VILLAGEEDOCS INC
10SB12G/A, 2000-12-20
BUSINESS SERVICES, NEC
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  As filed with the Securities and Exchange Commission on December 20, 2000.

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


                    U.S. SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

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

                                AMENDMENT NO. 2

                                      TO

                                  FORM 10-SB

                  GENERAL FORM FOR REGISTRATION OF SECURITIES

       UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934

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

                              VillageEDOCS, Inc.

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

              (Exact Name of Registrant As Specified in Charter)

               California                            33-0668917

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

       (State or jurisdiction of         (I.R.S. Employer Identification No.)
     incorporation or organization)


14471 Chambers Road, Suite 105, Tustin, California          92780
--------------------------------------------------       ----------
     (Address of principal executive offices)            (Zip Code)

      Registrant's telephone number, including area code: (714) 734-1030

       Securities to be registered pursuant to Section 12(b) of the Act:

          Title of each class                Name of each exchange on which
          To be so registered                Each class is to be registered

                  N/A                                    N/A
                  ---                                    ---

       Securities to be registered pursuant to Section 12(g) of the Act:

                          Common Stock (no par value)

                               (Title of Class)


                        Index to Exhibits at Page: 32
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                               TABLE OF CONTENTS

                                    PART I

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   <S>                                                              <C>
   ITEM 1.    Description of Business                                   5
                  Overview                                              5
                  Our Services                                          6
                  Services Development                                  7
                  Marketing and Customers                               7
                  Sales                                                 9
                  Competition                                           9
                  Product Liability Insurance                          10
                  Employees                                            10
                  Risk Factors                                         11

   ITEM 2.    Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                  16
                  Income Statement Data                                17
                  Balance Sheet Data                                   17
                  Results of Operations                                17
                  Liquidity                                            19
                  Capital Resources                                    20

   ITEM 3.    Description of Property                                  21

   ITEM 4.    Security Ownership of Certain Beneficial Owners and
                  Management                                           21

   ITEM 5.    Directors, Officers, and Control Persons                 22
                  Directors and Executive Officers of the Company      22
                  Business Experience of Executive Officers
                  and Directors                                        23
                  Board of Directors                                   24

   ITEM 6.    Executive Compensation                                   24
                  Summary Compensation Table                           24
                  Employment and Other Agreements                      25
                  Fiscal Year End Option Values and Exercises          25
                  Stock Options                                        25
                  Board of Director Compensation                       26

   ITEM 7.    Certain Relationships and Related Transactions           26

   ITEM 8.    Description of Securities                                27
                  Common Stock                                         27
</TABLE>

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                                    PART II

<TABLE>
<CAPTION>
                                                                        PAGE NO.
                                                                        --------
     <S>                                                                <C>
     ITEM 1.   Market Price of and Dividends on the Registrant's
                    Common Stock and Other Shareholder Matters             28
                    Market Price of Registrant's Common Stock              28
                    Dilution and Absence of Dividends                      28
                    Shareholders                                           28

     ITEM 2.   Legal Proceedings                                           28

     ITEM 3.   Changes In and Disagreements With Accountants on
                    Accounting and Financial Disclosure                    29

     ITEM 4.   Recent Sales of Unregistered Securities                     29

     ITEM 5.   Indemnification of Officers and Directors                   30


                                    PART F/S

     Financial Statements and Supplementary Data                           31


                                    PART III

     ITEM 1.   Financial Statements                                        32

     ITEM 2.   Index of Exhibits                                           32
</TABLE>

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FORWARD-LOOKING INFORMATION

This Registration Statement on Form 10 includes forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. These statements are based on our beliefs and assumptions, and on
information currently available to us. The words "anticipated," "believe,"
"expect," "plan," "intended," "seek," "estimate," "project," "will," "could,"
"may," and similar expressions are intended to identify forward-looking
statements. These statements include, among others, information regarding future
operations, future capital expenditures, and future net cash flow. Such
statements reflect the Company's current views with respect to future events and
financial performance and involves risks and uncertainties, including, without
limitation, general economic and business conditions, changes in foreign,
political, social and economic conditions, regulatory initiatives and compliance
with governmental regulations, the ability to achieve further market penetration
and additional customers, and various other matters, many of which are beyond
the Company's control, including, without limitation, the risks described under
the caption "DESCRIPTION OF BUSINESS- 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. Investors 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.

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                       ITEM 1.   DESCRIPTION OF BUSINESS

OVERVIEW

VillageEDOCS, Inc. (the "Company" or "We") is incorporated in the State of
California. The Company was originally incorporated in 1995 in Delaware as
SoftTek Inc. In August 1997, we changed our name to SoftTek Technologies Inc.
and reincorporated in California. In 1999 we changed our name to VillageFax.com,
Inc., and then, as of July 11, 2000, to VillageEDOCS, Inc. Until late 1998, the
Company provided product marketing services and fax server products; however, we
no longer provide these services or products. We now provide worldwide Internet-
based business-to-business fax services. Our Internet-based Fax service enables
a user to send a fax to an individual or to a broadcast list of thousands
through their familiar web browser (i.e. Microsoft Explorer, Netscape Navigator,
etc.) or e- mail package (i.e. Microsoft Exchange, Netscape Mail, Eudora, etc.).
We began offering our Internet-based Fax service on a limited basis in late
1998. We chose to introduce it on a small scale because of lack of marketing
funds and to provide us with the opportunity to identify and correct any problem
areas with our service and to determine how to best serve the needs of our
clients. We currently have approximately 70 active clients. Approximately 70% of
our 1999 revenues were derived from Catalogcity.com and, for the nine months
ended September 30, 2000, approximately 19% of our revenues were derived from
Catalogcity.com. No other customer accounted for more than 10% of our revenues.

The Internet-based faxing industry is relatively new and no one can determine
with certainty whether there is sufficient demand for such services to support a
large number of businesses providing the service. Additionally, technology
changes could cause current faxing methods to become obsolete or make it
possible to fax over the Internet using free or offer low-cost software
applications. We compete with a number of businesses that also provide Internet-
based faxing services. Many of our competitors have been in business longer than
we have, and have greater name recognition and financial resources than we do.
We have not been profitable, and our success in attaining profitability will
depend upon a number of factors, including our ability to engage and retain a
sufficient number of clients to enable us to sustain our operations and attain
profitability. Because we are not profitable, we may not be able to offer
pricing that is as attractive as profitable competitors may choose to offer.

In May 1999, the Company raised $2.3 million through the sale of our common
stock. We used this capital to make improvements to our service and to make it
capable of supporting a growing client base. In late 1999 we directed more of
our efforts to marketing our services. Our limited financial resources have
forced us to limit our marketing efforts, resulting in only modest sales growth
during 2000.

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We provide 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. Our services enable our
clients to broadcast documents to a large number of recipients and personalize
the document to each recipient. The Company's services are designed for use by a
wide range of industries and sizes of business enterprises. Our clients
currently include E- commerce providers, application service providers,
manufacturing companies, value added resellers, weather reporting services,
letter shops, public relations firms, and direct marketing organizations.

We charge our clients a monthly fee based on the number of document pages sent
and received by the client during the month.

We rent space and equipment for our service operations from GlobalCenter, Inc.,
Anaheim, California. The GlobalCenter facility is served by all major global
carriers and is a physically, environmentally, and utility redundant site 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.

Personnel who manage the service operations share space with the corporate
headquarters and service development organization in Tustin California. The
Tustin facility also includes a technology laboratory for development,
operational support, and piloting emerging services.

OUR SERVICES

VillageEDOCS offers Internet-based Fax services to businesses. We offer document
delivery services that can be customized to meet the specific needs of clients.
Internet-based fax services allow companies to combine the convenience and costs
savings provided by the Internet with conventional Fax machines. By outsourcing
their document delivery needs, businesses can benefit from savings in avoiding
the need for installation of additional telephone lines for fax transmission and
receipt, elimination of hard copies of documents at the point of origin,
electronic filing of documents and minimizing manual handling of documents.

Clients access our service through their preferred desktop applications, such as
their web browser (i.e. Microsoft Explorer, Netscape Navigator) e-mail package
(i.e. Eudora, Microsoft Exchange, Netscape Mail), Customer Relationship
Management (CRM) software (i.e. Enterprise Extensions for Lotus Notes), or
Enterprise Resource Planning (ERP) software, such as that provided by SAP AG and
Oracle Corporation, to send faxes to an individual recipient or multiple
recipients such as purchase orders to suppliers and vendors, and invoices and
statements to customers. If a client so desires, we can customize our service to
meet their specific requirements. In addition, our clients can send faxes from
their desktop using a variety of applications such as CRM, ERP, and web-based E-
Commerce using Internet standards such as Simple Mail Transfer Protocol (SMTP)
and Hypertext Transfer Protocol (HTTP).

VillageEDOCS currently provides three primary outbound document delivery
services:

  [_] Computer Automated Delivery - Enables an enterprise to automatically
      generate documents from their information systems to be delivered to any
      fax machine, which serves as a remote printer, worldwide. Examples include
      billing systems, call centers, customer relationship management (CRM)
      systems, and enterprise resource planning (ERP) systems.

  [_] Broadcast Delivery - Clients can electronically send high volumes of the
      same messages individually addressed to each unique recipient, which are
      received as a fax document.

  [_] Enterprise-Desktop Document Delivery - Clients send documents via their
      desktop e-mail, browser, or desktop application such as CRM, which are
      printed out as a fax at the recipient's location.

The Company also currently provides two primary inbound document and message
delivery services:

  [_] Enterprise-Desktop Reception - Individual users can receive documents and
      messages via their e-mail that were sent to them by fax.

  [_] Computer Automated Reception - Clients, such as E-commerce businesses, can
      receive directly into their information systems bulk documents that were
      delivered by fax.

For outbound document delivery by fax, a client e-mails us the file containing
the document or documents to be delivered together with the names and fax
numbers of the recipients. Upon receipt, our technology automatically converts
the file into a faxable document for delivery over

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telephone lines. For inbound messages the fax transmission is received via the
Company's telephone lines then sent over the Internet to the client's e-mail
system. When we have completed the fax delivery, our system sends the client an
e-mail notification of successful transmission, retransmission, or failure of
their fax. Upon failures, we include the cause of the failure and recommend
solutions. Upon implementation of the recommended solutions, we then re-send the
fax. If further assistance is required, it is available 24 hours a day, seven
days a week through our technicians.

If a client desires secured transmission, our fax service can be secured using
PGP encryption code, which is the same level of security that companies use to
protect credit card and other sensitive information transmitted via the
Internet.

We also offer our clients the ability to prioritize their document delivery
schedules. We currently offer three different levels of service - Priority,
pursuant to which documents are transmitted within 30 minutes of receipt;
Express 4, in which documents are transmitted within four hours; and Express 10,
which is used primarily for broadcast faxing, pursuant to which documents are
transmitted within ten hours. Clients can also instruct us to begin delivery
immediately, or schedule the exact time for delivery to start.

The Company provides inbound fax services to enterprises that desire a cost-
effective means of handling inbound faxes. Our service enables enterprises to
receive fax documents electronically. Depending upon the desire of the client,
when the Company receives an inbound fax on behalf of a client, we can send the
fax directly to an individual's e-mail, central administrator for further
distribution, or to back office applications for processing. Once received by
the client, these documents may be stored digitally, printed, forwarded, sent to
another fax machine, deleted, or annotated, all with standard desktop software.

We bill our clients on a monthly basis. Our fees are based upon the quantity of
documents delivered and received during the month. Our accounting and billing
features allow us to offer a variety of billing options customized to fit a
client's unique needs and enable the client to track, manage and control its
faxing costs. For example, accounts can be created for individual users or for
departments within an organization. For our clients who bill fax transmission
costs to their specific projects or clients, we can provide them with the
information needed to track each fax transmission.

SERVICES DEVELOPMENT

We actively and continually engage in development of additional services to
offer to our existing and potential clients. The Company maintains its own
technology development function that currently includes five senior software
engineers. 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.

MARKETING AND CUSTOMERS

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Our services can be used by a wide range of types and sizes of business
enterprises in virtually any industry. The Company's target market includes
organizations of all sizes and industries that desire document delivery services
for their desktop, production, and broadcast fax needs. Our target market
includes companies that regularly fax a large number of documents, and software
providers and resellers who can increase their service offerings through our
Service Entry Point (SEP) Program and earn commissions on faxes sent through
their sites.

We currently have approximately 70 active clients. Approximately 70% of our 1999
revenues were derived from Catalogcity.com and, for the nine months ended
September 30, 2000, approximately 19% of our revenues were derived from
Catalogcity.com. No other customer accounted for more than 10% of our revenues.

VillageEDOCS has historically expended only small amounts in marketing its
services. We have not been able to implement an aggressive marketing strategy
due to inadequate financial resources. We will need to obtain additional capital
in order to fully implement our marketing plan. We have recently completed a
private placement of our stock in which we raised approximately $600,000 and we
have raised $400,000 with the private issuance of convertible debt in November
and December 2000. We plan to privately offer additional convertible debt in the
near future.

If we are successful in raising adequate additional capital, we intend to
accelerate and expand our sales and marketing programs.

Through the first quarter of 1999, we relied primarily on press releases to
make-prospective clients aware of our Internet-based faxing services . We also
promoted awareness of our services by placing our name on popular Internet
search engines such as yahoo.com and excite.com. This limited approach has
attracted several clients, which has resulted in a slight increase in sales
beginning in the third quarter of 1999. Recently the Company initiated a direct
marketing approach that has resulted in several new clients and a number of
prospective clients. This approach targets industries that have a need to
deliver a large volume of documents as part of their key business processes.
Depending upon the amount of capital we are able to obtain, our marketing
activities may include some or all of the following:

  [_]  Image marketing

  [_]  Lead generation lists for identifying dealers and end-users

  [_]  Alliances with vertical market partners

  [_]  Build the VillageEDOCS Brand by advertising the VillageEDOCS.com,
       VillageMessage.com, VillageMessenger.com, and VillageOneBox.com "Brand
       Names"

  [_]  Enhance the Company's ability to provide services that support business
       process applications that generate large volumes of documents and
       messages

  [_]  Vertical market focused tradeshows

  [_]  Vertical market focused speaking engagements

The Company currently employs three U.S. regional sales managers and three
telesales people. All our regional sales managers have been hired since July 24,
2000.

