<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______, 19__, to_____, 19__.
Commission File Number
CUSIP NUMBER 927118 10 9
VILLAGEEDOCS, INC.
-----------------
California 33-0668917
------------------------------------ -------------------------------------
(State or Other Jurisdiction of I.R.S. Employer Identification Number
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
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and has been subject to such filing requirements
for the past 90 days.
_____ YES X NO
---
There were 13,814,459 shares of the Registrant's common stock as of September
30, 2000.
Transitional Small Business Format (check one) Yes X No ___
---
<PAGE>
VillageEdocs, Inc.
__________________________________________________________________________
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<PAGE>
VillageEdocs, Inc.
__________________________________________________________________________
Financial Statements
VillageEdocs, Inc.
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<PAGE>
VillageEdocs, Inc.
__________________________________________________________________________
VillageEdocs, Inc.
Financial Statements
Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Contents
Financial Statements:
Balance Sheet for September 30, 2000 (Unaudited)..........................
Statements of Operations for the three and nine months ended
September 30, 2000 and 1999 (Unaudited)..................................
Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 (Unaudited)..................................
Notes to Financial Statements.............................................
<PAGE>
VillageEdocs, Inc.
Balance Sheet
(unaudited)
________________________________________________________________________________
September 30, 2000
ASSETS
Current Assets:
Cash $ 173,459
Accounts receivable, net 141,327
Other current assets 9,263
-----------
Total current assets 324,049
-----------
Property and Equipment, net 329,668
Other assets 20,873
-----------
Total Assets $ 674,590
===========
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligations $ 121,221
Accounts payable 216,564
Accrued expenses 120,907
-----------
Total current liabilities 458,692
Capital lease obligations, net of current portion 110,436
Convertible notes payable, net of discount 540,213
-----------
Total liabilities 1,109,341
Stockholders' Equity (Deficit):
Common stock, no par value:
Authorized - 40,000,000 shares
Issued and outstanding - 13,814,459 4,763,331
Warrants 219,272
Additional paid-in capital 766,419
Accumulated deficit (6,183,773)
-----------
Total stockholders' equity (deficit) (434,751)
-----------
Total liabilities and stockholders' equity $ 674,590
===========
The accompanying notes to financial statements are an integral part of this
balance sheet.
<PAGE>
VillageEdocs, Inc.
Statements of Operations
(unaudited)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 175,678 $ 29,140 $ 305,378 $ 52,004
Cost of Sales 314,590 31,106 642,261 129,171
------------ ------------ ------------ ------------
Gross Margin (138,912) (1,966) (336,883) (77,167)
------------ ------------ ------------ ------------
Operating Expenses:
Product and technology development 89,349 105,109 273,210 258,101
Sales and marketing 180,632 70,867 473,069 176,847
General and administrative expenses 143,045 61,122 461,618 919,845
Depreciation 23,936 5,842 53,147 28,757
------------ ------------ ------------ ------------
Total operating expenses 436,962 242,940 1,261,044 1,383,550
Loss from operations (575,874) (244,906) (1,597,927) (1,460,717)
Interest expense, net 23,019 (9,592) 46,338 28,840
------------ ------------ ------------ ------------
Income before provision for income taxes (598,893) (235,314) (1,644,265) (1,489,557)
Provision for income taxes 800 800 800
------------ ------------ ------------ ------------
Net loss $ (598,893) $ (236,114) $ (1,645,065) $ (1,490,357)
============ ============ ============ ============
Basic and fully diluted loss per share $ (.04) $ (.02) $ (.12) $ (.13)
Weighted average number of shares 13,655,646 12,681,115 13,560,428 11,866,157
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
VillageEdocs, Inc.
