Attached files
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EX-21.1 - VILLAGEEDOCS INC | v181066_ex21-1.htm |
EX-99.1 - VILLAGEEDOCS INC | v181066_ex99-1.htm |
EX-32.2 - VILLAGEEDOCS INC | v181066_ex32-2.htm |
EX-32.1 - VILLAGEEDOCS INC | v181066_ex32-1.htm |
EX-31.1 - VILLAGEEDOCS INC | v181066_ex31-1.htm |
EX-31.2 - VILLAGEEDOCS INC | v181066_ex31-2.htm |
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,
2009
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Commission File
Number: 00031395
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VillageEDOCS,
Inc.
(Exact name of registrant as
specified in its charter)
Delaware
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33-0668917
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer
Identification
No.)
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1401 N. Tustin Ave., Suite 230, Santa Ana,
CA
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92705
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s Telephone
Number:
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(714) 734-1030
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Securities registered under
Section 12(b) of the Exchange Act:
Title of each class
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Name of each exchange on which
registered
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NONE
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N/A
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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 ¨ 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 ¨
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Accelerated
Filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting company x
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(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 ¨ NO x
There
were 226,546,613 shares
of the Registrant’s common stock, $0.0001 par value, outstanding as of February
28, 2010.
State
issuer’s revenues for its most recent fiscal year: $10,291,252
State the
aggregate market value of the voting stock held by non-affiliates of the issuer
as of June 30, 2009: $361,378
DOCUMENTS
INCORPORATED INTO THIS REPORT ON FORM 10-K BY
REFERENCE: None.
VillageEDOCS
FORM 10-K
INDEX
FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2009
Page
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PART I.
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Item 1.
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Business
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3
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Item 1A.
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Risk
Factors
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9
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Item 1B.
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Unresolved
Staff Comments
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22
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Item 2.
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Properties
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23
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Item 3.
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Legal
Proceedings
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23
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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24
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PART II.
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Item 5.
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Market
for Registrant’s Common Equity and Related Stockholder Matters, and Issuer
Purchases of Equity Securities
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25
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Item 6.
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Selected
Financial Data
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26
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Item 7.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operation
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26
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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42
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Item 8.
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Financial
Statements and Supplementary Data
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42
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Item 9.
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Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure
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42
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Item 9A.
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Controls
and Procedures
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43
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Item 9B.
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Other
Information
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45
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PART III
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Item 10.
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Directors,
Executive Officers, and Corporate Governance
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46
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Item 11.
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Executive
Compensation
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51
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Item 12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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56
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Item 13.
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Certain
Relationships and Related Transactions, and Director
Independence
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58
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Item 14.
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Principal
Accountant Fees and Services
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61
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PART IV
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Item 15.
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Exhibits
and Financial Statement Schedules
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62
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Signatures
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70
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2
PART
I
ITEM
1. DESCRIPTION OF BUSINESS
IMPORTANT
NOTIFICATIONS
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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.
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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.
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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., and Decision Management Company,
Inc. dba Questys Solutions. Between February 2004 and December
2009, we operated Tailored Business Systems, Inc., a municipal government
software and printing business that we that we discontinued and sold
effective December 4, 2009.
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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, electronic payment capture,
marketing campaigns, and other applications.
Our
target markets include financial services, healthcare, manufacturing, and local
government, and we served approximately 600 active clients, including
approximately 23,000 individual users, as of December 31, 2009. 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.
Between
February 2004 and December 2009, we operated Tailored Business
Systems, Inc., a municipal government software and printing services business
that we discontinued and sold effective December 4, 2009.
3
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, 2010, we had 57 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 three 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.
Segment
revenue and profit information for MessageVision, Questys and GoSolutions is
presented in Note 12 of the Company's 2009 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,
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.
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.
4
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:
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·
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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;
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·
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Workflow
to simplify the process of bringing tasks, employees, and records together
to improve efficiency;
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·
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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
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·
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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.
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Net sales
to external customers for 2009 were $2,157,280 and represented 21% of total
revenue. Net loss for 2009 was $655,320.
GoSolutions – Enhanced Voice
and Data Communications Services
GoSolutions,
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.
GSI has
two wholly-owned subsidiaries: Go Solo Technologies, Inc. and GoSolutions
Canada, Inc., which has no significant operations.
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.
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.
5
Net sales
to external customers for 2009 were $5,557,130 and represented 54% of total
revenue. Net income for 2009 was $755,576.
MessageVision - Electronic
Document Delivery Services
MessageVision
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.
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.
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.
6
Net sales
to external customers for 2009 were $2,576,842 and represented 25% of total
revenue. Net income for 2009 was $498,464.
Products and Services
Development
Our
financial model is focused upon growth of recurring revenue streams from our
SaaS solutions and software support 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.
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, 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
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.
7
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.
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
2009, 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 2010
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.
8
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.
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, 2010, VillageEDOCS, Inc., the holding company, had six 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 three engaged in sales and
marketing, nine in customer service, three in product development, nine 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.
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.
9
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 December 31, 2009. 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:
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our
ability to attract new and repeat
customers;
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our
ability to keep current with the evolving requirements of our target
market;
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our
ability to protect our proprietary
technology;
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the
ability of our competitors to offer new or enhanced products or services;
and
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unanticipated
delays or cost increases with respect to research and
development.
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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, 2009
consolidated financial statements includes an explanatory paragraph stating that
the recurring losses incurred from operations raises 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.
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.
10
GoSolutions currently
depends on one large customer for approximately half of its
revenue.
For 2009,
49% of GoSolutions’ revenue (30% 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.
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.
11
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.
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
12
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.
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.
13
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:
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engage,
train and manage a larger sales force and additional service
personnel;
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expand
the geographic coverage of our sales
force;
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expand
our information systems;
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identify
and successfully integrate acquired businesses into our operations;
and
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administer
appropriate financial and administrative control
procedures.
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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.
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:
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diversion
of management’s attention from day-to-day operational matters and current
products and customers;
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lack
of synergy, or the inability to realize expected
synergies;
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failure
to commercialize the new technology or
business;
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failure
to meet the expected performance of the new technology or
business;
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failure
to retain key employees and customer or supplier
relationships;
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lower-than-expected
market opportunities or market acceptance of any new
products;
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unexpected
reduction of sales of existing products and services by new products or
services;
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inability
to achieve the financial and strategic goals for the acquired and combined
businesses;
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difficulty
in maintaining controls, procedures and policies during the transition and
integration;
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difficulty
effectively integrating the acquired technologies or products with our
current products and technologies, particularly where such products reside
on different technology platforms;
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difficulty
managing geographically-dispersed
operations;
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adverse
effect on our relationships with partner companies or third-party
providers of technology or products;
and
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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.
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14
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;
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Changes
in the useful lives or the amortization of identifiable intangible
assets;
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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
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Charges
to income to reduce our cost
structure.
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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.
15
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 and some of
GSI’s electronic messages. 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 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
2009, approximately 25% 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.
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.
16
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.
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 and QSI 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.
17
Since VillageEDOCS, Inc. is
a holding company, our ability to fund corporate overhead and
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 fund corporate
overhead and to make payments on our debt obligations is 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.
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 our public filings and those of certain 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 a
new standard that became effective with our 2009 fiscal year that 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 owns 100,487,867 shares, or approximately 34%, of the
outstanding shares of our common stock as of February 28, 2010. In
addition, as of February 28, 2010, this shareholder holds warrants to purchase
an additional 3,000,000 shares of our common stock at $0.10 per
share. GoSolutions Equity LLC owns 26,786,840 shares, or
approximately 12% of the outstanding shares of our common stock as of February
28, 2010. In addition, our officers and directors own in the
aggregate approximately 8% of our outstanding common stock as of February 28,
2010. 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.
18
Risks
related principally to our common stock and its market value:
We recently announced our
intent to terminate our status as a reporting company under the Exchange Act
through a reverse split of our common stock.
On
February 8, 2010, we announced our intent to terminate our status as a reporting
company under Section 12(g) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), through a reverse split of the outstanding shares of our
common stock. If the transaction is completed, all obligations to
file periodic reports with the SEC will be suspended. In addition,
the deregistration of our common stock would also have the effect of terminating
the eligibility of our common stock for quotation on the OTC bulletin
board. However, we intend to take such actions within our control to
enable our securities to be quoted in the pink sheets by broker-dealers so that
our shareholders may have a place to trade their shares. Because of
this proposed reverse stock split, it may be more difficult for shareholders to
sell a substantial number of shares for the same price at which shareholders
could sell a smaller number of shares on the OTC bulletin board, as opposed to
the pink sheets.