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Our current efforts are directed to growing our client base primarily through
indirect sales channels, such as value added resellers, application service
providers and indirect software vendors. Our Regional sales managers are
attempting to develop relationships with sales channels by promoting strategic
sales through targeted qualified dealers under our channel partners program.
This includes using the Company's telesales client care group to assist in the
identification and development of dealers and clients through strategically
focused lead generation and end-user support programs. The Company solicits
dealers to sell its services from the following sales channel categories:

  [_]  Value Added Resellers that have historically supported core business
       process applications for large and medium sized companies. Examples
       include various accounts receivable, Oracle, and Service Advertising
       Protocol systems.

  [_]  Application Service Providers who provide business process applications
       that generate large volumes of business-to-business documents and
       messages. Examples include, a service for money managers, letter shops,
       Customer Relations Management (CRM), and Enterprise Resource Planning
       (ERP) systems.

  [_]  Independent Software Vendors who market applications to end-users that
       generate large volumes of documents and messages. Examples include CRM,
       ERP, and Call Centers.

  [_]  Information Systems Consultants who traditionally provide advice and
       development support to enterprises in core business process applications.
       Examples include oil and gas industry distribution systems and grassroots
       campaign organizers, among others.

As compensation for selling our services, channel partners are paid a commission
on the revenues generated from their clients' use of our services. This revenue
sharing arrangement may provide an incentive to our channel partners to increase
their revenues by initially focusing on their existing key accounts. Our planned
approach of marketing through our channel partners may provide us with the
opportunity to increase our customer base without requiring us to expend
significant funds on broader based sales programs. If significant sales growth
results from sales obtained by our channel partners from their existing customer
base, we expect to be able to further develop our sales activities. For those
dealers who derive value out of selling our service under their own name, the
Company can provide a Private Labeled Service Entry Point (SEP) into their
service.

SALES

The Company charges its clients a monthly fee primarily based on the number of
document pages sent and received during the month by the client. Sales for the
fiscal year ended December 31, 1999 were $95,887. Sales for the nine months
ended September 30, 2000 were $305,378.

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. Such competitors may be able to undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and

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make more attractive offers to potential employees and distribution partners.
Further, there can be no assurance that the Company's competitors will not
develop Internet-based Fax services that are equal or superior to ours, or that
achieve greater market acceptance than the Company's offerings.

We believe that we can compete effectively because we offer our clients certain
capabilities that much of the competition does not offer, such as the ability to
render a document into a fax image at their desktop using their current
programs; schedule and send transmission priority for broadcast faxes from an e-
mail or browser; start and modify and restart a transmission from their desktop
without assistance from our client care personnel; anytime/anywhere access;
international services; use of Internet standard e-mail or browser interface;
and, client care support seven days a week, 24 hours a day.

Our major competitors are Xpedite, FaxNet, and Media-Tel. These are large fax
service companies that have historically focused primarily on a different market
segment than we do. These companies focus on a less expensive high volume
broadcast faxing market segment. Our market segment generally has lower volume
but a higher unit price because our service is often customized to meet the
specific needs of clients. For example, one of our clients uses our services to
automate its invoice delivery function by transmitting their invoices through
our system directly from their computerized billing system, thereby eliminating
the printing, folding, stuffing, stamping and mailing of the invoices. One of
our e-commerce clients uses our services to transmit orders received from their
customers via their website to our system where it is automatically converted to
a supplier purchase order, which is sent directly to our customer's supplier.
Prior to using our system, our client manually transposed the information from
the customer's order to a supplier purchase order, which it then manually faxed
to the supplier. Our primary competitors business models requires them to
control all aspects of their clients faxing efforts including requiring specific
hardware and/or software.

 [_]  Xpedite is the largest fax service company. They focus on large volume
      discount faxing. They have an indirect telephony sales channel that
      focuses on volume discount applications. Proprietary software is required
      and requires the client to depend on the provider in all aspects of
      sending the fax.

 [_]  FaxNet focuses on outsourcing their fax service to a variety of network
      service providers such as Regional Bell Operating Companies. Their
      services require proprietary software and are aimed at corporate desktop
      customers of their reseller.

 [_]  Media-Tel, a subsidiary of enterprise messaging company AVT, operates a
      private network for fax delivery. User empowerment of fax delivery and
      management is non-existent for their discount target markets of banking
      and mortgage brokers.

PRODUCT LIABILITY INSURANCE

The Company maintains a $2,000,000 product liability insurance policy. No
product or service legal actions have been filed against the Company and it has
not received any customer complaints that could lead to litigation.

EMPLOYEES

As of October 31, 2000, the Company had 18 full-time employees including its
three executive officers. These employees include eight engaged in sales and
marketing, four in technology development, three in operations, and three in
administration.

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RISK FACTORS

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.

Unless we can obtain additional financing we will run out of cash by mid-January
2001.

Since our inception, our operating and investing activities have used
substantially more cash than they have generated. Because we will continue to
need substantial amounts of working capital to fund the growth of our business,
we expect to continue to experience significant negative operating and investing
cash flows for the foreseeable future. We currently anticipate that our
available cash resources will be sufficient to meet our anticipated working
capital and capital expenditure requirements through mid-January 2001. Since
November 2000, our operating shortfalls have been funded by two shareholders who
have loaned us $400,000 for that purpose. So long as these shareholders continue
to fund our operations, we will be able to sustain operations at current levels.
However, these shareholders have no obligation to continue to fund our operating
shortfalls and could stop doing so at any time. 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 will need to raise additional capital in the
future to meet our operating and investing cash requirements. We may not be able
to find additional financing on favorable terms or at all. 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.

We have a history of losses, have never been profitable, and may never achieve
profitability.

We have not achieved profitability, we expect to continue to incur losses for
the foreseeable future and we may never be profitable. If we do achieve
profitability in any period, we cannot be certain that we will sustain or
increase such profitability on a quarterly or annual basis.

We had no revenues from our current services until August 1998 and our
independent auditors have expressed substantial doubt over our ability to
continue as a going concern.

From inception through December 31, 1999, we generated revenue of only
approximately $256,225 and we incurred total expenses of approximately
$4,794,933 during that same period. We have incurred net losses each year since
our inception. We incurred a net loss of $1,645,065 for the nine months ended
September 30, 2000, $1,920,104 for 1999, and $1,140,650 for 1998. As of
September 30, 2000, we had an accumulated deficit of $6,183,773.

The report of independent public accountants on our December 31, 1999 financial
statements includes an explanatory paragraph stating that the recurring losses
incurred from operations and a working capital deficiency raise substantial
doubt about our ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

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Our limited operating history makes evaluating our business and prospects
difficult.

We have a limited operating history on which you can base an evaluation of our
business and future prospects. You should carefully consider our prospects in
light of the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets. Our success will depend in part
upon our ability to implement and execute our business and marketing strategy in
our US equities business and electronic markets business. There is a risk that
we will not be able to accomplish our objectives. Failure to achieve any of our
objectives could negatively affect our business, financial condition and results
of operations.

The market for business-to-business electronic commerce solutions is extremely
competitive and we may not be able to compete effectively.

Because the business-to-business market place is highly competitive and has low
barriers to entry, we cannot assure you that we will be able to compete
effectively. We expect competition to intensify as current competitors expand
their product offerings and new competitors like us enter the market. We cannot
assure you that we will be able to compete successfully against current or
future competitors, or that competitive pressures we face will not harm our
business, operating results, or financial condition.

Many of our competitors will have, and potential competitors may have, more
experience developing software and matching solutions, larger technical staffs,
larger customer bases, greater brand recognition, and greater financial and
other resources than we have. In addition, competitors may be able to develop
products and services that are superior to our products and services, that
achieve greater customer acceptance or that have significantly improved
functionality as compared to our existing and future products and services.
There is a risk that the business-to-business electronic commerce solutions
offered by our competitors now or in the future will be perceived as superior to
ours.

The Internet could become subject to regulations that affect our business.

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, financial
condition, and operating results.

We depend on key personnel and will need to recruit new personnel as we grow.

As we attempt to expand our customer base, we will need to add additional key
personnel as we continue to grow. If we cannot attract and retain enough
qualified and skilled staff, the growth of our business may be limited. Our
ability to provide services to clients and expand our business depends, in part,
on our ability to attract and retain staff with professional experiences that
are relevant to technology development and other functions we perform.
Competition for personnel

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with these skills is intense. Some technical job categories are under conditions
of severe shortage in the United States. In addition, restrictive immigration
quotas could prevent us from recruiting skilled staff from outside 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.

We believe our future success will depend in part on the following:

  [_] the continued employment and performance of our senior management,

  [_] our ability to retain and motivate our officers and key employees, and

  [_] our ability to identify, attract, hire, train, retain, and motivate other
      highly skilled technical, managerial, marketing, and customer service
      personnel.

If we do not register "VillageEDOCS" for trademark protection, it may not be
available to us and we could lose the name-recognition we have established.

We have not yet registered "VillageEDOCS" for trademark protection in the United
States. There is a risk that we will not be able to obtain a trademark or, if we
are successful in obtaining a trademark, we may not be able to secure
significant protection for and successfully enforce the trademark. Our
competitors or others may adopt product or service names similar to
"VillageEDOCS", thereby impeding our ability to build brand identity and
possibly leading to customer confusion. Our inability to adequately protect the
name "VillageEDOCS" would harm our business.

If we are not able to protect our proprietary technology, our ability to compete
effectively could be damaged.

Despite any precautions we may take, a third party may be able to copy or
otherwise obtain and use our software or other proprietary information without
authorization or develop similar software independently. We cannot assure you
that the steps we have taken or will take will prevent misappropriation of our
technology. Litigation may be necessary in the future to determine the validity
and scope of the proprietary rights of others, or defend against claims of
infringement or invalidity. This litigation, whether successful or unsuccessful,
could result in substantial costs and diversions of resources, either of which
could harm our business.

Our business could be adversely affected if we infringe intellectual property
rights of third parties.

Litigation regarding intellectual property rights is common in the software and
technology industries. We have in the past received letters alleging that we are
infringing the intellectual property rights of AudioFax. We do not believe the
proprietary nature of the AudioFax software is critical to our current or future
market competiveness. Several providers of fax service software have patent
license agreements with AudioFax, and it is our understanding that our use of
these other fax software platforms would indemnify us from any infringement of
AudioFax patents. We currently plan to migrate to a fax software platform that
is compatible with our

                                       13
<PAGE>

current technology, has existing license agreements with AudioFax, and will
indemnify us from infringement of AudioFax patents. This migration is subject to
the Company's ability to obtain the additional capital needed for the license
fees for the other fax software platforms. We may in the future be the subjects
of claims for infringement, invalidity, or indemnification claims based on such
claims of other parties' proprietary rights. These claims, with or without
merit, could be time consuming and costly to defend or litigate, divert our
attention and resources, or require us to enter into royalty or licensing
agreements. There is a risk that such licenses would not be available on
reasonable terms, or at all. Although we believe we have the ability to use our
intellectual property to operate, market, and license our existing products
without incurring liability to third parties, there is a risk that our products
and services infringe the intellectual property rights of third parties.

Our products and technology depend on the continued availability of licensed
technology from third parties. The loss of such products and technology would
significantly and adversely affect our business.

We license and will continue to license certain technology and software from
third parties. These licenses are integral to our business. If any of these
relationships were terminated or if any of these third parties were to cease
doing business, we would be forced to spend significant time and money to
replace the licensed software. We cannot assure you that we would be able to
replace these licenses. This could have a material adverse effect on our
business, financial condition, and operating results.

Our officers and directors may be able to influence stockholder actions.

Executive officers and directors, in the aggregate, beneficially own
approximately 30% of our outstanding voting stock. These stockholders acting
together may be able to significantly influence matters requiring approval by
our stockholders, including the election of directors, and the approval of
mergers or other business combination transactions in a manner that could
conflict with our other stockholders.

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

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

The Securities and Exchange Commission (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

                                       14
<PAGE>

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 the Company's securities and may
affect the ability of purchasers in this Offering to sell the Company's
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.

The Company has not paid any dividends on its Common Stock since its inception
and does not intend to pay dividends on its Common Stock in the foreseeable
future. Any earnings that the Company may realize in the foreseeable future will
be retained to finance the growth of the Company.

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

As of October 31, 2000, the Company has 13,814,459 shares of its Common Stock
issued and outstanding, all of which are "restricted securities". Rule 144 of
the Commission provides, in essence, that a person holding "restricted
securities" for a period of one year may sell only an amount every three months
equal to the greater of (a) one percent of the Company's 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 of the Company may sell is not so limited, since non-affiliates
may sell without volume limitation their shares held for two years if there is
adequate current public information available concerning the Company. In such an
event, "restricted securities" would be eligible for sale to the public at an
earlier date. The sale in the public market of such shares of Common Stock may
adversely affect prevailing market prices of the Common Stock.

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

As of October 31, 2000, there were outstanding stock options to purchase an
aggregate of 1,068,793 shares of Common Stock at an exercise price of $0.20 per
Share; 1,015,000 shares of Common Stock at an exercise price of $0.25 per share;
252,837 shares of Common Stock at an exercise

                                       15
<PAGE>

price of $0.50 per share; 50,000 shares of Common Stock at an exercise price of
$1.00 per share; and 1,031,090 shares of Common Stock at an exercise price of
$2.50 per share. None of such options are available for public resale and such
shares would be subject to Rule 144 of the Act upon issuance thereof. The
exercise of such outstanding options will dilute the percentage ownership of the
Company's 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 the Company 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 the Company would, in all likelihood, be able to obtain
any needed capital on terms more favorable to the Company than those provided in
such securities.