Statements of Cash Flows
(unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
2000 1999
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,645,065) $(1,490,357)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 53,147 28,757
Amortization of discount on convertible notes payable 5,048
Provision for loss on doubtful accounts receivable 5,000
Issuance of common stock as payment for services 78,378 5,000
Issuance of stock options with exercise prices less
Than fair value at grant date 11,250 745,731
Stock warrants issued as compensation 88,702
Changes in operating assets and liabilities:
Accounts receivable (99,661) (11,664)
Other assets (14,245) (20,302)
Accounts payable 28,013 (53,750)
Accrued expenses 53,048 (126,346)
----------- -----------
Net cash used in operating activities (1,525,087) (834,229)
Cash Flows from Investing Activities:
Purchases of property and equipment (28,147) (10,323)
Cash Flows from Financing Activities:
Proceeds from notes payable
Principal payments on notes payable (37,500)
Proceeds from stockholder loans 230,000
Proceeds from convertible notes payable
Proceeds from sale of common stock, net of offering costs 527,500 2,254,213
Exercise of warrants 2,906
Principal payments on capital leases (62,819)
----------- -----------
Net cash provided by financing activities 467,587 2,446,713
----------- -----------
Net increase/(decrease) in cash (1,085,647) 1,602,161
Cash, beginning of period 1,259,106 41,721
----------- -----------
Cash, end of period $ 173,459 $ 1,643,882
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of the
statements.
<PAGE>
VillageEdocs, Inc.
Notes to Financial Statements - September 30, 2000 (unaudited)
______________________________________________________________________________
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 and debt financing from existing
<PAGE>
shareholders during the year 2000, and equity financing from new shareholders
during the year 2001. 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.
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 September 30, 2000, management has determined that there is no
impairment of property and equipment.
<PAGE>
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 nine months ended September 30, 2000 nor
the nine months ended September 30, 1999.
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.
i. Unaudited interim financial statements
--------------------------------------
The accompanying financial information as of September 30, 2000 and for
the three and 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 for the three and nine months ended September
30, 2000 and 1999, and the cash flows for the nine months ended September 30,
2000 and 1999,
<PAGE>
present fairly the financial position of VillageEDOCS as of September 30,
2000, and the results of its operations the the three and nine months ended
September 30, 2000 and 1999, 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, 2000
(unaudited)
Computer equipment $ 143,859
Furniture and equipment 48,072
Equipment and software under capital leases 312,149
---------
504,080
Less-- accumulated depreciation (174,412)
---------
$ 329,668
=========
Depreciation expense for the nine months ended September 30, 2000 was $53,147.
<PAGE>
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 and $00,000 for the nine months ended September 30, 2000 and 1999,
respectively. All interest on the convertible notes is accrued as of September
30,2000 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 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. 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.
<PAGE>
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; 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.
<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 - 2.50
========= ============
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 vested 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.
<PAGE>
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 sheet at September 30,
2000.
The options for the 252,837 shares to non-employees were granted outside the1997
Plan. The options issued to employees for 50,000 shares at $1.00 and100,000
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 the 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, the
weighted average remaining contractual life of outstanding stock options is
approximately nine years.
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.
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
------------------
(unaudited)
As reported $(1,645,065)
Pro forma $(1,645,065)
Pro forma per share $ (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
<PAGE>
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 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; 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
September 30, 2000 (unaudited) are presented below:
(unaudited)
September 30, 2000 1999 1998
------------------------------------------------
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)
------------------------------------------------
$ - - $ -
===============================================
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 were 13,560,428
and 11,866,157 shares for the nine months ended September 30, 2000 and 1999,
respectively. Potential common
<PAGE>
shares for the nine months ended September 30, 2000 and 1999 amounted to
3,967,279 and 3,700,181 shares, 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 September 30, 2000 (unaudited) are as follows:
Capital Operating
--------- ---------
2001 (12 months end 6/30/01) $ 155,740 $ 82,699
2002 100,574 78,444
2003 22,883 73,995
2004 - -
2005 (12 months end 6/30/05) - -
--------- --------
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
=========
The Company occupies its only facility under a lease agreement,
which expires in May 2004. Total 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
<PAGE>
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 in cash for the nine months ended September 31, 1999. 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 recorded as a
liability in the September 30, 2000 Balance Sheet. The $40,000 was charged to
cost of sales in the nine months ended September 30,1999. 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 upontermination of the
agreements (except for cause).