Once our reverse stock split
is effective and we are no longer a reporting company under Section 12(g) of the
Exchange Act, we will no longer be subject to Section 404 of the Sarbanes-Oxley
Act of 2002.
Section
404 of the Sarbanes-Oxley Act of 2002 requires us to perform an evaluation of
our internal control over financial reporting and our auditor to attest to such
evaluation on an annual basis. After the filing of this Form 10-K,
assuming that we consummate our anticipated reverse stock split, we will no
longer be subject to Section 404 of the Sarbanes-Oxley Act of 2002, we will not
be filing periodic or other reports under the Exchange Act with the SEC, and
will not be required to identify or report any material weaknesses in our
internal controls over financial reporting.
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.
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, 2010, we had 226,546,613 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.
19
Outstanding options and
warrants could affect the market price of our common stock.
As of
February 28, 2010, there were outstanding stock options and warrants to purchase
approximately 50,000,000 shares of our common stock at exercise prices ranging
between $0.01 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:
|
•
|
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.
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.
20
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.
Significant
Indebtedness
We have a
significant amount of indebtedness related to our acquisition of QSI 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. 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.
21
ITEM
1B. UNRESOLVED STAFF COMMENTS.
On
February 5, 2010, we filed a Preliminary Schedule 13E3 and Preliminary
Information Statement relating to a proposed reverse split of our common stock,
which would have the effect of terminating our status as a reporting company
under the Exchange Act. On March 5, 2010, we received comments from
the staff regarding these filings. One of the staff’s comments was
that we update all relevant audited financial information in these preliminary
filings to be effective as of December 31, 2010. Accordingly, this
necessitated the filing of this Form 10-K. We intend to file an
amended Schedule 13E3 and Preliminary Information Statement shortly after the
filing of this Form 10-K in order to proceed with this reverse stock
split.
22
ITEM
2. PROPERTIES.
We occupy
office space in California 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 during 2009 leased office
space pursuant to an operating lease agreement that expired on 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. (see Certain Relationships and Related
Transactions).
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, 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 certain 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.
23
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We
submitted no matters to a vote of our securities holders during the fourth
quarter of our 2009 fiscal year. However, as discuss in more detail
elsewhere in this Form 10-K, we do intend to solicit our shareholders, through
an action by written consent, to approve a reverse split of our common stock,
which will have the effect of terminating our status as a reporting company
under the 1934 Act, which will have the effect of our shares trading in the pink
sheets, as opposed to the OTC bulletin board.
24
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
The
Company’s shares trade on the OTC Bulletin Board (“OTCBB”), operated by the
Financial Industry Regulatory Authority, Inc. (FINRA), under the ticker symbol
VEDO. The stock is thinly traded and transactions in the stock are
sporadic and infrequent.
On
February 8, 2010, we announced our intention to effectuate a reverse stock split
that shall have the effect of suspending our obligation to file periodic reports
with the SEC under the Exchange Act. The deregistration of our common
stock would also have the effect of terminating the eligibility of our common
stock for quotation on the OTC bulletin board. However, we intend to
take such actions within our control to enable our securities to be quoted in
the pink sheets by broker-dealers so that our shareholders may have a place to
trade their shares. Accordingly, our historical price ranges are not
necessarily indicative of the future quotations of common stock due to the
anticipated change of our trading market from the OTC bulletin board to the pink
sheets.
The
following table reports, for the periods indicated, the high and low closing bid
prices per share for our common stock as reported by the OTCBB. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transaction prices.
Period
|
High
|
Low
|
||||||
2009
|
||||||||
First
Quarter
|
$ | 0.012 | $ | 0.011 | ||||
Second
Quarter
|
$ | 0.008 | $ | 0.008 | ||||
Third
Quarter
|
$ | 0.010 | $ | 0.010 | ||||
Fourth
Quarter
|
$ | 0.009 | $ | 0.008 | ||||
2008
|
||||||||
First
Quarter
|
$ | 0.070 | $ | 0.010 | ||||
Second
Quarter
|
$ | 0.050 | $ | 0.030 | ||||
Third
Quarter
|
$ | 0.040 | $ | 0.020 | ||||
Fourth
Quarter
|
$ | 0.020 | $ | 0.010 |
As of
February 28, 2010, there were approximately 342 holders of record of the
Company's common 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
December 15, 2009, C. Alan Williams purchased all 33,500,000 shares of our
Series A Preferred Stock from Barron Partners, LP in a private
transaction. Effective December 23, 2009, C. Alan Williams converted
all 33,500,000 shares of our Series A Preferred Stock into 33,500,000 shares of
our common stock pursuant to Section 4(2) of the Securities Act of 1933, as
amended. Following this conversion, the Company had no shares of its
Series A Preferred Stock outstanding.
25
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, 2009 and 2008 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 2010 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, 2009 consolidated financial statements, we have suffered recurring
losses from operations which 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 2009 to vary significantly from those reported for
2008. See Note 5 to our consolidated financial statements contained
elsewhere in this report for additional information regarding the
acquisition.
Effective
December 4, 2009, we sold TBS. Our Board of Directors approved the
disposal of the assets and liabilities on December 2, 2009 as part of a strategy
to reduce debt and focus on growth at the remaining business units and growth by
acquisition. 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.
26
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. From February 2004 through December 2009, TBS
operated our government accounting products and services business.
We
generate revenue, operating income, and cash flows from:
|
·
|
subscription
agreements for enhanced voice, data, and conferencing
services;
|
|
·
|
usage
charges for delivery, management, and other services involving electronic
documents;
|
|
·
|
usage
charges for our governmental accounting and online payment hosted
application services;
|
|
·
|
recurring
fixed monthly service fees for access to voice, data, or application
services;
|
|
·
|
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.
|
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;
|
27
|
§
|
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 600 active clients with over 23,000
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 2009
|
§
|
Consolidated
net revenue from continuing operations for 2009 increased by 5% over
2008;
|
|
§
|
Operating
expenses from continuing operations increased by 7% compared to 2008 and
represented 84% of sales from continuing operations compared to 82% of
sales from continuing operations in
2008;
|
|
§
|
The
most significant factor in the increase is the addition of the operating
expenses from continuing operations of QSI for all twelve months of 2009,
compared to five months during
2008;
|
|
§
|
Operating
expenses decreased at Corporate (-16%) and MVI
(-18%);
|
|
§
|
Net
income increased 76% at MVI and net loss decreased 24% at Corporate;
however, these improvements were offset by a net loss of $655,320 at QSI
and a net income decrease of $378,440 (-33%) at
GSI;
|
|
§
|
Net
loss for 2009 was $2,036,645, a 230% change from the net loss of $616,642
reported for 2008;
|
|
§
|
We
retired approximately $1,351,000 in notes payable to related parties and
$65,000 in convertible notes payable to related parties using proceeds
from the sale of TBS;
|
|
§
|
We
retired approximately $184,000 in accrued expenses that existed as of
December 31, 2008;
|
|
§
|
Our
net payments on our lines of credit were approximately $760,000 during
2009.
|
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;
|
28
|
·
|
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, and MVI and by acquiring companies that
consistently generate net income and positive cash flows. We believe that
this strategy offers the best opportunity for our operations to generate
positive operating income and cash flows from operations and to achieve net
income.
Our
acquisition strategy is focused in two areas: service infrastructure and
vertical market silo. The service infrastructure area is our focus to
acquire enterprises that fulfill our identified strategic technological core
competencies. The vertical market silo acquisition strategy is to
acquire companies that assist us in penetrating our target market segments of
financial services, healthcare, manufacturing, and local
government.
Capital
Formation
During
the remainder of 2010, we are actively seeking additional financing by issuing
equity or obtaining a combination of equity and debt financing from new
shareholders and/or lenders. Although we believe we will generate
adequate cash to sustain operations at current levels in conjunction with
borrowings from our existing lines of credit, we will require additional funding
should we wish to complete acquisitions or to accelerate revenue growth from
existing lines of business. In addition, should we be required to
repay certain of our debt instruments prior to maturity, we will require
additional funding. We continue to caution that there can be no
assurance that funding will be available on acceptable terms, if at all, or that
any such funds we raise would enable us to achieve or maintain profitable
operations.
In spite
of the impact of new laws, regulations, and accounting pronouncements that have
significantly increased our cost of operating as a public company, we intend to
contain general and administrative costs where possible. However, we
expect to incur significant costs during 2010 related to compliance with Section
404 of the Sarbanes-Oxley Act of 2002 if we are not able to effect the
deregistration process that was approved by a majority of our stockholders in
the first quarter of 2010. These costs would include 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 2010, 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.