The forward-looking information in this Registration Statement may prove
inaccurate.

This Form 10-SB contains forward-looking statements and information that are
based on management's beliefs as well as assumptions made by, and information
currently available to, management. When used in this Form 10-SB (including
Exhibits), words such as "anticipate," "believe," "estimate," "expect," and,
depending on the context, "will" and similar expressions, are intended to
identify forward-looking statements. Such statements reflect the Company's
current views with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the specific risk factors described
above. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, believed, estimated or expected.

                     ITEM 2.  MANAGEMENT'S DISCUSSION AND
           ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company cautions readers that important facts and factors described in this
Management Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this document sometimes have affected, and in the
future could affect, the Company's actual results, and could cause the Company's
actual results during 2000 and beyond to differ materially from those expressed
in any forward-looking statements made by, or on behalf of, the Company.

As reported in The Report of Independent Public Accountants on our December 31,
1999 financial statements , the Company has suffered recurring losses from
operations and has a net capital deficiency that raises substantial doubt about
our ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 2 to the financial statements.

Management is seeking additional financing by issuing convertible debt to
existing shareholders in late 2000 and in the first quarter of 2001. In
addition, management plans to seek equity or a combination of equity and debt
financing from new shareholders and/or lenders in the first quarter of 2001.
Management is actively pursuing both of these financing arrangements. Since
November 2000, two of our shareholders, including a director, have loaned us
$400,000 to fund our operating shortfalls; however, they have no binding
obligation to continue providing funds. If the planned financings are obtained
and/or the shareholders continue to cover our operating shortfalls, the Company
believes it will have adequate cash to sustain operations until it becomes
profitable. There can be no assurance that funding will be available on
acceptable terms, if at all, or that such funds, if raised, would enable the
Company to achieve and maintain profitable operations.

The following income statement and balance sheet data as of and for the nine
months ended September 30, 2000, and the nine months ended September 30, 1999 is
unaudited.

                                       16
<PAGE>

INCOME STATEMENT DATA
                                   (unaudited)

                                 Nine Months Ended             Year Ended
                                   September 30,               December 31,
                            ---------------------------------------------------
                                 2000         1999         1999         1998
                            ---------------------------------------------------

Total revenue               $   305,378  $    52,004  $    95,887  $    13,956
Net Income (loss)           $(1,645,066) $(1,490,357) $(1,920,104) $(1,140,650)
Earnings (loss) per common
share - basic and diluted   $     (0.12) $     (0.13) $     (0.16) $     (0.11)
Shares used per share
computation                  13,560,428 $11,866,157 $12,192,766  $10,143,627

BALANCE SHEET DATA

                            September 30,  December 31,
                                2000          1999
                             (unaudited)
                          ---------------------------
Total assets              $ 674,590        $1,523,636
Working capital           $(134,643)       $  992,901
Long-term debt            $ 650,649        $  617,898
Stockholders' (deficit)   $(434,751)       $  590,280
equity

RESULTS OF OPERATIONS

Net Sales

Net sales for the nine months ended September 30, 2000 were $305,378, a 487%
increase over net sales for the nine months ended September 30, 1999 of $52,004.
The increase in 2000 was due to the Company beginning to actively sell its
Internet-based fax services in the second half of 1999, and initiating its
direct sales program in the second quarter of the year 2000.

Net sales for the year ended December 31, 1999 were $95,887, a 587% increase
over the $13,956 net sales for the year ended December 31, 1998. Net sales in
1998 were approximately $4,400 from Internet-based document delivery services
and the the balance from computer-based fax server products. We began offering
our Internet fax service on a limited basis in late 1998.Substantially all sales
in 1999 were from our Internet-based document delivery services.

Cost of Sales

Cost of sales for the nine months ended September 30, 2000 were $642,261, a
$513,090 increase over the cost of sales of $129,171 for the nine months ended
September 30, 1999. $198,644 of the increase was because no network operations
personnel were added until the fourth quarter of 1999, and $381,848 of the
increase was telecommunications costs incurred as a result of a higher volume of
business.

                                       17
<PAGE>

Cost of sales for the year ended December 31, 1999 were $213,534, a $161,291
increase over the $52,243 cost of sales for the year ended December 31, 1998. Of
this increase, $22,533 was because no network operations personnel were added
until the fourth quarter of 1999, $56,526 of the increase was telecommunications
costs incurred as a result of a higher volume of business, and $31,849 of the
increase was computer equipment and software costs.

Gross margin

The increased cost of sales in the nine months ended September 30, 2000 resulted
in a gross margin loss of $336,883 compared to a gross margin loss of $77,167
for the nine months ended September 30, 1999.

The increased cost of sales in the year ended December 31, 1999 resulted in a
gross margin loss of $117,647 compared to a gross margin loss of $38,287 in the
year ended December 31, 1998.

Operating Expenses

Operating expenses for the nine months ended September 30, 2000 were $1,261,044
compared to $1,383,550 for the nine months ended September 30, 1999. The
operating expenses for the nine months ended September 30, 1999 were higher
because they included $745,731 in non-cash stock option expense due to issuance
of certain stock options with exercise prices less than their fair value at
grant date. These stock option expenses were $11,250 in the nine months ended
September 30, 2000. Excluding stock option expense, operating expenses were
$1,249,794 and $637,819 for the nine months ended September 30, 2000 and 1999,
respectively, and the increase of $611,975 for the nine months ended September
30, 2000 is due to additional personnel in all functions.

Operating expenses for the year ended December 31, 1999 were $1,773,102, an
$882,536 (99%) increase over operating expenses of $890,566 for the year ended
December 31, 1998. The biggest increase was stock option expense of $753,856
resulting from the issuance of stock options with exercise prices less than fair
value at grant date in the year ended December 31, 1999, compared to no stock
option expense in the year ended December 31, 1998. The remaining increase was
due to additional full time employees in 1999 in product and technology
development, sales and marketing, and general and administrative functions.

Interest income and expense

Net interest expense of $46,338 for the nine months ended September 30, 2000 is
$17,497 more than net interest expense of $28,840 for the nine months ended
September 30, 1999, primarily because the Company had cash from its 1999 equity
financing invested in interest bearing accounts.

Net interest expense for the year ended December 31, 1999 was $28,555 compared
to net interest expense of $210,997 for the year ended December 31, 1998. The
primary difference was debt discount in the amount of $168,560 that was fully
amortized as interest expense in the year ended December 31, 1998 and was
related to convertible notes payable that were issued in April 1998 and
converted to equity in June 1999.

                                      18
<PAGE>

Income Taxes

As the Company has incurred operating losses through December 31, 1998 and 1999
and September 30, 2000, the provision for income taxes consists only of minimum
state taxes of $800 per year. At December 31, 1999 the Company had approximately
$4,233,234 of federal and state net operating loss carryforwards for tax
reporting purposes available to offset future taxable income. Deferred tax
assets consist primarily of the tax aspects of net operating loss carryforwards.
The Company has provided a full valuation allowance on the deferred tax assets
because of the uncertainty regarding realizability of the net operating loss
carryforwards.

Net Loss

Net loss for the nine months ended September 30, 2000 was $1,645,065 compared to
a net loss of $1,490,357 for the nine months ended September 30, 1999. The
increased loss in 2000 is due to the higher cost of sales and operating expenses
in the nine months ended September 30, 2000.

Net loss for the year ended December 31, 1999 was $1,920,104 compared to a net
loss of $1,140,650 for the year ended December 31, 1998. The increased net loss
of $779,454 was primarily due to the increased operating expenses discussed
above.

Loss Per Share

Basic and diluted net loss per share for nine months ended September 30, 2000
was $(0.12) compared to basic and diluted net loss per share of $(0.13) for the
nine months ended September 30, 1999. This difference is due to the
1,694,271 additional average common shares outstanding in 2000.

Basic and diluted net loss per share for the year ended December 31, 1999 was
$(0.16) compared to basic and diluted net loss per share of $(0.11) for the year
ended December 31, 1998. This difference is due to the increased net loss in
1999 discussed above, and 2,049,139 additional average common shares outstanding
in 1999.

LIQUIDITY

Operating Activities

Net cash used in operating activities for the nine months ended September 30,
2000 was $1,525,087, an increase of $690,858 over the $834,229 cash used in
operating activities for the nine months ended September 30, 1999. The increase
was primarily because the net loss was $1,633,815 for the nine months ended
September 30, 2000 compared to $744,626, excluding non-cash expenses for stock
options with exercise prices less than fair value at grant date, an increase of
$889,189, which was partially offset by a decrease of cash used in operating
assets to $32,845 in 2000 from $212,062 in 1999.

Net cash used in operating activities for the year ended December 31, 1999 was
$1,193,934, an increase of $436,718 over the $757,216 cash used in operating
activities for the year ended

                                      19
<PAGE>

December 31, 1998. The increase in 1999 was primarily due to changes in accrued
expenses and increased net loss.

Investment Activities

The Company's investment activities consisted of the purchase of equipment. Net
cash used for investment activities was $28,147 and $10,323 for the nine months
ended September 30, 2000 and 1999, respectively, and $25,934 and $10,436 for the
years ended December 31, 1999 and 1998, respectively.

Financing Activities

The Company's financing activities include proceeds from the sale of common
stock, issuance of convertible notes payable and stockholder loans, and
principal payments on notes payable and capitalized leases.

Net cash provided by financing activities for the nine months ended September
30, 2000 was $467,587, and included $527,500 proceeds from sale of common stock
and principal payments on capital leases of $62,819. Net cash provided by
financing activities in the nine months ended September 30, 1999 was $2,446,713,
and included net proceeds of $2,254,213 and $230,000 from the sale of common
stock and stockholder loans, respectively, and principal payments of $37,500 on
notes payable.

Net cash provided by financing activities for the years ended December 31, 1999
and December 31, 1998 was $2,437,253 and $802,292, respectively. The Company
received net proceeds from the sale of common stock in the amount of $2,254,213
and $102,000 in the years ended December 31, 1999 and December 31, 1998,
respectively. The Company received net proceeds from loans of $230,000 and
$700,292 in the years ended December 31, 1999 and December 31, 1998,
respectively. The net proceeds from loans in 1998 include $450,292 of
convertible notes payable, all of which were converted to equity in 1999.

CAPITAL RESOURCES

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

To date, we have funded our capital requirements and our business operations
primarily with funds provided from the sale of common stock and from borrowings,
supplemented by revenues from sales of our services. From inception to October
31, 2000, the Company has received $4,349,000 from the sale of common stock and
convertible notes subsequently converted into common stock. We will require
additional financing to support our operations until we become profitable. Such
sources of financing could include capital infusions, additional equity
financing, or debt offerings. If additional financing of approximately $6
million is obtained, our management believes that we will have adequate cash to
sustain operations until we become profitable. On October 6, 2000 we completed a
private placement of our stock in which we raised approximately $600,000. In our
opinion, together with our current revenue stream, we have sufficient cash to
operate at current staffing levels through mid-January 2001. Management is
actively pursuing obtaining additional funds. There can be no assurance that

                                       20
<PAGE>

additional funding will be available on acceptable terms, if at all, or that
such funds if raised, would enable the Company to achieve and maintain
profitable operations. If we are not able to obtain sufficient additional funds
from investors, we may be unable to sustain our operations. See ITEM 2,
Management's discussion and analysis for discussion of REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS regarding the Company's ability to continue as a going
concern.

RECENT DEVELOPMENTS

Since September 30, 2000, the Company has obtained cash of $480,000. In October,
we sold 32,000 shares of common stock for $2.50 per share for an aggregate of
$80,000. In November and December, convertible notes in the amount of $400,000
were issued to two stockholders, one of which is also a director. The notes bear
interest at 10 percent per annum. The notes and accrued interest are due at the
earlier of one of three events: 1) acquisition of a controlling interest in the
Company by a third party; 2) October 31, 2003; or 3) the receipt by the Company
of $5,000,000 or more from an equity financing. If the Company achieves the
equity financing, the stockholders have the option to convert the notes plus
accrued interest into common stock at the lower of $2.50 per share or the price
per share of common stock issued in the equity financing. If the Company is
acquired, the stockholders have the option to convert the notes plus accrued
interest into common stock at the lower of $2.50 per share or the price per
share paid by the acquirer.

                       ITEM 3.  DESCRIPTION OF PROPERTY

The Company leases approximately 4,600 square feet of air-conditioned space. The
Company occupies approximately 3,600 square feet of this space for office and
product development uses, and 1,000 square feet is subleased. The space is
located at 14471 Chambers Road, Suite 105, Tustin, California 92780. The lease
expires May 2004, and the sublease expires January 2001. The cost of the
occupied space is approximately $4,600 per month. Additionally, we lease space
and operating systems equipment for our service operations from GlobalCenter,
Inc. at a cost of approximately $2,800 per month.

