:

	2008			2007
Numerator for basic and diluted loss per common share:
Net loss available to common stockholders	$	(616,242	)	$	(3,285,230	)
Denominator for basic and diluted loss per common share:
Weighted average common shares outstanding		162,595,571			150,218,437
Basic and diluted loss available to common stockholders per common share	$	-		$	(0.02	)

10. Commitments and Contingencies

a.	Leases
The Company leases certain property and equipment under operating lease agreements (including related party leases – see Note 11) which expire on various dates through 2015 and provide for monthly lease payments ranging from $108 to $13,150.
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.

F-38

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

Future annual minimum payments under capital leases and noncancelable operating leases is as follows:

		Operating Leases
		Capital			Related Parties		Other		Total
	2009	$	21,000		$	246,000	$	484,000	$	751,000
	2010		1,700			185,000		331,000		517,700
	2011		-			61,000		181,000		242,000
	2012		-			-		76,000		76,000
	2013		-			-		19,000		19,000
Total minimum lease payments			22,700		$	492,000	$	1,091,000	$	1,605,700
Less: amounts representing interest			(783	)
Present value of lease obligations			21,917
Less: current portion			(20,180	)
		$	1,737

Rent expense for the years ended December 31, 2008 and 2007 was $1,023,271 (including $238,063 of related party rent) and $369,396 (including $243,851 of related party rent), respectively.
b.	Litigation
The 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.

F-39

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

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.
c.	Consulting and Employee Agreements
The 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).
d.	Indemnities and Guarantees
During 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, Delaware, 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 acquisitions of 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 consolidated balance sheets.

F-40

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

11. Related Party Transactions

The Company has borrowed significantly from related parties, issued a significant number of options and warrants to related parties, and 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 7.

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

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

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

F-41

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

12. Segment Reporting

The 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,
(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:

F-42

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

	Year ended / As of December 31 2008			Year ended / As of December 31 2007
Net revenue from external customers:
Electronic document delivery services	$	2,761,147		$	2,956,857
Government accounting solutions		5,376,539			5,001,343
Electronic content management		979,553			-
Integrated communications		6,059,154			6,222,458
Corporate		-			-
Total net revenue from external customers:	$	15,176,393		$	14,180,658
Operating income (loss) from continuing operations:
Electronic document delivery services	$	295,534		$	327,288
Government accounting solutions		470,985			501,082
Electronic content management		(33,926	)		-
Integrated communications		1,102,461			982,920
Corporate		(2,298,940	)		(3,491,916	)
Total operating loss from continuing operations:	$	(463,886	)	$	(1,680,626	)
Depreciation and amortization from continuing operations:
Electronic document delivery services	$	89,154		$	64,173
Government accounting solutions		100,005			109,288
Electronic content management		111,646			-
Integrated communications		491,106			565,589
Corporate		51,721			52,315
Total depreciation and amortization:	$	843,632		$	791,365
Interest expense, net of interest income:
Electronic document delivery services	$	6,507		$	-
Government accounting solutions		12,978			1,646
Electronic content management		6,507			-
Integrated communications		(408	)		(1,190	)
Corporate		256,321			111,105
Total interest expense, net of interest income:	$	281,905		$	111,561
continued…

F-43

VillageEDOCS, Inc. and subsidiaries

Notes to Consolidated Financial Statements
For the Years Ended December 31, 2008 and 2007

	Year ended / As of December 31 2008			Year ended / As of December 31 2007
Income (loss) from continuing operations:
Electronic document delivery services	$	283,906		$	318,334
Government accounting solutions		491,532			511,848
Electronic content management		16,695			-
Integrated communications		1,134,016			1,005,091
Corporate		(2,542,391	)		(3,495,079	)
Total loss from continuing operations:	$	(616,242	)	$	(1,659,806	)
Identifiable assets:
Electronic document delivery services	$	675,212		$	693,312
Government accounting solutions		3,776,828			3,718,622
Electronic content management		2,628,589			-
Integrated communications		6,197,418			6,542,920
Corporate		213,376			613,428
Total identifiable assets:	$	13,491,423		$	11,568,282
Capital expenditures:
Electronic document delivery services	$	79,946		$	76,919
Government accounting solutions		9,064			66,850
Electronic content management		4,931			-
Integrated communications		40,467			60,144
Corporate		-			5,969
Total capital expenditures:	$	134,408		$	209,882

F-44