29
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 2010. 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
aggressively in sales and marketing and, to a somewhat lesser extent, in product
development, to support long-term profitable growth.
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 2010 or 2011 could have a
material adverse effect on our business, financial condition and results of
operations.
30
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;
|
|
·
|
contingencies;
|
|
·
|
derivatives,
and
|
|
·
|
fair
value measurement
|
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
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.
We
recognize 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
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.
31
Revenue
from subscription agreements consists of fixed monthly fees and usage charges,
generally based on per minute rates. Subscription agreement revenue
related to Questys, 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. All share-based
payments to employees, including grants of employee stock options and restricted
stock grants, are recognized in the consolidated financial statements based upon
their fair values. We use the Black-Scholes option pricing model to
estimate the grant-date fair value of share-based awards. Fair value
is determined at the date of grant. The consolidated financial
statement effect of forfeitures is estimated at the time of grant and revised,
if necessary, if the actual effect differs from those
estimates. The estimated average forfeiture rate for the years
ended December 31, 2009 and 2008, of approximately 14%, and 17%, respectively,
was based on historical forfeiture experience and estimated future employee
forfeitures.
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 our loss position, there were no such tax benefits
during the years ended December 31, 2009 and 2008.
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. We allocate our goodwill to our 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, we 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.
32
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.
Derivatives. Effective
January 1, 2009, we adopted the provisions of an accounting pronouncement which
applies to any freestanding financial instruments or embedded features that have
the characteristics of a derivative and to any freestanding financial
instruments that are potentially settled in an entity’s own common stock. As a
result of adopting this pronouncement, certain of our issued and outstanding
common stock purchase warrants previously treated as equity pursuant to the
derivative treatment exemption were no longer afforded equity treatment as more
fully described in Note 3 to the accompanying consolidated financial
statements.
Fair
Value Measurement. In September 2006, the FASB issued a
pronouncement which defines fair value, establishes a framework for measuring
fair value in accordance with accounting principles generally accepted in the
Unites States of America (“GAAP”), and expands disclosures about fair value
measurements. This pronouncement does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. In February
2008, the FASB deferred the effective date of this pronouncement by one year for
certain non-financial assets and non-financial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). On January 1, 2008, the Company adopted the
provisions of this pronouncement, except as it applies to those nonfinancial
assets and nonfinancial liabilities for which the effective date has been
delayed by one year, which the Company adopted on January 1, 2009. The adoption
of this pronouncement did not have a material effect on our financial position
or results of operations. The book values of cash, accounts receivable, accounts
payable, accrued expenses, capital lease obligation, and debt instruments
approximate their respective fair values due to the short-term nature of these
instruments.
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. Effective August 1, 2008, we acquired
QSI. Accordingly, we have included the results of operations of QSI
from the date of acquisition. Effective December 4, 2009, we sold TBS
and reclassified the revenues and expenses of TBS to discontinued operations for
2009 and 2008.
33
Year Ended December 31, 2009
Compared to Year Ended December 31, 2008
Net
Revenue from External Customers
Net
revenue from external customers for 2009 was $10,291,252, a 5% increase over
2008 net revenue of $9,799,854.
During
2009, GSI, QSI, and MVI generated 54%, 21%, and 25% of our net revenue,
respectively. During 2008, GSI, QSI, and MVI generated 62%, 10%, and 28% of our
net revenue, respectively.
The
following is a comparison of the components of consolidated net revenue from
external customers:
Year Ended
|
Year Ended
|
Variance
|
||||||||||||||
December 31, 2009
|
December 31, 2008
|
Amount
|
Percent
|
|||||||||||||
Net
revenue from external customers:
|
||||||||||||||||
Electronic
document delivery services (MVI)
|
$ | 2,576,842 | $ | 2,761,147 | $ | (184,305 | ) | -7 | % | |||||||
Electronic
content management (QSI)
|
2,157,280 | 979,553 | 1,177,727 | 120 | % | |||||||||||
Integrated
communications (GSI)
|
5,557,130 | 6,059,154 | (502,024 | ) | -8 | % | ||||||||||
Corporate
|
- | - | - | |||||||||||||
Total
net revenue from external customers
|
$ | 10,291,252 | $ | 9,799,854 | $ | 491,398 | 5 | % |
Revenue
decreased 8% at GSI due to decreases in user subscription fees as a result of a
change in product mix and customer attrition.
Revenue
decreased 7% at MVI due to a decrease in outbound revenue as a result of
customer attrition and reduced usage volumes.
Revenue
increased 120% at QSI due to comparing twelve months of revenue during 2009 with
five months of revenue during 2008 (from date of acquisition). On a
pro forma basis, QSI’s revenue for 2008 was $2,745,283.
34
Cost
of Sales
The
following is a comparison of the components of consolidated cost of
sales:
Year Ended
|
Year Ended
|
Variance
|
||||||||||||||
December 31, 2009
|
December 31, 2008
|
Amount
|
Percent
|
|||||||||||||
Cost
of sales:
|
||||||||||||||||
Electronic
document delivery services (MVI)
|
$ | 1,000,852 | $ | 1,173,221 | $ | (172,369 | ) | -15 | % | |||||||
Electronic
content management (QSI)
|
803,961 | 365,165 | 438,796 | 120 | % | |||||||||||
Integrated
communications (GSI)
|
1,137,276 | 1,153,489 | (16,213 | ) | -1 | % | ||||||||||
Corporate
|
- | - | - | |||||||||||||
Total
cost of sales:
|
$ | 2,942,089 | $ | 2,691,875 | $ | 250,214 | 9 | % |
Total
cost of sales represented 29% and 27% of net sales during 2009 and 2008,
respectively.
Cost of
sales for MVI for 2009 represented 39% of MVI’s net sales as compared with 42%
in 2008 as a result of reduced telecommunications expenses.
Cost of
sales for GSI for 2009 represented 20% of GSI’s net sales as compared with 19%
in 2008 because fixed cost of sales were not subject to reduction as revenue
declined.
Cost of
sales for QSI for each of 2009 and 2008 represented 37% of QSI’s net
sales.
On a
consolidated basis, cost of sales in 2009 included $31,317 in compensation
expense related to the vesting of stock options, compared to $4,601 in
2008.
Gross
Profit
Gross
profit for 2009 increased 3% to $7,349,163 as compared to $7,107,979 for
2008. The increase for 2009 of $241,184 resulted from decreases of
$11,936 and $485,811 from MVI and GSI, respectively, as offset by an increase of
$738,931 in gross profit of QSI. Gross profit margin for 2009 and
2008 was 71% and 73%, respectively.
Operating
Expenses
The
following is a comparison of the components of consolidated operating
expenses:
Year Ended
|
Year Ended
|
Variance
|
||||||||||||||
December 31, 2009
|
December 31, 2008
|
Amount
|
Percent
|
|||||||||||||
Operating
expenses
|
||||||||||||||||
Electronic
document delivery services (MVI)
|
$ | 1,056,042 | $ | 1,292,392 | $ | (236,350 | ) | -18 | % | |||||||
Electronic
content management (QSI)
|
1,991,995 | 648,314 | 1,343,681 | 207 | % | |||||||||||
Integrated
communications (GSI)
|
3,666,835 | 3,803,204 | (136,369 | ) | -4 | % | ||||||||||
Corporate
|
1,926,003 | 2,298,940 | (372,937 | ) | -16 | % | ||||||||||
Total
operating expenses:
|
$ | 8,640,875 | $ | 8,042,850 | $ | 598,025 | 7 | % |
35
During
2009, the operating expenses of Corporate decreased 16% as a result of decreased
compensation, recruiting fees, consulting, and insurance
expenses. These decreases were offset by increases in filing fees,
legal fees, travel, director fees, and accounting fees paid for non-audit
services that for compliance reasons were not included in the services performed
by our independent registered public accounting firm.
During
2009, MVI’s operating expenses decreased 18% compared to
2008. Product and technology development decreased $32,265 (-8%) due
to staff attrition. Sales and marketing decreased by $132,321 (-43%)
as a result of reduced staff expenses and advertising. General and
administrative decreased by $56,566 (-11%) due to decreased salaries, bad debt
and recruiting fees. Depreciation and amortization expense decreased
by $15,128 (-17%).