10. Business Segment Information
The Company operates in one reportable segment of internet - based faxing
andrelated 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 19% and 70% of net sales for
the nine months ended September 30, 2000 and 1999, 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.
<PAGE>
VillageEdocs, Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and the
related notes. This discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations, and intentions. Our actual results and the timing of
certain events could differ materially from those anticipated in these forward-
looking statements as a result of certain factors.
Results of Operations
---------------------
The following table sets forth certain operations data for the three and nine
months ended September 30, 2000 and 1999 (unaudited). This information should be
read in conjunction with our financial statements and notes included elsewhere.
This financial information has not been audited. However, this information
includes all adjustments, consisting of only normal recurring adjustments, that
we consider necessary for a fair presentation of the financial position,
operating results, and cash flows for such periods. Results for the interim
periods are not necessarily indicative of results for the full year or any
future periods.
<TABLE>
<CAPTION>
(unaudited) Three months ended Nine months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudited)
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net Sales $ 175,678 $ 29,140 $ 305,378 $ 52,004
Cost of Sales 314,590 31,106 642,261 129,171
--------------- ---------------- --------------- ----------------
Gross Margin (138,912) (1,966) (336,883) (77,167)
--------------- ---------------- --------------- ----------------
Operating Expenses:
Product and technology development 89,349 105,109 273,210 258,101
Sales and marketing 180,632 70,867 473,068 176,847
General and administrative expenses 143,045 61,122 461,619 919,845
Depreciation 23,936 5,842 53,147 28,757
--------------- ---------------- --------------- ----------------
Total operating expenses 436,962 242,940 1,261,044 1,383,550
Loss from operations (575,874) (244,906) (1,597,927) (1,460,717)
Interest expense, net 23,019 (9,592) 46,338 28,840
--------------- ---------------- --------------- ----------------
Income before provision for income taxes (598,893) (235,314) (1,644,265) (1,489,557)
Provision for income taxes 800 800 800
--------------- ---------------- --------------- ----------------
Net loss $ (598,893) $ (236,114) $ (1,645,065) $ (1,490,357)
=============== ================ =============== ================
Basic and fully diluted loss per share $ (.04) $ (.02) $ (.12) $ (.13)
Weighted average number of shares 13,655,646 12,681,115 13,560,428 11,866,157
</TABLE>
<PAGE>
VillageEdocs, Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Revenues
--------
Revenues for the three months ended September 30, 2000 increased $146,538 to
$175,678 from $29,140 for the three months ended September 30, 1999. The
increase in 2000 was due to the Company initiating its direct sales program in
the second quarter of the year 2000.
Costs of Sales
--------------
Costs of sales for the three months ended September 30, 2000 increased $283,484
to $314,590 from $31,106 for the three months ended September 30, 1999. The
increase in 2000 was because no network operations personnel were added until
the fourth quarter of 1999 and higher telecommunications costs were incurred as
a result of a higher volume of business.
Gross Margin
------------
Gross Margin for the three months ended September 30, 2000 resulted in an
increased gross margin loss of $(136,946) to $(138,912) from $(1,966) for the
three months ended September 30, 1999. This was because of the increased cost of
sales for the three months ended September 30, 1999.
Operating Expenses
------------------
Operating Expenses for the three months ended September 30, 2000 increased
$194,022 to $436,962 from $242,940 for the three months ended September 30,
1999. The increase in 2000 was due to additional personnel in all functions.
Interest Income and Expense
---------------------------
Net interest expense of $23,019 for the three months ended September 30, 2000
increased $32,611 from ($9,592) income for the three months ended September 30,
1999. In 1999 the Company had cash from its equity financing invested in
interest bearing accounts.