               ITEM 4.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL

                             OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the
beneficial ownership of shares of the Company's Common Stock owned as of October
31, 2000 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 only executive officer
of the Company whose cash and non-cash compensation for services rendered to the
Company for the year ended December 31, 1999 exceeded $100,000), and (iv)
directors and executive officers as a group:

<TABLE>
<CAPTION>

        Name of Beneficial               Amount and Nature of            Percent
            Owner (1)                  Beneficial Ownership (2)      of Class (3) (4)
--------------------------------------------------------------------------------------
<S>                                  <C>                            <C>
Tim Dales (5)                                 2,500,000                   16. 3
--------------------------------------------------------------------------------------
James Townsend (6)                            3,500,488                    22.8
--------------------------------------------------------------------------------------
C. Alan Williams (7)                         2, 893,282                    18.9
--------------------------------------------------------------------------------------
J. Thomas Zender (8)                            561,138                     3.7
--------------------------------------------------------------------------------------
H. Jay Hill (9)                                 231,138                     1.5
--------------------------------------------------------------------------------------
K. Mason Conner (10)                            631,138                     4.1
--------------------------------------------------------------------------------------
All directors and executive                   4,894,488                    31.9
officers as a group (6 persons)
--------------------------------------------------------------------------------------
</TABLE>

(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 approximately 13,846,459 shares of the Company's Common Stock
     outstanding at October 31, 2000 plus, as to each person listed, that
     portion of Company Common Stock subject to outstanding options, warrants,
     and convertible debt which may be exercised or converted by such person,
     and as to all directors and executive officers as a group, unissued shares
     of

                                       21
<PAGE>

     Company Common Stock as to which the members of such group have the right
     to acquire beneficial ownership upon the exercise of stock options or
     warrants, or conversion of convertible debt within the next 60 days.

(4)  Excludes 3,317,430 shares reserved for issuance under outstanding options
     and warrants.

(5)  May be deemed to be a "founder" of the Company for the purpose of the
     Securities Act.

(6)  Includes warrants to acquire 49,256 shares of Common Stock at $2.50 per
     share, debt convertible to 135,409 shares of Common Stock at $2.50 per
     share, and options to acquire 31,138 shares of Common Stock at $2.50 per
     share.

(7)  Includes debt convertible to 108,282 shares of Common Stock at $2.50 per
     share.

(8)  Includes options to acquire 135,000 shares of Common Stock at $0.20 per
     share, and 31,138 shares at $2.50 per share.

(9)  Includes options to acquire 200,000 shares of Common Stock at $0.20 per
     share, and 31,138 shares at $2.50 per share.

(10) Includes options to acquire 600,000 shares of Common Stock at $0.25 per
     share, and 31,138 shares at $2.50 per share.

               ITEM 5.  DIRECTORS, OFFICERS, AND CONTROL PERSONS

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information with respect to each person
who is a director or an executive officer of the Company as of October 31, 2000.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------
             Name                    Age                             Position
--------------------------------------------------------------------------------------------------
<S>                                 <C>        <C>
James Townsend                       54         Chairman of the Board of Directors
--------------------------------------------------------------------------------------------------
K. Mason Conner                      43         President, Chief Executive Officer, Director
--------------------------------------------------------------------------------------------------
Robert L. Daniels                    62         Vice President Operations
--------------------------------------------------------------------------------------------------
Fred J. Barnes                       60         Chief Financial Officer
--------------------------------------------------------------------------------------------------
J. Thomas Zender                     60         Director, Corporate Secretary
--------------------------------------------------------------------------------------------------
H. Jay Hill                          60         Director
--------------------------------------------------------------------------------------------------
</TABLE>

Executive officers are elected by the Board of Directors and 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 late 2000. Mr. Townsend and Mr. Zender have been
directors since August 1997, Mr. Hill since October 1997, and Mr. Conner since
October 1998.

                                       22
<PAGE>

BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS AND DIRECTORS


James Townsend has been a director since 1997 and has been Chairman of the Board
since 1998. He has 35 years of technical and financial management expertise
including Development Manager of data protocols at Rockwell, Business Unit
Manager at Control Data Corp., co-founder of The Protocol Team (that developed
the X.25 Protocol for Amdahl Computers), and as co-founder and CFO of Newport
Systems, which was acquired by Cisco Systems in 1994. Mr. Townsend is an
entrepreneur who has been a co-founder of several companies during the past five
years including Activator Systems, Inc., For Kids Only, Inc., Qwes.com, Inc.,
The Renaissance Channel, and BrainX.com.

K. Mason Conner joined the Company as Vice-President of Sales in 1997 and has
been President, a Board Member, and Acting Vice-President of Sales since 1998
and Chief Executive Officer since 1999. He has 24 years in sales and business
management experience, including 18 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 with the military. 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 lead consultant with LTS for the
electronic vulnerability threat assessment of the Los Angeles Airport Department
after the "UniBomer" threat. He has held senior sales management positions with
Banyon 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.

Robert L. Daniels has been Vice President of Operations since 1999 and Chairman
of our Advisory Board since 1997. From 1995 to 1999 Mr. Daniels was President of
Lo Tiro-Sapere Corporation. In the late 1960s he began his involvement in the
application of Internet Protocol technologies within the military. Throughout
the late 1980s and early 1990s he was involved in an international initiative to
transform K-12 education through the use of the Internet. He was the consultant
with LTS for the electronic vulnerability threat assessment of the Los Angeles
Airport Department after the "UniBomber" threat. Mr. Daniels has 38 years of
management and technical-services operations experience, including 25 years of
experience in Internet Protocol technologies. He has held senior technical
management positions at Pacific Bell, Pacific Telesis, Doelz Networks, and
MIDACS. He has a Ph.D. in Information Systems Management, MBA, and is Lt. Col.
(Ret.) USMC.

Fred Barnes has been Vice President of Finance and Chief Financial Officer since
1999. He has extensive financial and operations experience in both public and
private corporations, including managing four public offerings and obtaining
capital from a wide range of other sources. Mr. Barnes is a CPA who has served
in CFO and COO positions in a broad range of industries and companies, including
Arthur Andersen, Smith International, Coldwell Banker Residential, WorldTel
Services, and Lau Capital Funding. Barnes earned a B.S. in Finance from UCLA.
Prior to joining the Company, Mr. Barnes was Vice President of Finance for Lau
Capital Funding, Inc. from 1996 to 1999, and was a financial consultant to small
businesses from 1995 to 1996.

                                       23
<PAGE>

Thomas Zender has been a director since 1997. He is an information technology
industry consultant specializing in strategic business development with 35 years
of management and marketing experience. He has held senior marketing and
corporate development positions for GENRAD, Calcomp, MAI Systems, Encore
Computer, General Electric, Honeywell Information Systems, MTI Technology, and
was CEO of Strategic Business Development Corp. He has been an officer in three
publicly held corporations, one NYSE listed company and two NASDAQ traded
companies. He is a board member of Forum for Corporate Directors, an Internet
ASP, and a member of Tech Coast Venture Network. During the past five years Mr.
Zender has served as an interim executive for several companies in their early
stage including CEO of VillageEDOCS from 1997 to 1999, President and COO of a
unique software and ASP process for improving learning retention for students,
CEO of an e-commerce procurement company, and Vice President of Business
Development of a new Internet appliance venture.

Jay Hill has been a director since 1997. He has served on 14 Boards of
Directors. For the last 17 years, he has primarily been a senior executive in
turnaround situations in information technology and telecommunication companies.
Mr. Hill has been President of Unitron Medical Communications, Inc. (d/b/a Moon
Communications), SunCoast Environmental Controls and Amnet (Netlink), and has
held senior sales and marketing management positions with Harris Corporation,
Paradyne/AT&T, Inforex, and IBM. Mr. Hill currently serves on the board of an
Internet ASP in the financial market. During 1999, Moon Communications, which
was then a subsidiary of Sabratek Corp., filed for protection under Chapter 11
of the U.S. Bankruptcy Code in connection with the reorganization of Sabratek.
Mr. Hill has been President and CEO of MOON Communications from 1999 to present,
and was Vice President of Sales for Suncoast Environmental Controls from 1996 to
1999.

BOARD OF DIRECTORS

The Company's Bylaws fix the size of the Board of Directors at no fewer than
three and no more than five members, to be elected annually by a plurality of
the votes cast by the holders of Common Stock, and to serve until the next
annual meeting of stockholders and until their successors have been elected or
until their earlier resignation or removal. We currently have four directors,
all of whom were elected to their current terms on October 25, 2000

                        ITEM 6.  EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table shows the compensation paid or accrued by the Company for
the fiscal years ended December 31, 1998 and 1999 to or for the account of the
President and Chief Executive Officer. No other executive officer or director of
the Company received benefits or annual salary and bonus of $100,000 or more
during the stated period. Accordingly, the summary compensation table does not
include compensation of other executive officers.

                                       24
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                   ANNUAL COMPENSATION                                 LONG-TERM COMPENSATION
------------------------------------------------------------------------------------------------------------------------------
Name & Principal        Salary          Bonus           Other        Stock options         LTIP Payouts            Other
    Position              ($)            ($)             ($)              (#)                  ($)                  ($)
------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>            <C>              <C>          <C>                    <C>                  <C>
Fiscal 1998
------------------------------------------------------------------------------------------------------------------------------
Mason Conner                                             -                   -                  -                    -
------------------------------------------------------------------------------------------------------------------------------
President, CEO           $50,000          -
------------------------------------------------------------------------------------------------------------------------------
Fiscal 1999
------------------------------------------------------------------------------------------------------------------------------
Mason Conner                                             -                120,000               -                    -
------------------------------------------------------------------------------------------------------------------------------
President,CEO            $81,667       $42,708
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

EMPLOYMENT AND OTHER AGREEMENTS

The Company has a written employment agreement with Mason Conner dated September
3, 1999, which sets forth the terms and provisions of his employment as our
President and Chief Executive Officer. Under the agreement, Mr. Conner is to be
paid a base salary of $105,000 per year effective July 1, 1999, and has options
to purchase 480,000 shares of the Company's common stock at $0.25 per share
which vest over five years from his start date of September 15, 1997 and expire
September 15, 2007, and options to purchase 120,000 shares of our common stock
at $0.25 per share which vested May 31, 1999 and expire May 31, 2009.

FISCAL YEAR END OPTION VALUES AND EXERCISES

The following table provides information with respect to the year-end value of
unexercised stock options for each of the executive officers named in the
summary executive compensation table. The dollar values of unexercised options
are calculated by determining the difference between the fair market value at
fiscal year end of the common stock underlying the options and the exercise
price of the options. The fair market value is $2.50 per share, the per share
price of the common stock offering which closed in May 1999. No stock options
were exercised during the fiscal years ended December 31, 1998 and 1999, nor
during the six months ended June 30, 2000.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                    Exercisable on or after January 1, 1998 or     Number of Unexercised Options at FYE
                      Options at FYE Exercisable on or after         Value of Unexercised In-the Money
Name                              January 1, 1999                          January 1, 1998 or 1999
---------------------------------------------------------------------------------------------------------
<S>                 <C>                                           <C>
Fiscal 1998:
---------------------------------------------------------------------------------------------------------
Mason Conner                          480,000                                     $1,080,000
---------------------------------------------------------------------------------------------------------
Fiscal 1999:
---------------------------------------------------------------------------------------------------------
Mason Conner                          600,000                                     $1,350,000
---------------------------------------------------------------------------------------------------------
</TABLE>

STOCK OPTIONS

In 1997 the Company adopted a stock option plan (the "Plan") authorizing the
issuance of options to acquire up to 5,000,000 shares of common stock to
employees and certain outside consultants. The Plan allows for the issuance of
either non-qualified or incentive stock options pursuant to Section 422 of the
Internal Revenue Code. As of October 31, 2000, options to purchase approximately
2,994,883 shares at prices ranging from $0.20 to $2.50 per share by employees
and non- employee consultants were outstanding under the Plan. In addition to
options granted under

                                       25
<PAGE>

the Plan, as of October 31, 2000 options to purchase approximately 252,837
shares at $0.50 per share by non-employee consultants, and options to purchase
approximately 170,000 shares at $0.25 to $1.00 per share by employees were
outstanding. The Plan provides that (a) no option shall be exercisable after the
expiration of ten years from the date it was granted, unless a shareholder owns
10% or more of the total combined voting power of all classes of stock of the
Company, whereupon the expiration date is five years after the grant date, (b)
the exercise price of each incentive stock option shall be not less than 100% of
the fair market value of the stock subject to the option on the date the option
is granted, unless a shareholder owns 10% or more of the total combined voting
power of all classes of stock of the Company, whereupon the exercise price shall
be at least 110% of the fair market value of the shares of the stock subject to
option on the date the option is granted, (c) the exercise price of each non-
qualified stock option shall not be less than 85% of the fair market value of
the stock subject to the option on the date the option is granted, (d) in the
event an optionee's continuous status as an employee, director, or consultant
terminates, the optionee may exercise their option up to the earlier of 90 days
after the termination or the expiration of the term of the option, unless
employment is terminated because of disability, whereupon the optionee may
exercise their option up to the earlier of six months following the termination
or the expiration of the term of the option, and (e) if the Company is not the
surviving entity in any merger or other reorganization, or sells or exchanges
substantially all of its assets, or is dissolved and liquidated, or any person
or entity acquires more than 50% of the outstanding shares of the Company's
voting stock, then all options granted, including those not otherwise vested,
shall become exercisable in full.

BOARD OF DIRECTOR COMPENSATION

Members of our board of directors receive no cash compensation for services as a
director or for attendance at or participation in meetings. Directors receive
options to purchase common stock as compensation for services as a director.
Each current director was granted options to purchase 31,138 shares of our
common stock at $2.50 per share as compensation for the term which
began on June 24, 1999 and expiredOctober 25, 2000. On October 25, 2000 the same
directors were re-elected. There has been no determination made as to the number
and exercise price of options that will be issued to our directors for services
during the current term. Directors are reimbursed for out-of-pocket expenses
incurred by them in connection with attending meetings. All directors have
options to purchase shares of the Company's Common Stock as set forth in the
table in Item 4 of this Registration Statement. The Company has no other
arrangements regarding compensation for services as a director.