During
2009, GSI’s operating expenses decreased 4% compared to 2008. Product
and technology development decreased by $18,578 (-2%). Sales and
marketing increased by $269,050 (+26%) due to increased travel, trade show, and
compensation expense, including third party commissions. General and
administrative decreased by $333,944 (-23%) due to reduced compensation,
processing fees, and rent expense as offset by increases in telephone and legal
expenses. Depreciation and amortization expenses decreased by $52,897
(-11%).
During
2009, QSI incurred $1,991,995 of operating expenses. Product and
technology, sales and marketing, general and administrative, and depreciation
expenses were $671,117, $381,401, $674,696, and $264,781,
respectively
On a
consolidated basis, operating expenses in 2009 included $159,793 in compensation
expense related to the vesting of stock options, compared to $200,486 in
2008.
Operating
Income (Loss)
As a
result of the foregoing, the Company reported an operating loss for 2009 of
$1,292,125, compared to an operating loss of $934,871 for 2008.
The
following is a comparison of the components of consolidated loss from
operations:
Year Ended
|
Year Ended
|
Variance
|
||||||||||||||
December 31, 2009
|
December 31, 2008
|
Amount
|
Percent
|
|||||||||||||
Operating
income (loss):
|
||||||||||||||||
Electronic
document delivery services (MVI)
|
$ | 519,948 | $ | 295,534 | $ | 224,414 | 76 | % | ||||||||
Electronic
content management (QSI)
|
(638,676 | ) | (33,926 | ) | (604,750 | ) | -1783 | % | ||||||||
Integrated
communications (GSI)
|
753,019 | 1,102,461 | (349,442 | ) | -32 | % | ||||||||||
Corporate
|
(1,926,003 | ) | (2,298,940 | ) | 372,937 | 16 | % | |||||||||
Total
operating loss, net
|
$ | (1,291,712 | ) | $ | (934,871 | ) | $ | (356,841 | ) | -38 | % |
As
illustrated by the above table, each of MVI and Corporate reported a significant
improvement in operating income (loss) during 2009 compared to
2008. These improvements were offset by decreases at QSI and
GSI.
Interest
Expense, net of Interest Income
Interest
expense, net for 2009 decreased by $124,348 to $144,579 from the $268,927
reported in 2008. The most significant factor in the decrease was a
reduction in the amortization of debt issue costs as offset by increases in
interest paid in connection with the Company’s lines of credit and notes payable
to related parties.
36
Other
Income, net
Other
income, net for 2009 was $42,291 compared to other income, net of $129,815
reported in 2008. In each of the years, we recorded other income and
expense related to settlement of liabilities.
Discontinued
Operations
For the
years ended December 31, 2009 and 2008, (loss) income from discontinued
operations was $(405,745) and 491,532, respectively. In each of the
respective years discontinued operations included the results of operations of
TBS. 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 2009 was $2,037,963, or $0.01 per share,
compared to a net loss of $616,242, or $0.00 per share, for 2008 on weighted
average shares of 190,350,672 and 162,595,571, respectively.
The
following is a comparison of the components of consolidated net
loss:
Year Ended
|
Year Ended
|
Variance
|
||||||||||||||
December 31, 2009
|
December 31, 2008
|
Amount
|
Percent
|
|||||||||||||
Net
income (loss):
|
||||||||||||||||
Electronic
document delivery services (MVI)
|
$ | 498,464 | $ | 283,906 | $ | 214,558 | 76 | % | ||||||||
Electronic
content management (QSI)
|
(655,320 | ) | 16,695 | (672,015 | ) | * | ||||||||||
Integrated
communications (GSI)
|
755,576 | 1,134,016 | (378,440 | ) | -33 | % | ||||||||||
Corporate
|
(1,926,620 | ) | (2,542,391 | ) | 615,771 | 24 | % | |||||||||
Discontinued
operations
|
(708,745 | ) | 491,532 | (1,200,277 | ) | * | ||||||||||
Total
net loss
|
$ | (2,036,643 | ) | $ | (616,242 | ) | $ | (1,420,403 | ) | -230 | % | |||||
*
calculation is not meaningful
|
LIQUIDITY AND CAPITAL
RESOURCES
During
the year ended December 31, 2009, our net cash position increased by $740,387 to
$1,307,834. Although our operating and investing activities provided
net cash of $53,947 and $2,019,818, respectively, our financing activities used
net cash of $1,333,378.
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
2009, we relied heavily on our operating lines of credit to fund the negative
operating cash flows we experienced. We expect to experience further
negative operating cash flows during 2010, and we expect to make use of
remaining proceeds from the sale of TBS and from new sources of debt financing
to offset such negative cash flows.
During
2009, we used cash flows generated by our operations to retire approximately
$184,000 in accrued expenses which existed as of December 31,
2008. We also retired approximately $1,351,000 in notes payable debt
in 2009 while incurring $865,000 in new notes payable debt.
37
On
December 4, 2009, we sold TBS to N. Harris Computer Corporation and its
affiliate for approximately $2.3 million in cash plus up to $0.7 million in
additional future payments subject to certain earn-out
provisions. Our Board of Directors approved the disposal of TBS on
December 2, 2009 as part of a strategy to reduce debt and focus on growth at the
remaining business units and growth by acquisition. We used $169,817
of the proceeds from the asset sale to pay outstanding amounts pursuant to the
Line (see below) on December 4, 2009.
On
February 6, 2008, we entered into an agreement with The Private Bank of The
Peninsula (“Bank”) for an asset based line of credit (the “Line”). Pursuant to
an amendment, the Bank renewed the Line and modified the terms to include an
interest rate that was floating and was calculated at Wall Street Journal prime
plus five percent (5%) on the cash borrowed provided that the minimum rate was
eight and one half percent (8.5%) and minimum interest was $7,000 per three
month period. Interest on outstanding borrowings was payable monthly. In
addition, we were required to pay an amendment fee of $10,000 and, upon each
advance, a fee equal to one quarter of one percent (0.25%) of the advance, and
is subject to covenants as to minimum quarterly income and cash flow. The Bank’s
maximum commitment amount for the Line, as amended, was $1.0 million. Advances
were generally limited to 80% of eligible domestic accounts receivable.
Outstanding advances under the Line were secured by a first lien position on all
of our accounts receivable, contract rights, chattel paper, documents, and
payment and by a second lien on our inventory, intellectual property, and
equipment. As of December 31, 2009, there were outstanding borrowings of
$130,592 on the Line and we were in compliance with all loan covenants, except a
quarterly income covenant. As a result of our failure to comply with the
quarterly income covenant, the Bank increased the interest rate to 13.5% per
annum effective November 19, 2009. The Line matured on February 24, 2010 and,
pursuant to an extension granted by the Bank, we repaid all outstanding advances
in February and March 2010.
Effective
September 30, 2006, we obtained a $500,000 revolving line of credit (“RLOC”)
with a financial institution. On May 8, 2009, we retired the RLOC using the
proceeds of the Williams May 2009 Note (see below). The terms of the
note payable financing were deemed more favorable to the Company than the
renewal terms offered by the financial institution.
QSI had
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 bore interest at the prime rate, plus
2.775%. On August 3, 2009, as stipulated by the QSI acquisition
agreements, we repaid the outstanding borrowings of $100,000 in full and closed
the line of credit using the proceeds of the Williams July 2009 Note (see
below).
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 our 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. On August 1, 2009, we
paid the first installment of $300,000 using the proceeds of the Williams July
2009 Note (see below). The Pavlovic Note is secured by certain assets of Questys
as defined in a Security 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. On August 3, 2009, we paid
the first installment of $35,000 using the proceeds of the Williams July 2009
Note (see below).
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, who is one of our
Directors. The SLG Note was originally due on October 31, 2008 and
bore interest at a rate of nine percent (9%) per annum through October 31,
2008.
38
On
October 30, 2008, VillageEDOCS, Inc. and SLG entered into an Amendment to
Secured Promissory Note (“Amendment”) to modify the maturity date, interest
rate, and repayment terms of the SLG Note. As of October 31, 2008,
the remaining principal balance of the SLG Note, as amended, was $250,000 and no
interest was outstanding. Pursuant to the Amendment, the SLG Note
matured on March 31, 2009 and bore interest from November 1, 2008 at a rate of
twelve percent (12%) per annum. As of December 31, 2009, the SLG Note
was paid in full. The SLG Note was secured by the accounts receivable
of GoSolutions, Inc., our wholly-owned subsidiary, as defined in a Security
Agreement dated as of August 1, 2008.