Net Income (Loss)
-----------------
Net loss for the three months ended September 30, 2000 was $598,893 compared to
a net loss of $236,114 for the three months ended September 30, 1999. The
increase in 2000 was because of higher cost of sales and operating expenses in
the three months ended September 30, 2000.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Revenues
--------
Revenues for the nine months ended September 30, 2000 increased $253,374 or
487%, to $305,378 from $52,004 for the nine months ended September 30, 1999. The
increase in 2000 was due to the Company beginning to actively sell its
Internet-based fax service in the second half of 1999, and initiating its direct
sales program in the second quarter of the year 2000.
Costs of Sales
--------------
Costs of sales for the nine months ended September 30, 2000 increased $513,090,
or 397%, to $642,261 from $129,171 for the nine months ended September 30, 1999.
$198,644 of the increase in 2000 was because no network operations personnel
were added until the fourth quarter of 1999 and $381,848 of the increase was
because higher telecommunications costs were incurred as a result of a higher
volume of business.
<PAGE>
Gross Margin
------------
Gross Margin loss for the nine months ended September 30, 2000 resulted
increased by $259,716 to a loss of $336,883 from $77,167 for the nine months
ended September 30, 1999. This was because of the increased cost of sales for
the nine months ended September 30, 1999.
Operating Expenses
------------------
Operating Expenses for the nine months ended September 30, 2000 decreased
$122,506, or 9%, to $1,261,044 from $1,383,550 for the nine months ended
September 30, 1999. The operating expenses for the nine months ended September
30, 2000 were higher because they included $745,731 in non-cash stock option
expense due to the issuance of certain stock options with exercise prices less
than their fair value at grant date. Stock option expenses were $11,250 in the
nine months ended September 30, 2000. Excluding this stock option expense,
operating expenses were $637,819 for the nine months ended September 30, 1999,
and the increase of $611,975 for the nine months ended September 30, 2000 is due
to additional personnel in all functions.
Interest Income and Expense
---------------------------
Net interest expense of $46,338 for the nine months ended September 30, 2000
increased $17,498 from $28,840 for the nine months ended September 30, 1999,
primarily because the Company had cash from its equity financing invested in
interest bearing accounts.
Net Income (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
increase in 2000 was because of higher cost of sales and operating expenses in
the nine months ended September 30, 2000.
Liquidity and Capital Resources
-------------------------------
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
in cash used 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 issuance of stock options at less than fair value) for the nine
months ended September 30, 1999, 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 for investing activities for the nine months ended September 30,
2000 was $28,147, an increase of $17,824 over the $10,323 cash used by investing
activities for the nine months ended September 30, 1999. The Company's investing
activities consisted of the purchase of equipment.
Net cash provided by financing activities for the nine months ended September
30, 2000 was $467,587, a decrease of $1,979,126 from the $2,446,713 cash
provided by financing activities for the nine months ended September 30, 1999.
Net cash provided by financing activities in the nine months ended September 30,
2000 included net proceeds of $527,500 from the sale of common stock, $2,906
from the exercise of warrants, and $62,819 principal payments on capital leases.
Net cash provided by financing activities in the nine months ended September 30,
1999 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.
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
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.
Recent Developments
-------------------
In October 2000, the Company sold 32,000 shares of common stock at $2.50 per
share for cash of $80,000. In November and December 2000, the Company issued
$400,000 of promissory notes for cash to two stockholders. The notes bear
interest at 10 percent per annum. The notes and accrued interest are due at the
earlier of: 1) a controlling interest is acquired by a third party; 2) October
31, 2003; or the Company receives net cash proceeds from equity financings of
$5,000,000. The notes and accrued interest are convertible into common stock.
<PAGE>
VillageEdocs, Inc.
--------------------------------------------------------------------------------
PART II
ITEM 1 - 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 claims were
rendered on behalf of the Company. We contested this claim. A negotiated
settlement of $31,800 was reached in September 2000. Under the settlement
agreement the Company is paying the $31,800 over a six month period. The Company
had 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
theCompany 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 theadditional
$24,000 is without merit, and that the outcome of any legal actionwill 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.
ITEM 2 - CHANGES IN SECURITIES.
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.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None
ITEM 5 - OTHER MATTERS.
Not Applicable
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits included herewith are: (27) Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereto duly authorized:
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