           ITEM 7.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In 1998 the Company issued convertible notes payable in the amount of $450,292,
including $123,000 to Jim Townsend, Chairman of the Board, bearing interest at
10 % per annum and an original maturity of September 1998. Upon issuance, the
noteholders received three shares of the Company's common stock for every dollar
loaned, totaling 1,350,876 shares, including 369,000 shares to Mr. Townsend. The
notes were convertible into shares of the Company's common stock for every
dollar at a price of $0.30 per share. The maturity date of the notes was
extended to June 1999 and the Company offered noteholders the option to either:
1) convert the principal and accrued interest on the notes to shares of the
Company's common stock at $0.30 per share; or 2) convert the principal and
accrued interest to common stock at $2.50 per share and receive 7.334 warrants
to purchase common stock at $0.01 per share, for each share converted. Notes
totaling $450,292 plus accrued interest of $52,606 were converted to common

                                       26
<PAGE>

stock in June 1999, including Mr. Townsend's note for $123,000 plus accrued
interest of $12,205. The number of shares of common stock and warrants that were
issued in connection with the conversion was 1,017,501 shares, including 450,685
shares to Mr. Townsend, and 658,877 warrants, none of which were to Mr.
Townsend. The warrants expire June 30, 2002 and July 31, 2002.

In 1997, the Company borrowed $50,000 from Mr. Townsend. In June 1999, the note
plus accrued interest were exchanged for a convertible note in the amount of
$61,570, bearing interest at 10% per annum. Mr. Townsend has the option to
convert the note plus accrued interest into the Company's common stock at $2.50
per share. As an incentive to extend the terms of the note, the Company granted
the holder warrants to purchase 49,256 shares of the Company's common stock at
$2.50 per share. These warrants expire June 30, 2004. The note and accrued
interest are due upon the first to occur of: 1) acquisition of controlling
interest in the Company by a third party; 2) on June 30, 2002; or 3) receipt by
the Company of equity financing of at least $6,000,000.

Beginning in September 1998, the Company borrowed funds from Mr. Townsend. In
June 1999, the related notes, which totaled $235,000, plus accrued interest,
were exchanged for a convertible note in the amount of $246,177 bearing interest
at 10% per annum. The note is convertible into the Company's common stock at
$2.50 per share. The note and accrued interest are due upon the first to occur
of: 1) acquisition of controlling interest in the Company by a third party; 2)
June 30, 2002; or 3) receipt by the Company of equity financing of at least
$6,000,000.

Total interest expense recognized on these original and convertible notes
payable to Mr. Townsend was $23,081 for the nine months ended September 30,
2000, and $33,706 and $8,400 for the years ended December 31, 1999 and 1998,
respectively.

Since November 2000, the Company has borrowed an aggregate of $400,000 from C.
Alan Williams and James Townsend. Both Mr. Williams and Mr. Townsend are
shareholders and Mr. Townsend is a Director of the Company. These loans were
made to the Company to fund its operating cash shortfalls. These loans bear an
interest rate of 10% and are payable upon the earlier of (i) acquisition of the
Company by a third party, (ii) October 31, 2003, or (iii) receipt by the Company
of equity financing of $5,000,000 or more. If the Company obtains equity
financing of $5,000,000 or more, the holders will have the right to convert the
principal amount of the note and any accrued interest thereon into shares of the
Company's common stock at the lower of $2.50 for each share of stock or the
price per share of the common stock issued in the equity financing. If the
Company is acquired, they will have the right to convert principal and interest
on the note into shares of common stock at the lower of $2.50 per share, or the
per share price paid by the person who acquires the Company.

                      ITEM 8.   DESCRIPTION OF SECURITIES

COMMON STOCK

The Company's authorized capital stock consists of 40,000,000 shares of common
stock, no par value, of which 13,846,459 shares were outstanding at October 31,
2000. As of October 31, 2000, 4,013,279 shares of common stock have been
reserved for issuance under outstanding options and warrants.

Holders of the Company's common stock are entitled to one vote per share on all
matters to be voted on by the shareholders. Holders of the Company's common
stock have cumulative voting rights with respect to the election of directors of
the Company, whereby any stockholder may multiply the number of shares he is
entitled to vote by the number of directors to be elected and allocate his votes
among the candidates in any manner he chooses. Holders of the common stock are
entitled to receive dividends when and as declared by the Company's Board of
Directors out of legally available funds. The Company has not paid any dividends
since its inception and expects that no dividends on the common stock will be
declared in the foreseeable future. There can be no assurance that any dividends
on the common stock will be paid in the future. Shares of common stock have no
pre-emptive rights. Upon a dissolution and liquidation of the Company,

                                       27
<PAGE>

each share of common stock is entitled to share ratably in the assets available
for distribution to holders of the equity securities after satisfaction of all
liabilities.

The transfer agent for our common stock is U.S. Stock Transfer Corporation.

                                    PART II

ITEM 1.  MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON STOCK AND

                           OTHER SHAREHOLDER MATTERS

MARKET PRICE OF THE REGISTRANT'S COMMON STOCK

The Company's common stock is not listed on any exchange or over-the-counter
market and there is no public market for our common stock.

DILUTION AND ABSENCE OF DIVIDENDS

We have not paid any cash dividends on our common stock and we do not anticipate
paying any such cash dividends in the foreseeable future. Earnings, if any, will
be retained to finance future growth. The Company may issue shares of its common
stock in private or public offerings to obtain equity financing or to acquire
other businesses that can improve the performance and growth of the Company.

SHAREHOLDERS

As of October 31, 2000 there were approximately 442 beneficial owners of the
Company's common stock with 13,846,459 shares issued and outstanding.

                           ITEM 2. LEGAL PROCEEDINGS

The Company is not a party in any lawsuits.

The Company was involved in a dispute with a prior law firm regarding legal
fees. The law firm demanded $63,600 for nonpayment of services it believes were
rendered on behalf of the Company. We contested this claim. A negotiated
settlement of $31,800was reached in September 2000. Under the settlement
agreement the Company is paying the $31,800 over a six month period. The Company
had previously recorded the $63,600 as a liability and expense in its financial
statements. The liability and expense were reversed in the September 2000
financial statements for the $31,800 difference between the $63,600 and the
settlement amount of $31,800. A marketing company has threatened legal action
related to its claim that the Company owes it $48,000 for services rendered. The
Company agrees that it owes $24,000 for such services, which amount is recorded
as a liability in the Company's financial statements. The Company believes the
claim for the additional $24,000 is without merit, and that the outcome of any
legal action will not have a material adverse effect on the Company.

The Company has received communications from a company asserting the ownership
of certain United States and Canadian patents and making a licensing proposal
for these patents on unspecified terms. The Company has not accepted the
licensing proposal. If these claims prove accurate and the Company is not able
to enter into a licensing agreement on acceptable terms, it would have a
material adverse effect on the Company.

                                       28
<PAGE>

           ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                      ACCOUNTING AND FINANCIAL DISCLOSURE

Corbin & Wertz, a regional Certified Public Accounting firm, audited our
financial statements for the years ended December 31, 1996, 1997, and 1998.
Arthur Andersen LLP, a national Certified Public Accounting firm, audited the
financial statements for the year ended December 31, 1999. The change in
accountants was made because our Board of Directors preferred to have our audits
performed by a nationally recognized firm of independent certified public
accountants because the Board planned to have the Company become publicly held
in the year 2000. There were no disagreements with Corbin & Wertz on any matters
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to the satisfaction of
Corbin & Wertz would have caused it to make reference to the subject matter of
the disagreement in connection with its report. The Corbin & Wertz Independent
Auditors Report on the financial statements for the years ended December 31,
1998 and 1997 did not contain an adverse opinion or disclaimer of opinion, nor
were they modified as to uncertainty, audit scope, or accounting principles.
Corbin & Wertz was dismissed on or about November 18, 1999 and Arthur Andersen
LLP was engaged on or about that date. There were no discussions with Arthur
Andersen LLP prior to their being engaged regarding application of accounting
principles to a specific transaction or the type of audit opinion that might be
rendered on the Company's financial statements.

              ITEM 4. RECENT ISSUANCES OF UNREGISTERED SECURITIES

All the Company's issued and outstanding common stock is unregistered. The
purpose of filing this Form 10-SB is to enable the Company's common stock to be
registered.

Set forth below is information regarding the issuance and sales of securities of
the Company without registration for the past three (3) years.

During the year ended December 31, 1997, the Company issued 10,638,542 shares of
its common stock including 5,100,000 shares at no cost to its founder, Tim
Dales; 2,300,000 shares subscribed for in 1996 at $0.20 per share for cash of
$426,000, net of commissions; 713,542 shares, at no assigned value because the
services related to raising equity, for services rendered by consultants in 1996
for raising the $426,000; and 2,525,000 shares sold to individuals at $0.20 to
$0.25 per share for cash of $508,500, net of commissions. Of the 5,100,000
shares issued to Mr. Dales, 2,525,000 shares were contributed back to the
Company; 2,165,511 shares in 1997, and 359,489 shares in 1998.

During the year ended December 31, 1998, the Company issued 3,136,970 shares of
its common stock, including 1,040,000 shares (Alan Williams - 500,000
shares,James Townsend - 490,000 shares, and Tom Zender - 50,000 shares)
subscribed for in 1997 at $0.20 per share for cash of $208,000; 236,094 shares
committed and recorded in 1997, valued at $0.20 per share in exchange, for
services valued at $47,218 rendered by consultants in lieu of a cash payment in
that amount, including 140,000 shares to Tom Zender as interim Chief Executive
Officer, and 96,094 to David Farago for software consulting; 510,000 shares were
sold at $0.20 per share for cash of $102,000; and 1,350,876 shares were issued
to convertible noteholders at the rate of three shares per $1.00 loaned to the
Company.

                                       29
<PAGE>

During the year ended December 31, 1999, the Company issued 2,030,952 shares of
its common stock including 927,751shares at $0.30 per share and 89,750 shares at
$2.50 per share to noteholders upon conversion of their notes to equity; 994,437
shares were sold to approximately 355 investors at $2.50 per share in an
offering made pursuant to Regulation A of the Securities Act of 1933, as
amended, for cash of $2,254,213, net of offering costs; and 1,000 shares at
$2.50 per share as payment on a note payable. The Regulation A offering
terminated May 31, 1999. We also issued 18,014 shares, which were valued at
$2.50 per share, to employees and consultants in exchange for various services
performed for the Company.

During the nine months ended September 30, 2000 the Company issued 532,995
shares of its common stock, including 290,644 shares at $0.31 per share in
connection with the exercise of warrants, 31,351 shares, valued at $2.50 per
share, for consulting services, and 211,000 shares sold for cash at $2.50 per
share.

During 1999, the Company sold 994,437 shares of common stock pursuant to an
Offering Statement filed with the Securities and Exchange Commission on Form-1A
under Regulation A of the Rules and Regulations under the Securities Act of
1933, as amended. All other sales of its common stock, and sale of its
convertible notes, were made in private transactions that did not involve a
public offering. Accordingly, the Company relied on the exemption from
registration described in Section 4(2) of the Securities Act of 1933, as
amended, in connection with these sales.

Beginning on August 2, 2000 until October 6, 2000 we offered up to 500,000
shares of our common stock to investors at $2.50 per share. We sold 243,000
shares of common stock in the offering, resulting in proceeds to the Company of
$607,500.

Except for the Regulation A offering, which was made pursuant to the exemption
provided by Section 3(b) of the Securities Act of 1933 and Regulation A there
under, all offers and sales of our securities described above were made pursuant
to Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there
under. We believe that, at the time of their investment, all purchasers of our
securities were either "accredited investors" (as defined in Regulation d) or
had (either alone or with their advisor) the business sophistication and
experience necessary to understand the risks of investing in the Company and the
financial means to be able to withstand a loss of their entire investment in the
Company. We also believe that we provided each investor with sufficient relevant
information about the Company to enable them to make an informed decision
regarding an investment in the Company.

              ITEM 5.   INDEMNIFICATION OF OFFICERS AND DIRECTORS

In accordance with Section 317 of the California General Corporations Law, our
Articles of Incorporation eliminate the liability of each of our directors for
monetary damages to the fullest extent permissible under California law.

Section 317 of the California General Corporations Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers who are parties or are threatened to be made parties to any
proceeding (with certain exceptions) by reason of the fact that the person is or
was an agent of the corporation, against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with the
proceeding if that person acted in good faith and in a manner the person
reasonably believed to

                                       30
<PAGE>

be in the best interests of the corporation. Section 204 of the law provides
that this limitation on liability has no effect on a director's liability (a)
for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law, (b) for acts or omissions that a director believes to
be contrary to the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director, (c) for any
transaction from which a director derived an improper personal benefit, (d) for
acts or omissions that show a reckless disregard for the director's duty to the
corporation or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of a serious injury to the corporation or its
shareholders, (e) for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders, (f) under Section 310 of the law (concerning
contracts or transactions between the corporation and a director), or (g) under
Section 316 of the law (directors' liability for improper dividends, loans and
guarantees). Section 317 does not extend to acts or omissions of a director in
his capacity as an officer. Further, Section 317 has no effect on claims arising
under federal or state securities laws and does not affect the availability of
injunctions and other equitable remedies available to our shareholders for any
violation of a director's fiduciary duty to us or our shareholders.

Insofar as indemnification for liabilities may be invoked to disclaim liability
for damages arising under the Securities Act of 1933, as amended, or the
Securities Act of 1934, (collectively, the "Acts") as amended, it is the
position of the Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Acts and are therefore, unenforceable.

                                   PART F/S

                  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Part III for listing of financial statements and exhibits herein, which
include:

1.   Audited financial statements consisting of the Company's statements of
     operations, stockholders' equity (deficit), and cash flows for the year
     ended December 31, 1998, and related Report of Independent Public
     Accountants by Corbin & Wertz. Audited financial statements consisting of
     the Company's balance sheet as of December 31, 1999, and its statements of
     operations, stockholders' equity (deficit), and cash flows for the year
     ended December 31, 1999, and related Report of Independent Public
     Accountants by Arthur Andersen LLP.

2.   Unaudited financial statements consisting of a balance sheet as of
     September 30, 2000, the last day of the Company's most recent fiscal
     quarter, and its statements of operations, stockholders' equity (deficit),
     and cash flow for the nine months ended September 30, 2000 and 1999.