On May 6,
2009 we arranged for an unsecured promissory note financing with C. Alan
Williams and Joan P. Williams in the amount of $430,000 (the “Williams May 2009
Note”). The Williams May 2009 Note bore a per annum interest rate
equal to the most favorable rate paid by the Williams plus two percent
(2%). Our interest rate in effect through December 15, 2009 (date of
repayment) with respect to the Williams May 2009 Note was 4.87%. The
interest rate was subject to adjustment once per month. The term of
the Williams May 2009 Note was thirty-six (36) months, with monthly installments
paid by us consisting of principal and interest on the first of each month,
beginning on August 1, 2009.
We used
the proceeds from the Williams May 2009 Note, to retire the RLOC on May 8, 2009
(see above). We deemed the terms of the Williams May 2009 Note to be
more favorable to us than the renewal terms offered by the financial
institution.
On July
30, 2009 we arranged for an unsecured promissory note financing with C. Alan
Williams and Joan P. Williams in the amount of $435,000 (the “Williams July 2009
Note”). The Williams July 2009 Note bore interest at ten percent
(10%) per annum. The term of the Williams July 2009 Note was twelve
(12) months, with monthly installments paid by us at the end of each month
consisting of principal and interest, beginning on July 31, 2009.
We used
the proceeds from the Williams July 2009 Note, to retire a line of credit with a
financial institution on August 4, 2009 and to make installment payments to
Vojin and Gloria Hadzi-Pavlovic pursuant to the agreement for the Company’s
purchase of QSI dated as of August 1, 2008.
On
February 17, 2004, we borrowed $1,700,000 from C. Alan and Joan P. Williams and
issued a convertible promissory note, which bore interest at ten percent (10%)
per annum (the “Williams Convertible Note”). During 2005, all but
$65,000 of the principal amount due pursuant to this note was converted into
shares of our common stock. In October 2009, the Williams
agreed to extend the due date of the note to October 31,
2011. Effective February 17, 2009, we 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.
On
December 15, 2009, we paid $927,917 to C. Alan and Joan P. Williams in full
satisfaction of all outstanding principal and interest owed to the Williams
pursuant to the Williams Convertible Note, the Williams May 2009 Note, and the
Williams July 2009 Note.
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 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 all of 2010 and at least until QSI, MVI, and GSI
consistently generate net cash flows sufficient to offset the projected expense
to operate the holding company.
39
We expect
to use cash flow generated from operations, remaining proceeds from the sale of
TBS, and potentially other sources, to fund any such negative operating cash
flows during the remainder of 2010.
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 2010 should we be
required to expand or significantly upgrade our technology infrastructure
through additional capital expenditures. Should our current revenue
streams or margins be subjected to even minor decreases, our external funding
requirements would likely be greater.
We
believe that sustainable profitability is achievable; however, we have a history
of losses. While GSI and MVI each reported net income for 2009, this
income was not sufficient to offset losses at QSI, interest expense and
corporate overhead. If we are not successful in improving operating
profits from our three operating segments, or in reducing expenses of QSI and
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, 2009
consolidated financial statements includes an explanatory paragraph stating that
the recurring losses incurred from operations 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.
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
40
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 belief that we offer a complete set of business communication services
and solutions and a scalable global platform, (4) 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, (5) our belief about the
benefits businesses will derive from our software and service solutions and
about its capabilities, (6) 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, (7) our belief as to
the reason that each of our businesses can compete effectively, (8) our strategy
of preparing for significant growth , and (9) 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.
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, 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 2010, 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.
41
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.
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.
42
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, 2009. Accordingly, we concluded that our
disclosure controls and procedures were not effective as of December 31,
2009.
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 determined that our internal controls over financial reporting
were not effective as of December 31, 2009 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 2009, which were not detected initially by
management. These adjustments included adjustments to accrued
expenses and net income. Management has concluded that this
control deficiency constitutes a material
weakness.
|
|
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 2009 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 2009 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.
|
43
|
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 2009 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 2009 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, 2009. 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.
Remediation of Material
Weakness
As
discussed in Management’s
Annual Report on Internal Control over Financial Reporting, as of
December 31, 2009, 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, 2009. 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.
44
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 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
ITEM
9B. OTHER INFORMATION.
None.
45
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
Directors
and Executive Officers
All
directors and executive officers may be reached by contacting the Company,
located at 1401 N. Tustin Ave., Suite 230, Santa Ana, California 92705,
telephone number (714) 734-1030.
The
following tables and text set forth certain information concerning members of
the Board of Directors of the Company and its executive officers. All of the
ages are as of February 28, 2010. All of the Company’s directors and
executive officers are citizens of the United States.
The
following table sets forth the names and ages of the directors and executive
officers of the Company and certain additional information:
Name
|
Age
|
Position
|
||
J.
Thomas Zender
|
70
|
Chairman
of the Board (1)
|
||
K.
Mason Conner
|
53
|
Chief
Executive Officer, President, Director
|
||
H.
Jay Hill
|
70
|
Executive
Vice President of Corporate Development, Director
|
||
Gerik
M. Degner
|
35
|
Director(1)
|
||
Ricardo
A. Salas
|
46
|
Director(1)
|
||
Michael
A. Richard
|
41
|
Chief
Financial Officer and
Secretary
|
(1)
Indicates that the director is “independent” within the meaning of Item
7(d)(3)(iv) of Schedule 14A of the Exchange Act.
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 2010. Mr. Zender has
been a director since August 1997, Mr. Hill since October 1997, Mr. Conner since
October 1998, Mr. Salas since July 2005, and Mr. Degner since August
2009.
46
K. MASON
CONNER has been our Chief Executive Officer since 1999 and has served as our
President since January 1, 2007. 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 of GoSolutions, MVI, and QSI. 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.
GERIK M.
DEGNER, CFA was nominated to join our Board of Directors in June, 2009. Since
May of 2009, Mr. Degner has been a Director at Waveland Capital Group focusing
on corporate finance, mergers and acquisitions and private equity services. From
July 2007 to May 2009, Mr. Degner worked with Charterhouse Group, a middle
market private equity group, as an Advisor responsible for transaction and
business development activities. From August 2004 to July 2007, he founded and
managed Synergem Venture Group, an investment banking consulting firm that
worked with numerous private equity funds on strategic consolidation and special
acquisition projects. From November 2002 to August 2004, Mr. Degner founded and
managed Cimarron Equity Partners, a micro market private equity fund that
focused on lower middle market companies. Mr. Degner’s background includes a
variety of transactions including private equity placement, mergers and
acquisitions, recapitalizations, growth financings and divestitures. Mr. Degner
holds a B.A. in Psychology from the University of Colorado at Boulder and is a
CFA Charterholder.
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.
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.
47
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, QSI, GSI, 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.
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.
|
48
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.
|
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 2009 the Audit
Committee met four times. 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 2009 the Compensation Committee met three times. 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
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.
49
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 $248,062 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.
50
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
($)
|
Stock
Awards
(1)(2)
($)
|
Option
Awards
(3)
($)
|
Non-Equity
Incentive plan
Compensation
($)
|
Total
($)
|
|||||||||||||||||||
K.
Mason Conner, President and CEO
|
2009
|
236,250 | - | 68,792 | - | - | 305,042 | |||||||||||||||||||
2008
|
232,500 | - | 94,733 | 5,000 | - | 332,233 | ||||||||||||||||||||
H.
Jay Hill, Executive Vice President – Corporate
|
2009
|
210,000 | - | 58,965 | - | - | 268,965 | |||||||||||||||||||
Development |
2008
|
210,000 | - | 70,873 | 2,000 | - | 282,873 | |||||||||||||||||||
Michael
A. Richard, CFO and Secretary
|
2009
|
160,000 | - | - | - | - | 160,000 | |||||||||||||||||||
2008
|
160,000 | - | 15,000 | - | - | 165,000 |
(1) All
of the shares of common stock earned by Messrs. Conner and Hill that were issued
during 2009 were valued at $0.01 per share (the estimated fair value on the
measurement date) and recorded as compensation expense.
(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%. 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.
51
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.
52
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.
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, 2009.
53
Name
|
Option Awards
|
Stock Awards
|
|||||||||||||||||||||||||||||||
Number of
Securities
Underlying
Unexercised
Options
|
Number of Securities
Underlying
Unexercised Options
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
Option
Exercise
Price
|
Option
Expiration
|
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
|
|||||||||||||||||||||||||
(#)
|
(#)
|
(#)
|
($)
|
Date
|
(#)
|
($)
|
(#)
|
($)
|
|||||||||||||||||||||||||
Exercisable
|
Unexercisable
|
|
|||||||||||||||||||||||||||||||
K.