                                       31
<PAGE>

                                   PART III

                                   EXHIBITS

ITEM 1.   Financial Statements:

       The following is a list of each financial statement filed under Part F/S
of this Registration Statement:

   1.  Audited financial statements consisting of the Company's balance sheet as
       of December 31, 1999, and its statements of operations, stockholders'
       equity (deficit), and cash flows for the years ended December 31, 1998
       and 1999, and related Reports of Independent Public Accountants by Arthur
       Andersen LLP and Corbin & Wertz.

  2.   Unaudited financial statements consisting of a balance sheet as of
       September 30, 2000, the last day of the Company's most recent fiscal
       quarter, and its statements of operations, stockholders' equity
       (deficit), and cash flow for the nine months ended September 30, 2000 and
       1999.

ITEM  2.  Index to Exhibits:

                                   EXHIBITS

Exhibit Number      Description of Exhibits
--------------      -----------------------

3.1                 Articles of Incorporation, as amended  *

3.2                 By-laws  *

10.1                Technology Transfer Agreement dated March 17, 1999 between
                    the Company and John Uhley, dba XpressWare *

10.2                Settlement Agreement and Mutual Release dated May 20, 1999
                    between the Company and John Uhley, dba XpressWare *

10.3                Office Building Lease dated May 13, 1999 between the Company
                    (as tenant) and SLO Newport Inc. (as landlord) *

10.4                Sublease dated June 1, 2000 between the Company (as
                    sublessor) and SLO Newport Inc. (as sublessee) *

10.5                Equipment Lease dated June 29, 1999 between the Company (as
                    lessee) and Ascend Credit Corporation (as lessor) *

10.6                Equipment Lease dated March 29, 2000 between the Company (as
                    lessee) and Ascend Credit Corporation (as lessor) *

                                       32
<PAGE>

10.7                Equipment Lease dated May 15, 2000 between the Company (as
                    lessee) and Dimension Funding (as lessor) *

10.8                Equipment Lease dated November 11, 1999 between the Company
                    (as lessee) and Dimension Funding (as lessor) *

10.9                1997 Stock Option Plan  *

10.10               Form of Incentive Stock Option Agreement under 1997 Stock
                    Option Plan *

10.11               Form of Stock Option Agreement  *

10.12               Form of Nonstatutory Stock Option Agreement  *

10.13               Form of Warrant Agreement  *

10.14               Executive Employment Agreement dated September 3, 1999
                    between the Company and Mason Conner *

10.15               Employment letter dated November 15, 1999 between the
                    Company and Robert L. Daniels *

10.16               Select Account Network Services Agreement dated May 3, 2000
                    between the Company and Global Crossing Telecommunications,
                    Inc. *

16.                 Letter on Change in Certifying Accountant  **

27.1                Financial Data Schedule  **

*      Previously filed
**     Filed herewith

                                       33
<PAGE>

                              VillageEDOCS, Inc.

                             Financial Statements

                    September 30, 2000 and 1999(Unaudited)
                        and December 31, 1999 and 1998

CONTENTS

Report of Independent Public Accountants on Financial Statements for the Year
Ended December 31, 1999

Independent Auditors Report on Financial Statements for the Year Ended December
31, 1998

Financial Statements:

     Balance Sheets

     Statements of Operations

     Statements of  Stockholders' Equity (Deficit)

     Statements of Cash Flows

     Notes to Financial Statements

                                      F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To:  The Board of Directors of VillageEDOCS, Inc.:

We have audited the accompanying balance sheet of VillageEDOCS, Inc. (formerly
known as VillageFax.com, Inc.), a California corporation, as of December 31,
1999, and the related statements of operations, stockholders' equity (deficit)
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of VillageEDOCS, Inc. as of December 31, 1998, were audited by other
auditors whose report dated August 25, 1999, expressed an unqualified opinion on
those statements.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VillageEDOCS, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

ARTHUR ANDERSEN LLP

Orange County, California
January 28, 2000

                                       F-2
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors
VillageEDOCS, Inc.

We have audited the accompanying statements of operations, stockholders' equity
(deficit), and cash flows of VillageEDOCS, Inc. (formerly known as
VillageFax.com, Inc.) (the "Company") for the year ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of the Company's operations and its cash
flows for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.

                                                CORBIN & WERTZ


Irvine, California
August 25, 1999

                                      F-3
<PAGE>

                              VillageEDOCS, Inc.

                                Balance Sheets

<TABLE>
<CAPTION>
                                                         September 30,            December 31,
                                                            2000                     1999
                                                       ----------------------------------------
<S>                                                    <C>                     <C>
ASSETS                                                            (unaudited)
Current Assets:
  Cash                                                 $       173,459          $     1,259,106
  Accounts receivable                                          141,327                   46,666
  Other current assets                                           9,263                    2,587
                                                       ----------------------------------------
     Total current assets                                      324,049                1,308,359
                                                       ----------------------------------------
Property and Equipment, net                                    329,668                  201,973

Other assets                                                    20,873                   13,304
                                                       ----------------------------------------
     Total assets                                      $       674,590          $     1,523,636
                                                       ========================================

LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities:
  Current portion of capital lease obligations                 121,221          $        59,048
  Accounts payable                                             216,564                  188,551
  Accrued expenses                                             120,907                   67,859
                                                       ----------------------------------------
     Total current liabilities                                 458,692                  315,458
                                                       ----------------------------------------
Capital lease obligations, net of current portion              110,436                   82,733

Convertible notes payable, net of discount                     540,213                  535,165
                                                       ----------------------------------------
     Total liabilities                                       1,109,341                  933,356
                                                       ----------------------------------------

Stockholders' Equity (Deficit):

  Common stock, no par value:
    Authorized--40,000,000 shares
      Issued and outstanding -- 13, 814,459
        and 13,281,464 respectively                          4,763,331                4,067,354
  Warrants                                                     219,272                  306,465
  Additional paid-in capital                                   766,419                  755,169
  Accumulated deficit                                       (6,183,773)              (4,538,708)
                                                       ----------------------------------------
     Total stockholders' equity (deficit)                     (434,751)                 590,280
                                                       ----------------------------------------
     Total liabilities and stockholders' equity        $       674,590          $     1,523,636
                                                       ========================================
</TABLE>

The accompanying notes to financial statements are an integral part of
these balance sheets.

                                      F-4
<PAGE>

                              VillageEDOCS, Inc.

                           Statements of Operations

<TABLE>
<CAPTION>

                                                           (unaudited)
                                                        Nine Months Ended                  Year Ended
                                                           September 30,                   December 31,
                                                      2000             1999             1999          1998
                                                  -----------------------------------------------------------
<S>                                               <C>             <C>              <C>            <C>
Net Sales                                         $   305,378     $    52,004      $      95,887  $    13,956

Cost of Sales                                         642,261         129,171            213,534       52,243
                                                  -----------------------------------------------------------
     Gross Margin                                    (336,883)        (77,167)          (117,647)     (38,287)
                                                  -----------------------------------------------------------

Operating Expenses:

Product and technology development                    273,210         258,101            352,555      246,168
 Sales and marketing                                  473,069         176,847            292,486      178,348
 General and administrative expenses                  461,618         919,845          1,086,221      426,717
   Depreciation                                        53,147          28,757             41,840       39,333
                                                  -----------------------------------------------------------
     Total operating expenses                       1,261,044       1,383,550          1,773,102      890,566


Loss from operations                               (1,597,927)     (1,460,717)        (1,890,749)    (928,853)

Interest expense, net                                  46,338          28,840             28,555      210,997
                                                  -----------------------------------------------------------
Income before provision for income taxes           (1,644,265)     (1,489,557)        (1,919,304)  (1,139,850)

Provision for income taxes                                800             800                800          800

     Net loss                                     $(1,645,065)    $(1,490,357)     $  (1,920,104) $(1,140,650)
                                                  ===========================================================

Basic and fully diluted loss per share            $     (0.12)    $     (0.13)     $       (0.16) $     (0.11)

Weighted average number of shares                  13,560,428      11,866,157         12,192,766   10,143,627
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

                                      F-5
<PAGE>

                               VillageEDOCS, Inc.

                 Statements of Stockholders' Equity (Deficit)
               For the Periods Ended December 31, 1999 and 1998
                       And September 30, 2000 (unaudited)

<TABLE>
<CAPTION>
                                                                                   Common Stock
                                                                 ----------------------------------------------------
                                                                         Issued                  Subscribed
                                                                   Shares       Amount       Shares       Amount
                                                               ----------------------------------------------------
<S>                                                            <C>             <C>         <C>          <C>
Balance, December 31, 1997                                        8,473,031    $  934,500   1,276,094   $ 255,219
  Founders shares surrendered                                      (359,489)
  Issuance of common stock
    in connection with previously committed shares                1,276,094       255,219  (1,276,094)   (255,219)
  Issuance of common stock at $0.20 per share for cash              510,000       102,000
  Issuance of common stock at $0.125 per share
    to convertible noteholders                                    1,350,876       168,560
  Net loss

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

Balance, December 31, 1998                                       11,250,512     1,460,279           -           -

  Issuance of common stock (at $0.30 and $2.50 per share)
    and warrants (at $0.01 per share) to holders upon
    conversion of notes payable to equity                         1,017,501       305,327
  Shares sold in Direct Public Offering at $2.50 per share,
    net of offering costs of $231,880                               994,437     2,254,213
  Issuance of common stock at $2.50 per share for
    consulting services                                              18,014        45,035
  Issuance of common stock at $2.50 per share in lieu
    of note payable                                                   1,000         2,500
  Compensation expense related to stock options issued to
    non-employees with an exercise price of $0.50 per share
  Compensation expense related to stock options issued to
    employees with exercise prices of $0.25, $1.00 and
    $2.125 per share
</TABLE>

<TABLE>
<CAPTION>
                                                                           Additional       Accumulated
                                                               Warrants   Paid-in Capital     Deficit          Total
                                                               ---------------------------------------------------------
<S>                                                            <C>        <C>               <C>            <C>
Balance, December 31, 1997                                     $      -   $       1,313     $ (1,477,954)  $    (286,922)

                                                                                                                       -
  Founders shares surrendered                                                                                          -
  Issuance of common stock                                                                                             -
    in connection with previously committed shares                                                                     -
  Issuance of common stock at $0.20 per share for cash                                                           102,000
  Issuance of common stock at $0.125 per share                                                                         -
    to convertible noteholders                                                                                   168,560
  Net loss                                                                                    (1,140,650)     (1,140,650)
                                                               ----------------------------------------------------------
Balance, December 31, 1998                                            -           1,313       (2,618,604)     (1,157,012)

  Issuance of common stock (at $0.30 and $2.50 per share)
    and warrants (at $0.01 per share) to holders upon
    conversion of notes payable to equity                       197,571                                          502,898
  Shares sold in Direct Public Offering at $2.50 per share,
    net of offering costs of $231,880                                                                          2,254,213
  Issuance of common stock at $2.50 per share for
    consulting services                                                                                           45,035
  Issuance of common stock at $2.50 per share in lieu
    of note payable                                                                                                2,500
  Compensation expense related to stock options issued to
    non-employees with an exercise price of $0.50 per share                     510,731                          510,731
  Compensation expense related to stock options issued to
    employees with exercise prices of $0.25, $1.00 and
    $2.125 per share                                                            243,125                          243,125
</TABLE>

                                            F-6
<PAGE>

<TABLE>
<S>                                                              <C>           <C>                  <C>         <C>
  Issuance of warrants to employees as compensation
  Issuance of warrants in connection with convertible
    Notes
  Net loss

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

Balance, December 31, 1999                                       13,281,464     4,067,354           -           -

  Issuance of common stock at $0.31 per share in
    connection with exercise of warrant (unaudited)                 290,644        90,099
  Issuance of common stock at $2.50 per share for
    consulting services (unaudited)                                  31,351        78,378
  Common Stock sold for $2.50/share cash                            211,000       527,500
  Compensation expense related to stock options
    issued to employees with exercise price of
    $1.00 (unaudited)
  Net loss (unaudited)
                                                           -------------------------------------------------------

Balance, September 30, 2000 (unaudited)                         13, 814,459   $ 4,763,331           -           -
                                                           =======================================================
</TABLE>



<TABLE>
<S>                                                       <C>                 <C>        <C>           <C>
  Issuance of warrants to employees as compensation           88,702                                        88,702
  Issuance of warrants in connection with convertible
    Notes                                                     20,192                                        20,192
  Net loss                                                                                (1,920,104)   (1,920,104)
                                                          --------------------------------------------------------

Balance, December 31, 1999                                   306,465           755,169    (4,538,708)      590,280

  Issuance of common stock at $0.31 per share in
    connection with exercise of warrant (unaudited)          (87,193)                                        2,906
  Issuance of common stock at $2.50 per share for
    consulting services (unaudited)                                                                         78,378
  Common stock sold for $2.50/share cash                                                                   527,500
  Compensation expense related to stock options issued to
    employees with exercise price of $1.00 (unaudited)                          11,250                      11,250
  Net loss (unaudited)                                                                    (1,645,065)   (1,645,065)
                                                          --------------------------------------------------------

Balance, September 30, 2000 (unaudited)                     $219,272          $766,419   $(6,183,773)  $  (434,751)
                                                           =======================================================
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

                                            F-7
<PAGE>

                              VillageEDOCS, Inc.

                           Statements of Cash Flows

<TABLE>
<CAPTION>                                                                   (unaudited)
                                                                         Nine Months Ended                 Year Ended
                                                                           September 30,                  December 31,
                                                                        2000           1999           1999           1998
                                                                  ---------------------------------------------------------
<S>                                                                    <C>            <C>            <C>            <C>
Cash Flows from Operating Activities:
 Net loss                                                          ($1,645,065)   $(1,490,357)   $(1,920,104)   $(1,140,650)
 Adjustments to reconcile net loss to net cash used in
   operating activities:
     Depreciation                                                       53,147         28,757         41,840         39,333
Amortization of discount on convertible notes payable                    5,048              -          3,365        168,560
Provision for loss on doubtful accounts receivable-                      5,000              -              -         (1,008)
     Issuance of common stock as payment for services                   78,378          5,000         45,035              -
     Issuance of stock options with exercise prices less
      than fair value at grant date                                     11,250        745,731        753,856              -
     Stock warrants issued as compensation                                   -         88,702         88,702              -

     Changes in operating assets and liabilities:
      Accounts receivable, net                                         (99,661)       (11,664)       (45,249)         3,679
      Other assets                                                     (14,245)       (20,302)       (10,174)        (1,223)
      Accounts payable                                                  28,013        (53,750)       (15,004)       (24,764)
      Accrued expenses                                                  53,048       (126,346)      (136,201)       198,857
                                                                  ---------------------------------------------------------
       Net cash used in operating activities                        (1,525,087)      (834,229)    (1,193,934)      (757,216)

Cash Flows from Investing Activities:
 Purchases of property and equipment                                   (28,147)        (10,323)      (25,934)       (10,436)

Cash Flows from Financing Activities:
 Proceeds from notes payable                                                                               -         10,000
 Principal payments on notes payable                                                   (37,500)      (37,500)             -
 Proceeds from stockholder loans                                                       230,000       230,000        240,000
 Proceeds from convertible notes payable                                                                   -        450,292
 Proceeds from sale of common stock, net of offering costs             527,500       2,254,213     2,254,213        102,000
 Exercise of warrants                                                    2,906
Principal payments on capital leases                                   (62,819)              -        (9,460)             -
                                                                  ---------------------------------------------------------
   Net cash provided by financing activities                           467,587       2,446,713     2,437,253        802,292
                                                                  ---------------------------------------------------------
 Net increase/(decrease) in cash                                    (1,085,647)      1,602,161     1,217,385         34,640

Cash, beginning of period                                         $  1,259,106     $    41,721        41,721          7,081
                                                                  ---------------------------------------------------------
Cash, end of period                                               $    173,459     $ 1,643,882    $ 1,259,106   $    41,721
                                                                  =========================================================
</TABLE>

Supplemental Disclosures of Cash Flow Information:

  Cash paid during the period for -

                                       F-8
<PAGE>

<TABLE>
<S>                             <C>             <C>            <C>            <C>
    Interest                    $     11,216    $     2,011    $    10,504    $    31,835
    Income taxes                $        800    $       800    $       800    $       800
</TABLE>

Supplemental Disclosure of Noncash Financing Activities:

   During the nine months ended September 30, 2000, the Company issued 290,644
   shares of common stock at $0.31 per share in connection with the exercise of
   warrants,including the exercise price of the warrants of $0.01 per share plus
   the value of the warrants of $0.30 per share.

   Issued 31,351 shares of common stock at $2.50 per share as payment for
   consulting services.

   Acquired equipment under capital lease obligations in the amount of $160,908.

   During 1999, the Company issued 1,017,501 shares of common stock at $0.30 per
   share and at $2.50 per share plus warrants to purchase 658,877 shares of
   common stock at $0.01 per share, in connection with the conversion of
   $450,292 convertible notes payable plus $52,606 accrued interest to equity.
   The warrants were valued at $197,571 (see Note 6).

   Issued 1,000 shares of common stock at $2.50 per share as payment on a note
   payable.

   Issued 47,809 shares of common stock at $2.50 per share as payment for
   services rendered in connection with the Direct Public Offering. The cost of
   the services provided was $119,523.

   Converted $520,000 in notes payable plus $31,992 accrued interest to $551,992
   in convertible notes payable (see Note 6).

   Issued warrants to purchase 49,256 shares of common stock at $2.50 per share
   in connection with the conversion of a note payable to convertible note
   payable. The warrants were valued at $20,192 (see Note 6).

   Issued 18,014 shares of common stock to a consultant for services provided
   (see Note 7.a.).

   Acquired equipment under capital lease obligations in the amount of $151,241.

   During 1998, the Company issued 1,276,094 shares of common stock in
   connection with previously committed shares.

   Issued 1,350,876 shares of common stock to convertible note holders (see Note
   6).

The accompanying notes to financial statements are an integral part of these
statements

                                      F-9
<PAGE>

                              VillageEDOCS, Inc.

                   (formerly known as VillageFax.com, Inc.)

Notes to Financial Statements

December 31, 1999 and 1998

(Data as of and for nine months ended September 30, 2000 and 1999 is unaudited)


     1.   Background and Organization
          ---------------------------

     VillageEDOCS,.Inc. (the "Company"), formerly known as VillageFax.com,Inc.
     and SoftTek Technologies, Inc., was incorporated in 1995 in Delaware and
     reincorporated in California in 1997. The Company develops and markets
     Internet-enabled fax services to organizations throughout the United States
     and internationally.

     2.   Going Concern
          -------------

     The accompanying financial statements have been prepared assuming that the
     Company will continue as a going concern. The Company has a working capital
     deficit and has incurred significant losses from operations in each year
     since inception (1995). The Company's losses are continuing and are
     expected to continue until such time as the Company is able to successfully
     establish, operate and sufficiently expand its internet-enabled fax
     services. There can be no assurance that the Company will achieve and
     maintain profitable operations. These factors, among others, raise
     substantial doubt about the Company's ability to continue as a going
     concern.

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

     The financial statements do not include any adjustments to reflect the
     possible future effects on the recoverability and classification of assets
     or the classification of liabilities that might result from the outcome of
     these uncertainties.

     Until sufficient revenue levels are achieved, the Company will require
     additional financing to support its operations. Such sources of financing
     could include capital infusions, additional equity financing or debt
     offerings. Management plans to obtain equity financing from existing
     shareholders and equity financing from new shareholders during the year
     2000. Management is actively pursuing both of these financings. If the
     planned financings are obtained, the Company will have adequate cash to
     sustain operations until it becomes profitable. There can be no assurance
     that funding will be available on acceptable terms, if at all, or that such
     funds, if raised, would enable the Company to achieve and maintain
     profitable operations.

3.   Summary of Significant Accounting Policies
     ------------------------------------------

          a.   Concentration of Credit Risk
               ----------------------------

          The Company extends credit to its customers and performs ongoing
          credit evaluations of such customers. The Company does not obtain
          collateral to secure its accounts receivable. The Company evaluates
          its accounts receivable on a regular basis for collectibility and
          provides for an allowance for potential credit losses as deemed
          necessary.

          b.   Use of Estimates in the Preparation of Financial Statements
               -----------------------------------------------------------

          The preparation of financial statements in conformity with accounting
          principles generally accepted in the United States requires management
          to make estimates and assumptions that affect the reported amounts of
          assets and liabilities and disclosure of contingent assets and
          liabilities at the date of the financial statements and the reported
          amounts of revenues and expenses during the reporting period. Actual
          results could differ from those estimates.

                                     F-10
<PAGE>

     c.   Property and Equipment
          ----------------------

     Property and equipment, consisting primarily of computer equipment,
     software, and furniture, are stated at cost and are depreciated or
     amortized using the straight-line method over the estimated useful lives of
     the assets, ranging from three to seven years. Major betterments and
     renewals are capitalized, while routine repairs and maintenance are charged
     to expense when incurred. The Company leases certain of its computer
     equipment and software under capitalized and operating lease arrangements.

     The Company assesses the recoverability of property and equipment by
     determining whether the depreciation and amortization amounts can be
     recovered through projected undiscounted cash flows. The amount of
     impairment, if any, is measured based on fair value and is charged to
     operations in the period in which impairment is determined by management.
     At December 31, 1999, management has determined that there is no impairment
     of property and equipment.

     d.   Revenue Recognition
          -------------------

     The Company provides internet-enabled fax services to businesses and
     charges for these services on a per page faxed basis. These service
     revenues are recognized in the month such services are performed; clients
     are then invoiced for these monthly services shortly after the end of the
     month.

     e.   Product and Technology Development
          ----------------------------------

     Product and technology development expense includes personnel costs
     relating to developing the features, content and functionality of the
     Company's internet-enabled fax services and Web site. Product and
     technology costs are expensed as incurred.

     f.   Advertising
          -----------

     The Company expenses all advertising costs as incurred. There were no
     advertising costs incurred during the year ended December 31, 1999. The
     amount incurred for advertising during the year ended December 31, 1998 was
     $10,770. There were no advertising costs incurred during the nine months
     ended September 30, 2000.

     g.   Income Taxes
          ------------

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

     h.   Stock Based Compensation
          ------------------------

     The Company has elected to follow the intrinsic method of recognizing
     employee stock-based compensation. Under this method, compensation expense
     is recorded only to the extent that the exercise price of stock options
     granted exceeds the fair market value (FMV) of the Company's stock at the
     date of grant.

                                     F-11
<PAGE>

     i.   Reclassifications
          -----------------

     Certain reclassifications have been made to the 1998 financial statements
     to conform to the 1999 presentation.

     j.   Unaudited interim financial statements
          --------------------------------------

     The accompanying financial information as of September 30, 2000 and for the
     nine months ended September 30, 2000 and 1999, respectively, is unaudited.
     In the opinion of management, the balance sheet as of September 30, 2000,
     the statements of operations and cash flows for the nine months ended
     September 30, 2000 and 1999, and the statement of stockholders' equity
     (deficit) for the nine months ended September 30, 2000 present fairly the
     financial position of VillageEDOCS as of September 30, 2000, and the
     results of its operations and cash flows for the nine month periods ended
     September 30, 2000 and 1999. All adjustments consisting only of normal
     recurring adjustments have been made.

     k.   Fair Value of Financial Instruments
          -----------------------------------

     The Company's balance sheets include the following financial instruments:
     cash, accounts receivable and notes payable. The Company considers the
     carrying amounts in the financial statements to approximate fair value for
     cash and accounts receivable because of the relatively short period of time
     between origination and their expected realization. The carrying value of
     notes payable approximates fair value as the notes bear interest at rates
     currently available to the Company.

4.   Property and Equipment
     ----------------------

Property and equipment consist of the following as of:

                                                   September 30  December 31
                                                      2000          1999
                                                   -----------   -----------
                                                   (unaudited)
    Computer equipment                              $ 143,859     $ 127,145
    Furniture and equipment                            48,072        44,762
    Equipment and software under capital leases       312,149       151,241
                                                    ---------     ---------
                                                      504,080       323,148
    Less-- accumulated depreciation                  (174,412)     (121,175)
                                                    ---------     ---------
                                                    $ 329,668     $ 201,973
                                                    =========     =========

Depreciation expense for the nine months ended September 30, 2000 and the year
ended December 31, 1999 was $53,147 and $41,840, respectively.

5.   Convertible Notes Payable
     -------------------------

In 1997, the Company borrowed $50,000 from a stockholder, bearing interest at 10
percent per annum. The Company did not make any payments on this loan. In June
1999, the note plus accrued interest were exchanged for a convertible note in
the amount of $61,570, bearing interest at 10 percent per annum. The note and
accrued interest are due at the earlier of one of three events: 1) acquisition
of controlling interest in the Company by a third party; 2) June 30, 2002; or 3)
the Company achieves equity financing of a minimum of $6,000,000. The
stockholder has the option to convert the note plus accrued interest into common
stock at $2.50 per share. As an incentive to extend the terms of the note, the
Company granted warrants to purchase 49,256 shares of the Company's common stock
at $2.50 per share. The Company allocated $20,192 to the value of the warrants
using a pro-rata allocation calculation based on fair values and recorded the
offsetting amount as a discount on notes payable, which will be amortized over
three years.

Beginning in September 1998, the Company borrowed operating funds from two
stockholders, bearing interest at 10 percent per annum. In May and June 1999,
the related notes, which totaled $470,000 plus accrued interest, were exchanged
for two convertible notes in the amounts of $244,245 and $246,177, bearing
interest at 10 percent per annum. The notes and accrued interest are due at the
earlier of one of three events: 1) May 31, 2002 and June 30, 2002, respectively;
2) acquisition of controlling interest in the Company by a third party; or 3)
the Company achieves equity financing of a minimum of $6,000,000.

Total interest expense recognized on all the original and convertible notes was
$41,399 for the nine months ended September 30, 2000 and $51,300 for the year
ended December 31, 1999. All interest on the convertible notes is accrued as of
September 30, 2000 and December 31, 1999 and is included in accrued liabilities
on the accompanying balance sheet.

In April 1998, the Company issued convertible notes payable in the amount of
$450,292, bearing interest at 10 percent per annum and an original maturity date
of September 1998. Upon issuance, the noteholders received three shares of
common stock for every dollar loaned (totaling 1,350,876 shares). The Company
allocated $168,560 to the value of the shares using a pro-rata allocation
computation based on fair values, with the offsetting amount being recorded as a
debt discount and amortized in full as additional interest expense through the
original maturity date of September 30, 1998. In addition, the notes were
convertible into shares of common stock for every dollar at an exercise price of
$0.30 per share. The maturity date of the notes was extended to June 1999 and
the Company offered noteholders certain choices including: 1) convert the
principal and accrued interest to shares

                                      F-12
<PAGE>

of common stock at $0.30 per share; or 2) convert the principal and accrued
interest to common stock at $2.50 per share and receive 7.334 warrants to
purchase common stock at $.01 per share, for each share converted. Either
alternative results in the same number of shares issued to noteholders after the
exercise of the warrants. Notes totaling $450,292 plus accrued interest of
$52,606 were converted to common stock in June 1999. As a result of the
conversion, the notes and accrued interest are not reported as part of
liabilities as of December 31, 1999. The number of shares of common stock that
were issued at $0.30 per share was 937,751. The number of shares of common stock
that were issued at $2.50 per share was 89,750 and the number of warrants that
were issued was 658,877. The Company allocated $305,327 to common stock and
$197,571 to warrants. The value allocated to the warrants was based on the
relative fair values of the warrants and common stock.