Mason Conner
|
500,000 | - | - | 0.015 |
11/16/2015
|
- | - | - | - | ||||||||||||||||||||||||
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
|
- | - | - | - | |||||||||||||||||||||||||
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.
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.
54
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 40,370,976 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, 2009 and 2008 was approximately 49,100,000 and 43,000,000,
respectively (see Notes to accompanying consolidated financial
statements).
COMPENSATION
OF DIRECTORS
The
following table presents information regarding compensation paid to our
non-employee directors for our fiscal year ended December 31,
2009.
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
($)
|
|||||||||||||||||||||
Gerik
M. Degner
|
$ | 15,000 | 5,864 | $ | 20,864 | |||||||||||||||||||||||
Ricardo
A. Salas
|
$ | 30,000 | - | - | - | - | - | $ | 30,000 | |||||||||||||||||||
J.
Thomas Zender
|
$ | 30,000 | - | - | - | - | - | $ | 30,000 |
Assumptions
relating to the estimated fair value of stock options granted to Mr. Degner
during 2009 are as follows: risk-free interest rate of 2.3%; expected dividend
yield 0%; expected option life of 6.0 years; and volatility of 182% -
202%. 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
Beginning
in January 2009, non-employee directors began to receive annual retainer fees,
which were paid in cash in quarterly installments. Each non-employee
director receives 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 2009,
we issued options to purchase an aggregate of 600,000 shares of our common stock
to Gerik M. Degner, a non-employee director, in consideration for his 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.
55
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
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, 2010
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, 2009 exceeded
$100,000, and (iv) directors, executive officers, and significant employees as a
group:
Name of Beneficial
|
Amount and Nature of
|
Percent
|
||||||
Owner (1)
|
Beneficial Ownership (2)
|
of Class (3) (4)
|
||||||
C.
Alan Williams (5)
|
103,487,867 | 41.7 | ||||||
K.
Mason Conner (6)
|
17,588,638 | 7.1 | ||||||
J.
Thomas Zender (7)
|
2,214,499 | * | ||||||
Gerik
M. Degner
|
- | * | ||||||
H.
Jay Hill (8)
|
14,528,499 | 5.9 | ||||||
Ricardo
A. Salas (9)
|
820,000 | * | ||||||
Michael
Richard (10)
|
2,504,167 | 1.0 | ||||||
GoSolutions
Equity LLC (11)
|
26,786,840 | 10.8 | ||||||
Vojin
Hadzi-Pavlovic
|
22,000,000 | 8.9 | ||||||
All
directors, executive officers, and significant employees as a group (6
persons)
|
37,655,803 | 15.2 |
* 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 226,546,613 shares of the Company's common stock outstanding at February 28,
2010, plus, as to each person listed, that portion of the Company's common stock
subject to outstanding options and warrants which may be exercised 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 within 60 days of February 28, 2010.
(4) Excludes
31,465,401 shares reserved for issuance under outstanding options and
warrants.
(5) Includes
warrants to acquire 3,000,000 shares at $0.10 per share.
(6) Includes
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 $0.015 per share, and warrants to acquire 200,000
shares at $0.15 per share.
(7) 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, options to acquire 500,000 shares at $0.15 per share, and
options to acquire 200,000 shares at $0.015 per share.
56
(8) 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.
(9) Includes
options to acquire 800,000 shares of common stock at $0.18 per
share.
(10) 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.
(11) The
members of GoSolutions Equity LLC are Daniel M. Doyle, Sr., H. Scott Seltzer,
Larry C. Morgan, Shaun C. Pope, and Tom C. Lokey.
Securities Authorized for
Issuance Under Equity Compensation Plans
The
following provides information, as of December 31, 2009, 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
|
40,370,976 | $ | 0.17 | 49,100,000 | ||||||||
Equity
compensation plans not approved by security holders
|
9,754,429 | $ | 0.07 | — | ||||||||
Total
|
50,125,405 | $ | 0.14 | 49,100,000 |
For a
complete description of our equity compensation plans, please refer to Note 7 of
our consolidated financial statements as of December 31, 2009, which are filed
as Exhibit 99.1 hereto.
57
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 had 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 had a term of six years, with monthly payments
of $6,200. Perimeter Center Partners is owned by Stephen A. Garner
and James L. Campbell, who were each employees of TBS, former owners of TBS, and
current stockholders of the Company.
TBS had a
related party capital lease with Perimeter Center Partners for an inserting
machine. The lease commenced on May 19, 2007. Monthly
payments were $1,746.
Effective
December 23, 2009, C. Alan Williams converted 33,500,000 shares of our Series A
Preferred Stock into 33,500,000 shares of our common stock. The
transaction resulted in no consideration to us because the Series A Preferred
Stock was convertible for no additional consideration. Mr. Williams
had previously purchased these shares from Barron Partners, LP in a private
transaction not involving us. After the conversion by Mr. Williams,
we had no shares of Series A preferred Stock outstanding.
On April
8, 2009 and pursuant to the terms of their respective employment agreements, we
issued 6,879,200 shares of its restricted common stock to K. Mason Conner, who
is our President and Chief Executive Officer and a Director, and 5,896,500
shares of our restricted common stock to H. Jay Hill, who is our Executive Vice
President of Corporate Development and a Director. These shares were
valued at $0.01 per share (the estimated fair value on the measurement date) and
recorded as compensation expense.
58
On August
1, 2008 and in connection with the acquisition of Questys, we 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.
On August
1, 2008 and in connection with the acquisition of Questys, we 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 us any in connection with the acquisition of Questys. The Pavlovic
Note is non-interest bearing and may be prepaid in whole or in part at any time
without penalty and is due on August 1, 2011. Principal payments are due in
three equal annual installments of $300,000 each on August 1, 2009, August 1,
2010, and August 1, 2011. The Pavlovic Note is secured by certain assets of
Questys as defined in a Security Agreement dated as of August 1, 2008. Payment
obligations under the Pavlovic Note are subordinate in certain respects to the
rights of the Private Bank of the Peninsula to the extent set forth in a
Subordination Agreement dated as of August 1, 2008.
Prior to
August 1, 2008 (effective date of acquisition of Questys), the Pavlovics made
aggregate advances to Questys in the amount of $115,000, which were assumed in
the acquisition (the “Pavlovic Shareholder Debt”). The Pavlovic Shareholder Debt
is non-interest bearing and we and the Pavlovics have agreed to the repayment of
the outstanding balance as follows: (i) $35,000 on or before August 1, 2009,
(ii) $40,000 on or before August 1, 2010, and (iii) $40,000 on or before the
August 1, 2011.
We funded
the requirement for the initial $300,000 payment for the purchase of QSI from
the proceeds of a $300,000 related party secured promissory note offering
subscribed to by The Silver Lake Group, LLC (“SLG”) on August 4, 2008 (the “SLG
Note”). SLG is owned by Ricardo A. Salas, a Director of VillageEDOCS. The SLG
Note was originally due on October 31, 2008 and bore interest at a rate of nine
percent (9%) per annum through October 31, 2008.
On
October 30, 2008, VillageEDOCS, Inc. and SLG entered into an Amendment to
Secured Promissory Note (“Amendment”) to modify the maturity date, interest
rate, and repayment terms of the SLG Note. As of October 31, 2008, the remaining
principal balance of the SLG Note, as amended, was $250,000 and no interest was
outstanding. Pursuant to the Amendment, the SLG Note matured on March 31, 2009
and bore interest from November 1, 2008 at a rate of twelve percent (12%) per
annum. As of December 31, 2009, the SLG Note was paid in full. As of December
31, 2008, the outstanding principal balance due pursuant to the SLG note was
$151,490. The SLG Note was secured by the accounts receivable of GoSolutions,
Inc., our wholly-owned subsidiary, as defined in a Security Agreement dated as
of August 1, 2008. Payment obligations under the SLG Note were subordinate in
certain respects to the rights of the Bank to the extent set forth in a
Subordination Agreement entered into effective August 1, 2008.
On May 6,
2009 we arranged for an unsecured promissory note financing with C. Alan
Williams and Joan P. Williams in the amount of $430,000 (the “Williams May 2009
Note”). The Williams May 2009 Note bore a per annum interest rate equal to the
most favorable rate paid by the Williams plus two percent (2%). Our interest
rate in effect through December 15, 2009 (date of repayment) with respect to the
Williams May 2009 Note was 4.87%. The interest rate was subject to adjustment
once per month. The term of the Williams May 2009 Note was thirty-six (36)
months, with monthly installments paid by us consisting of principal and
interest on the first of each month, beginning on August 1, 2009. Payment
obligations under the Williams May 2009 Note were subordinate in certain
respects to the rights of the Private Bank of the Peninsula.