6.   Stockholders' Equity (Deficit)
     ------------------------------

     a.   Common Stock Issuances
          ----------------------

     In 1995, the Company committed to issue 5,100,000 shares of its common
     stock to its founder, which was issued in 1997. The Company's founder
     agreed to contribute back to the Company 2,525,000 shares and subsequently
     contributed back to the Company 2,165,511 shares in 1997 and 359,489 shares
     in 1998.

     During the year ended December 31, 1997, the Company subscribed 1,276,094
     shares of its common stock for services rendered. These shares were issued
     during the year ended December 31, 1998.

     During the year ended December 31, 1998, the Company issued 510,000 shares
     of its common stock for $102,000 in cash. In addition, the Company issued
     1,350,876 shares of its common stock in connection with convertible notes.
     During the year ended December 31, 1999, these notes were converted to
     common stock, and 1,017,501 shares were issued upon the conversion (see
     Note 6).

     During the year ended December 31, 1999, the Company completed the sale of
     946,628 shares of its common stock at $2.50 per share. Net cash proceeds
     were $2,254,213 after cash offering costs of $112,357. Additional costs of
     services related to the offering were paid with the issuance of 47,809
     shares of common stock valued at $119,523.

     During the year ended December 31, 1999, the Company issued 18,014 shares
     of stock valued at $45,035 as payment for consulting services, and 1,000
     shares valued at $2,500 as payment on a note payable.

     In June 1999, the shareholders approved an increase in the number of
     authorized common shares of the Company to 40,000,000.

     During the nine months ended September 30, 2000 (unaudited), the Company
     issued 290,644 shares of common stock in connection with the exercise of
     warrants.

     During the nine months ended September 30, 2000 (unaudited), the Company
     issued 31,351 shares of common stock valued at $ 78,378 as payment for
     consulting services.

     During the nine months ended September 30, 2000 (unaudited), the Company
issued 211,000 shares of common stock at $2.50 per share for $527,500 in cash.

     b.   Stock Options
          -------------

     During 1997, the Board of Directors of the Company adopted a stock option
     plan (the "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 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.

                                      F-13
<PAGE>

Stock option activity for the nine months ended September 30, 2000 (unaudited)
and the years ended December 31, 1999 and 1998, is as follows:

                                                    Number       Price per
                                                  of Options       Share
                                                  -----------  --------------

     Outstanding at December 31, 1997              1,274,063    $0.20 - 0.25
       Granted                                       899,730     0.20 - 0.25
       Canceled                                      (60,000)          (0.25)
       Exercised                                           -               -
                                                   ---------    ------------
     Outstanding at December 31, 1998              2,113,793     0.20 - 0.25
       Granted                                     1,218,318     0.25 - 2.50
       Canceled                                     (120,000)          (0.25)
       Exercised                                           -               -
                                                   ---------    ------------
     Outstanding at December 31, 1999              3,212,111    0.20 -  2.50
      Granted (unaudited)                            664,609            2.50
      Canceled (unaudited)                          (415,000)   2.25 -  2.50
      Exercised (unaudited)                                -               -
                                                   ---------    ------------
     Outstanding at September 30, 2000 (unaudited) 3,461,720    $0.20 - 2. 5
                                                   =========    ============
     Exercisable at December 31, 1999              1,460,274    $0.20 - 0.25
                                                   =========    ============
     Exercisable at September 30, 2000 (unaudited) 1,967,978    $0.20 - 2.50
                                                   =========    ============

Under the Plan, the exercise price of each option shall not be less than 85
percent of FMV on the date the option is granted. During the year ended December
31, 1999, stock options to purchase 252,837 shares at $0.50 were granted to non-
employee consultants. These options vest one year from the date granted.
Compensation expense equal to the fair value of the services provided of
$510,731 was recorded in the year ended December 31, 1999, and is included in
General and administrative expenses in the accompanying statements of
operations.

Stock options to purchase 50,000 shares at $1.00, 100,000 shares at $2.125, and
100,000 shares at $0.25 were issued to employees during the year ended December
31, 1999. The difference between the fair value of the Company's stock at date
of grant and the exercise price is expensed ratably over the vesting period. The
options to purchase shares at $0.25 vested immediately, and the options to
purchase shares at $1.00 and $2.125 vest over five years. Compensation expense
of $243,125 was recorded for the year ended December 31, 1999 and is included in
operating expenses in the accompanying statements of operations. Deferred
compensation related to the unvested options totaled $94, 375 and is included in
additional paid-in capital in the accompanying balance sheets and statements of
stockholders equity' (deficit) at December 31, 1999.

The options for the 252,837 shares to non-employees were granted outside the
1997 Plan. The options issued to employees for 50,000 shares at $1.00 and
100,000 shares at $0.25 were also granted outside the 1997 Plan.

All other stock options that were granted in 1999 and all that were granted in
nine months ended September 30, 2000 were at or above FMV of the underlying
common stock at the date of grant and vest over a five-year period. At September
30, 2000 and December 31, 1999, the weighted average remaining contractual life
of outstanding stock options is approximately nine years.

Of the options granted during the year ended December 31, 1998, 689,730 were
issued to non-employee consultants. The Company did not record any compensation
charge as a result of these option grants because the FMV of these options was
deemed to be immaterial.

During 1999, warrants to purchase 162,070 shares of common stock and stock
options to purchase 35,481 shares of common stock were issued to employees in
lieu of $88,702 in deferred compensation. The warrants and stock options vested
immediately and have exercise prices of $0.01 and $2.50, respectively.

                                     F-14
<PAGE>

     c.   Pro Forma Information
          ---------------------

     The following table presents pro forma disclosure of net income as if the
     estimated fair value of stock options granted is recorded as compensation
     expense on a straight-line basis over the vesting period. Adjustments are
     made for options forfeited prior to vesting.

                                                September 30,
                                      2000           1999          1998
                                 --------------  ------------  ------------
                                                  (unaudited)

          As reported              $(1,645,066)  $(1,920,104)  $(1,140,650)
          Pro forma                $(1,645,066)  $(1,945,490)  $(1,172,492)
          Pro forma per share      $     (0.12)  $     (0.16)  $     (0.12)


     The fair values of options granted in 1999 and 1998 were estimated at the
     date of grant using the Black Scholes option pricing model with the
     following weighted average assumptions:

                                                   1999          1998
                                                 --------      --------
          Risk free interest rate                   5.5%          6.2%
          Dividend yield                            0.0%          0.0%
          Volatility factor                         0.0%          0.0%
          Expected life                            5 years       3 years

     The minimum value method was used to calculate the fair value of the
     options with an exercise price equal to the FMV at grant date.

     The Black Scholes option valuation method was developed for use in
     estimating the fair value of traded options which have no vesting
     restrictions and are fully transferable. In addition, option valuation
     models require the input of highly subjective assumptions including the
     expected stock price volatility. Because the Company's employee stock
     options have characteristics significantly different from those of traded
     options, and because changes in the subjective input assumptions can
     materially affect the fair value estimate, in management's opinion, the
     existing models do not necessarily provide a reliable single measure of the
     fair value of its employee stock options.

7. Income Taxes
   ------------

As the Company incurred net operating losses through September 30, 2000, the
provision for income taxes for the periods presented consists of minimum state
taxes only. At December 31, 1999 and 1998, the Company had approximately
$4,233,234 and $2,637,000, respectively, of federal and state net operating loss
carryforwards for tax reporting purposes available to offset future taxable
income; federal and state carryforwards expire in 2019 and 2007, respectively.
Under the Tax Reform Act of 1986, the amounts of and benefits from net operating
losses carried forward may be impaired or limited in certain circumstances.
Events which may cause limitations in the amount of net operating losses that
the Company may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50 percent over a three year period. At
December 31, 1999, the effect of such limitation, if imposed, has not been
determined.

Deferred tax assets, consist primarily of the tax effect of net operating loss
carryforwards. The Company has provided a full valuation allowance on the
deferred tax assets because of the uncertainty regarding realizability.

The tax effects that generated the deferred tax assets at December 31, 1999 and
1998 and September 30, 2000 (unaudited) are presented below:

<TABLE>
<CAPTION>
                                                                     (unaudited)
                                                September 30, 2000      1999         1998
                                                ------------------  ------------  ------------
<S>                                             <C>                 <C>           <C>
   Deferred tax assets:
     Net operating loss carryforwards           $      2,479,120    $  1,821,094  $  1,044,000
     Less valuation allowance                         (2,479,120)     (1,821,094)   (1,044,000)
                                                -----------------------------------------------
                                                $              -    $          -  $          -
                                                ===============================================
</TABLE>

                                     F-15
<PAGE>

8.   Loss per Share
     --------------

Basic loss per share was computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period. The weighted
average number of shares used in the loss per share computation was 12,192,766
and 10,143,627 in the years ended December 31,1999 and 1998, respectively. The
weighted average number of shares for the nine months ended September 30, 2000
and 1999 were 13,560,428 and 11,866,157, respectively. Potential common shares
for the nine months ended September 30, 2000 and for the years ended December
31, 1999 and 1998 amounted to 3,967,279, 4,070,181 and 2,113,793, respectively,
but have not been included in the net loss per share calculations as they are
antidilutive.

9.   Commitments and Contingencies
     -----------------------------

          a.   Leases
               ------

          The Company leases computer equipment, related software and its
          corporate headquarters under various operating and capital leases.
          Future minimum scheduled lease payments under these noncancellable
          leases at December 31, 1999 are as follows:

                                                      Capital   Operating
                                                     ---------  ---------

               2000                                  $  75,586  $  93,362
               2001                                     71,345     75,272
               2002                                     22,549     77,567
               2003                                          -     79,861
               2004                                          -     27,551
                                                     ---------  ---------
               Total minimum lease payments            169,480  $ 353,613
                                                                =========
               Less: amounts representing interest      27,699
                                                     ---------
               Present value of lease obligations      141,781

               Less: current portion                   (59,048)
                                                     ---------
                                                     $  82,733
                                                     =========

     Future minimum scheduled lease payments under these noncancellable leases
     at September 30, 2000 (unaudited) are as follows:

                                                      Capital   Operating
                                                    ---------   ---------

               2001 (12 months end 9/30/01)         $ 155,740   $ 82,699
               2002                                   100,574     78,444
               2003                                    22,883     73,995
               2004                                         -          -
               2005                                         -          -
                                                    ---------   --------
               Total minimum lease payments         $ 279,197   $235,138
                                                                ========
               Less: amounts representing interest     47,540
                                                    ---------
               Present value of lease obligations     231,657

               Less: current portion                 (121,221)
                                                    ---------
                                                    $ 110,436
                                                    =========

                                     F-16
<PAGE>

     The Company occupies its only facility under a lease agreement, which
     expires in May 2004. Total rent expense for the years ended December 31,
     1999 and 1998 was $44,585 and $29,162, respectively.

     Rent expense for the nine months ended September 30, 2000 and 1999 was
     $42,275 and $30,824, respectively.

     b.   License Agreements
          ------------------

     The Company had a software development and license agreement with Client
     Service Technologies, Inc. ("CSTI"), whereby CSTI developed software to
     inter-operate specifically with the Company's software and granted the
     Company a license to market the enhanced software. Under the terms of the
     agreement, the Company paid CSTI $0 and $4,400 in cash for the years ended
     December 31, 1999 and 1998, respectively. In July 1999, the Company
     terminated this agreement.

     The Company also had a software development and license agreement with
     Xpress Ware, Inc. ("XW"), whereby XW developed software to inter-operate
     specifically with the Company's software and granted the Company a license
     to market the enhanced software. In March 1999, pursuant to a Technology
     Agreement, the Company acquired for $40,000 XW software and related
     technology, of which $30,000 was paid in June 1999 and the remaining
     $10,000 is due in July 2000. The $40,000 was charged to cost of sales in
     1999.

     The Technology Agreement supercedes and cancels the previous agreement
     between XW and the Company.

     c.  Litigation
         ----------

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

     d.  Consulting and Employee Agreements
         ----------------------------------

     The Company has entered into a variety of consulting and employee
     agreements for services to be provided to the Company in the ordinary
     course of business. These agreements call for minimum salary levels and/or
     option grants and/or common share issuances and various payments upon
     termination of the agreements (except for cause).

10.  Business Segment Information

The Company operates in one reportable segment of internet - based faxing and
related services. In 1999 and the nine months ended September 30, 2000, the
Company had one significant customer which represented a significant percentage
of net sales. Sales to this customer represented 70% and 19% of net sales for
the year ended December 31, 1999 and the nine months ended September 30, 2000,
respectively. A significant decline in sales to this customer could have an
adverse effect on the Company's operations.

11.  Subsequent Events

In October 2000, the Company sold 32,000 shares of common stock at $2.50 per
share for cash aggregating $80,000, and in November and December 2000 issued
$400,000 of promissory notes for cash. The notes were issued to two stockholders
and bear interest at 10 percent per annum. The notes and accrued interest are
payable at the earlier of: 1) a controlling interest is acquired by a third
party; 2) October 31, 2003; or 3) net cash proceeds of $5,000,000 are received
from an equity financing. If the equity financing is achieved, the notes plus
accrued interest are convertible into common stock at the lower of $2.50 per
share or the price per share of common stock issued in the financing. If the
Company is acquired, the notes plus accrued interest are convertible into common
stock at the lower of $2.50 per share or the price paid per share by the
acquirer.

                                     F-17
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.


                                        VillageEDOCS, INC.



Dated: December 19, 2000                By: /s/ K. Mason Conner
                                        ---------------------------------
                                        K. Mason Conner
                                        Chief Executive Officer


Dated: December 19, 2000                By: /s/ Fred J. Barnes
                                        ---------------------------------
                                        Fred J. Barnes
                                        Chief Financial Officer, Principal
                                        Accounting Officer


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