We used
the proceeds from the Williams May 2009 Note, to retire the RLOC on May 8, 2009
(see above). The terms of the Williams May 2009 Note were deemed more favorable
to us than the renewal terms offered by the financial
institution.
59
On July
30, 2009 we arranged for an unsecured promissory note financing with C. Alan
Williams and Joan P. Williams in the amount of $435,000 (the “Williams July 2009
Note”). The Williams July 2009 Note bore interest at ten percent
(10%) per annum. The term of the Williams July 2009 Note was twelve
(12) months, with monthly installments paid by us at the end of each month
consisting of principal and interest, beginning on July 31,
2009. Payment obligations under the Williams July 2009 Note were
subordinate in certain respects to the rights of the Private Bank of the
Peninsula.
We used
the proceeds from the Williams July 2009 Note, to retire a line of credit with a
financial institution on August 4, 2009 and to make installment payments to
Vojin and Gloria Hadzi-Pavlovic pursuant to the agreement for our purchase of
QSI dated as of August 1, 2008.
On
February 17, 2004, we borrowed $1,700,000 from C. Alan and Joan P. Williams and
issued a convertible promissory note, which bore interest at ten percent (10%)
per annum (the “Williams Convertible Note”). During 2005, all but
$65,000 of the principal amount due pursuant to this note was converted into
shares of our common stock. In October 2009, the Williams
agreed to extend the due date of the note to October 31, 2011 (see Note
11). The note and accrued interest were due at the earlier of one of
three events: 1) October 31, 2011; 2) acquisition of a controlling interest in
us by a third party; or 3) we achieved equity financing of a minimum of
$3,000,000. Effective April 14, 2005, pursuant to an amendment to the
note, the conversion price was fixed at $0.14 per share. As an
incentive for Mr. and Mrs. Williams to provide the loan, we issued them a
warrant to purchase 5,000,000 shares of the Company's restricted common stock at
$0.10 per share exercisable until February 17, 2009. Effective
February 17, 2009, we and the Williams agreed to extend the expiration date of
the warrant to February 16, 2012 in exchange for the Williams’ agreement to
extend their guaranty of the RLOC through December 31, 2010. The
extension of the warrants did not have a material effect on the consolidated
financial statements.
During
the years ended December 31, 2009 and 2008, $35,439 and $6,500, respectively, of
interest expense was recognized in connection with these notes.
On
December 15, 2009, we paid $927,917 to C. Alan and Joan P. Williams in full
satisfaction of all outstanding principal and interest owed to the Williams
pursuant to the Williams Convertible Note, the Williams May 2009 Note, and the
Williams July 2009 Note.
At
December 31, 2008, the amount owed by us to the Williams pursuant to the unpaid
balance of the convertible promissory note payable was $65,000 in principal and
$113,370 in unpaid interest. The interest rate in effect as of
December 31, 2008 was ten percent (10%) per annum.
On
November 17, 2008, we 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 us. 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, we issued 2,000,000 shares of its common stock to H. Jay Hill
pursuant to the 2002 Equity Incentive Plan. Mr. Hill is an officer
and director of us. 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, we 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 us. These shares were valued at $0.015 per share (the
estimated fair value on the measurement date) and recorded as compensation
expense.
60
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, 2009 and 2008 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.
2009
|
2008
|
||||||||
(i)
|
Audit
Fees
|
$ | 160,000 | $ | 195,000 | ||||
(ii)
|
Audit
Related Fees
|
- | 33,000 | ||||||
(iii)
|
Tax
Fees
|
40,000 | 40,000 | ||||||
(iv)
|
All
Other Fees
|
- | - | ||||||
Total
|
$ | 200,000 | $ | 268,000 |
61
PART
IV
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.
**
|
|
2.9
|
Intellectual
Property Purchase Agreement, dated December 4, 2009, among N. Harris
Computer Corporation, Tailored Business Systems, Inc., and VillageEDOCS,
Inc. Previously filed as Exhibit 2.1 to the Company’s Current
Report on Form 8-K filed on December 7, 2009. **
|
|
2.10
|
Share
Purchase Agreement, dated December 4, 2009, between Systems Design, Inc.,
and VillageEDOCS, Inc. Previously filed as Exhibit 2.2 to the
Company’s Current Report on Form 8-K filed on December 7, 2009.
**
|
|
3.1
|
Articles
of Incorporation, as amended. Previously filed with the Company's
Form 10-SB filed on August 29,
2000. **
|
62
3.2
|
By-laws.
Previously filed with the Company's Form 10-SB filed on August 29,
2000. **
|
|
3.3
|
Article
of Amendment to Articles of Incorporation to increase authorized number of
common shares. Previously filed with the Company's 14C Information
Statement filed on July 23, 2004. **
|
|
3.4
|
Article
of Amendment to Articles of Incorporation to increase authorized number of
common shares and to create a class of preferred stock. Previously
filed with the Company's 14C Information Statement filed on June 7, 2005.
**
|
|
3.5
|
Form
of Certificate of Designations of Preferences, Rights and Limitations of
Series A Convertible Preferred Stock. Previously filed as Exhibit
4.8 to the Company's Current Report on Form 8-K filed on April 19, 2005.
**
|
|
3.6
|
Certificate
of Amendment of Articles of Incorporation to increase authorized number of
common shares. Previously filed with the Company's Current Report on
Form 8-K filed on January 20, 2006. **
|
|
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. **
|
63
4.7
|
Security
Agreement dated May 9, 2002 by and among the Company, Joan P. Williams and
C. Alan Williams. Previously filed as Exhibit 4.4 to the
Registrant's Quarterly Report on Form 10-QSB filed with the Securities and
Exchange Commission on May 15, 2002 and incorporated herein by reference.
**
|
|
4.8
|
Promissory
Note to Stephen A. Garner dated February 17, 2004 previously filed as
Exhibit 4.1 to the Company's Current Report on Form 8-K filed on February
18, 2004 and incorporated herein by reference. **
|
|
4.9
|
Promissory
Note to James L. Campbell dated February 17, 2004 previously filed as
Exhibit 4.2 to the Company's Current Report on Form 8-K filed on February
18, 2004 and incorporated herein by reference. **
|
|
4.10
|
Guaranty
by Tailored Business Systems, Inc. to Stephen A. Garner dated February 17,
2004 previously filed as Exhibit 4.3 to the Company's Current Report on
Form 8-K filed on February 18, 2004 and incorporated herein by reference.
**
|
|
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.
**
|
64
4.18
|
Notice
of Intent to Exercise Conversion Right dated February 10, 2005 by Joan P.
Williams and C. Alan Williams. Previously filed as Exhibit 4.5 to
the Company's Current Report on Form 8-K filed on February 14, 2005.
**
|
|
4.19
|
Note
Purchase Agreement dated April 13, 2005 by and between VillageEDOCS and
Barron Partners LP. Previously filed as Exhibit 4.5 to the Company's
Current Report on Form 8-K filed on April 19, 2005. **
|
|
4.20
|
Convertible
Note to Barron Partners LP dated April 13, 2005. Previously filed as
Exhibit 4.6 to the Company's Current Report on Form 8-K filed on April 19,
2005. **
|
|
4.21
|
Registration
Rights Agreement dated April 13, 2005 by and between VillageEDOCS and
Barron Partners LP. Previously filed as Exhibit 4.7 to the Company's
Current Report on Form 8-K filed on April 19, 2005. **
|
|
4.22
|
Form
of Certificate of Designations of Preferences, Rights and Limitations of
Series A Convertible Preferred Stock. Previously filed as Exhibit
4.8 to the Company's Current Report on Form 8-K filed on April 19, 2005.
**
|
|
4.24
|
Form
of Note Assignment. Previously filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on July 6, 2005. **
|
|
4.25
|
Form
of Promissory Note Modification Agreement. Previously filed as
Exhibit 4.2 to the Company's Current Report on Form 8-K filed on July 6,
2005. **
|
|
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.
**
|
65
4.32
|
Registration
Rights Agreement dated as of April 28, 2006 by and among VillageEDOCS and
the principal stockholders of GoSolutions, Inc. Previously filed as
Exhibit 99.5 to the Company's Current Report on Form 8-K filed on May 4,
2006. **
|
|
4.33
|
Principal
VEDO Stockholders Voting Agreement dated as of April 28, 2006 by and among
Barron Partners, LP, C. Alan Williams, Joan P. Williams and GoSolutions,
Inc. Previously filed as Exhibit 99.6 to the Company's Current
Report on Form 8-K filed on May 4, 2006. **
|
|
4.34
|
Indemnity/Contribution
Agreement effective April 30, 2006, by and among VillageEDOCS, GoSolutions
Equity, LLC (the "LLC"), and the principals of the LLC identified on the
signature page thereto. Previously filed as Exhibit 99.7 to the
Company's Current Report on Form 8-K filed on May 4, 2006.
**
|
|
4.35
|
Settlement
and Release Agreement dated as of April 28, 2006 by and among
VillageEDOCS, GoSolutions, Inc., The Zant Group Trust and Louis J.
Zant. Previously filed as Exhibit 99.9 to the Company's Current
Report on Form 8-K filed on May 4, 2006. **
|
|
4.36
|
Second
Extension Agreement dated as of April 28, 2006 by and between The Zant
Group Trust and GoSolutions, Inc. Previously filed as Exhibit 99.9
to the Company's Current Report on Form 8-K filed on May 4, 2006.
**
|
|
4.37
|
Settlement
and Release Agreement dated as of June 30, 2006, by and among
VillageEDOCS, GoSolutions, Inc., Bruce H. Bennett and Sandra G.
Bennett. Previously filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on July 12, 2006. **
|
|
4.38
|
Warrant
Exchange Agreement dated as of November 20, 2006 by and between the
Company and Barron Partners, LP. Previously filed as Exhibit
10.1 to the Company’s Amended Current Report on Form 8-K/A filed on
November 22, 2006.**
|
|
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.
**
|
66
4.44
|
Form
of Subordination Agreement dated as of August 1, 2008 by and between The
Private Bank of the Peninsula and The Silver Lake Group
LLC. Previously filed as Exhibit 99.8 to the Company’s Current
Report on Form 8-K filed on August 6, 2008. **
|
|
4.45
|
Amendment
to Secured Promissory Note dated October 31, 2008 by and between
VillageEDOCS, Inc. and The Silver Lake Group, LLC. Previously
filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on
October 31, 2008.**
|
|
4.46
|
Form
of Loan and Security Agreement dated February 6, 2008 by and between The
Private Bank of the Peninsula and each of the Registrant, MessageVision,
Inc., and Tailored Business Systems, Inc. Previously filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February
11, 2008. **
|
|
4.47
|
First
Amendment to Loan and Security Agreement dated as of February 24, 2009 by
and between The Private Bank of the Peninsula and the
Registrant. Previously filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on March 6, 2009. **
|
|
4.48
|
Promissory
Note by and between the Registrant and C. Alan Williams and Joan P.
Williams dated May 6, 2009. Previously filed as Exhibit 99.1 to
the Company’s Current Report on Form 8-K filed on May 11,
2009.**
|
|
4.49
|
Promissory
Note by and between the Registrant and C. Alan Williams and Joan P.
Williams dated July 30, 2009. Previously filed as Exhibit 99.1
to the Company’s Current Report on Form 8-K filed on August 4,
2009.**
|
|
4.50
|
Third
Amendment to Convertible Promissory Note by and between the Registrant and
C. Alan Williams and Joan P. Williams dated as of October 22,
2009.*
|
|
10.1
|
General
Release and Noncompetition Agreement dated February 17, 2004 by Stephen A.
Garner in favor of Tailored Business Systems, Inc. previously filed as
Exhibit 10.3 to the Company's Current Report on Form 8-K filed on February
18, 2004 and incorporated herein by reference. **
|
|
10.2
|
General
Release and Noncompetition Agreement dated February 17, 2004 by James L.
Campbell in favor of Tailored Business Systems, Inc. previously filed as
Exhibit 10.4 to the Company's Current Report on Form 8-K filed on February
18, 2004 and incorporated herein by reference. **
|
|
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.
**
|
67
10.4
|
Release
of Claims Agreement dated as of April 1, 2005 by Alexander Riess in favor
of Phoenix Forms, Inc. Previously filed as Exhibit 10.3 to the
Company's Current Report on Form 8-K filed on April 19, 2005.
**
|
|
10.5
|
Release
of Claims Agreement dated as of April 1, 2005 by William R. Falcon in
favor of Phoenix Forms, Inc. Previously filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K filed on April 19, 2005.
**
|
|
10.6
|
Executive
Employment Agreement, dates as of March 1, 2006, by and between the
Company and Jerry T. Kendall. Previously files as Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on March 1, 2006.
**
|
|
10.7
|
Thor
Bendickson Employment Agreement effective as of May 1, 2006.
Previously filed as Exhibit 99.14 to the Company's Current Report on Form
8-K filed on May 4, 2006. **
|
|
10.8
|
Patent
License Agreement, dated as of May 12, 2006, by and between VillageEDOCS
and Catch Curve, Inc.. Previously filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on May 16, 2006.
**
|
|
10.9
|
Office
Lease Agreement effective June 1, 2007 by and between the Company and
Tustin Avenue Investors, LLC. Previously filed as Exhibit 10.1
to the Company's Current Report on Form 8-K filed on April 25, 2007.
**
|
|
10.10
|
Placement
Agency Agreement effective October 13, 2006 by and between the Company and
Stonegate Securities, Inc. Previously filed as Exhibit 10.28 to
the Company’s Quarterly Report on Form 10-QSB filed on August 14, 2007.
**
|
|
10.11
|
Engagement
Agreement effective July 10, 2007 by and between the Company and GemStone
Securities, LLC. Previously filed as Exhibit 10.29 to the
Company’s Quarterly Report on Form 10-QSB filed on August 14, 2007.
**
|
|
10.12
|
Settlement
Agreement dated June 6, 2007 by and among Jeffrey H. Mims, VarTec Telecom,
Inc, Excel Telecommunications, Inc., VarTec Solutions, Inc., and
GoSolutions, Inc. Previously filed as Exhibit 10.29 to the Company’s
Quarterly Report on Form 10-QSB filed on August 14, 2007.
**
|
|
10.13
|
Employment
Agreement dated as of August 1, 2008 by and between VillageEDOCS, Inc. and
Andre Hadzi-Pavlovic. Previously filed as Exhibit 99.5 to the
Company’s Current Report on Form 8-K filed on August 6, 2008.
**
|
|
10.14
|
Employment
Agreement dated November 13, 2008 by and between VillageEDOCS, Inc. and K.
Mason Conner. Previously filed as Exhibit 10.15 to the
Company’s Quarterly Report on Form 10-Q filed on November 14, 2008.
**
|
|
10.15
|
Employment
Agreement dated November 13, 2008 by and between VillageEDOCS, Inc. and H.
Jay Hill. Previously filed as Exhibit 10.16 to the Company’s
Quarterly Report on Form 10-Q filed on November 14,
2008.**
|
|
10.16
|
|
Employment
Agreement dated November 13, 2008 by and between VillageEDOCS, Inc. and
Michael A. Richard. Previously filed as Exhibit 10.17 to the
Company’s Quarterly Report on Form 10-Q filed on November 14, 2008.
**
|
68
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 April
15, 2010 by K. Mason Conner, Chief Executive Officer.*
|
|
31.2
|
Certification
Under Section 302 of The Sarbanes-Oxley Act of 2002 signed and dated April
15, 2010 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 April 15, 2010 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 April 15, 2010 by Michael A.
Richard, Chief Financial Officer.***
|
|
99.1
|
|
VillageEDOCS,
Inc. Consolidated Financial Statements for the Fiscal Years Ended December
31, 2009 and 2008 together with Report of Independent Registered Public
Accounting Firm. *
|
*
|
Filed
herewith
|
|
**
|
Previously
filed
|
|
***
|
|
Furnished
herewith
|
69
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: April
15, 2010
|
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
|
April
15, 2010
|
||||
K. Mason Conner
|
Director,
President, and
|
||||
Chief
Executive Officer
|
|||||
/s/ Michael A. Richard
|
April
15, 2010
|
||||
Michael A. Richard
|
Chief
Financial Officer,
|
||||
Principal
Accounting Officer
|
|||||
/s/ J. Thomas Zender
|
April
15, 2010
|
||||
J.
Thomas Zender
|
Director,
|
||||
Chairman
of the Board
|
|||||
/s/ Gerik M. Degner
|
Director,
|
April
15, 2010
|
|||
Gerik M. Degner
|
|||||
/s/ Ricardo A. Salas
|
April
15, 2010
|
||||
Ricardo
A. Salas
|
Director
|
||||
/s/ H. Jay Hill
|
April
15, 2010
|
||||
H. Jay Hill
|
Executive
Vice President,
|
||||
Director
|
70