Attached files
file | filename |
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10-K - VILLAGEEDOCS INC | v181066_10k.htm |
EX-21.1 - VILLAGEEDOCS INC | v181066_ex21-1.htm |
EX-32.2 - VILLAGEEDOCS INC | v181066_ex32-2.htm |
EX-32.1 - VILLAGEEDOCS INC | v181066_ex32-1.htm |
EX-31.1 - VILLAGEEDOCS INC | v181066_ex31-1.htm |
EX-31.2 - VILLAGEEDOCS INC | v181066_ex31-2.htm |
Exhibit
99.1
VILLAGEEDOCS,
INC.
Financial
Statements
For the
Years Ended December 31, 2009 and 2008
Together
with Report of Independent Registered Public Accounting Firm
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors of VillageEDOCS, Inc.
We have
audited the accompanying consolidated balance sheets of VillageEDOCS, Inc. and
subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders’ equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of VillageEDOCS, Inc. and
subsidiaries at December 31, 2009 and 2008, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2
to the consolidated financial statements, the Company has incurred recurring
losses from operations. This factor raises substantial doubt
about the Company’s ability to continue as a going
concern. Management’s plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going
concern.
/s/ KMJ
Corbin & Company LLP
Costa
Mesa, California
April 15,
2010
F-2
VillageEDOCS,
Inc. and subsidiaries
Consolidated
Balance Sheets
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 1,307,834 | $ | 567,447 | ||||
Accounts
receivable, net of allowance for doubtful
|
||||||||
accounts
of approximately $52,000 and $47,000, respectively
|
405,000 | 573,580 | ||||||
Prepaid
expenses and other current assets
|
86,925 | 231,501 | ||||||
Debt
issuance costs, net
|
- | 17,883 | ||||||
Current
assets of discontinued operations
|
- | 611,953 | ||||||
Total
current assets
|
1,799,759 | 2,002,364 | ||||||
Property
and equipment, net
|
217,368 | 303,322 | ||||||
Other
assets
|
25,014 | 28,811 | ||||||
Goodwill
|
4,523,527 | 4,523,527 | ||||||
Other
intangibles, net
|
2,929,508 | 3,569,228 | ||||||
Non-current
assets of discontinued operations
|
- | 3,064,171 | ||||||
$ | 9,495,176 | $ | 13,491,423 | |||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 403,265 | $ | 362,402 | ||||
Current
portion of accrued expenses and other liabilities
|
500,591 | 1,536,258 | ||||||
Deferred
revenue
|
705,314 | 809,183 | ||||||
Lines
of credit
|
130,592 | 716,234 | ||||||
Current
portion of notes payable to related parties, net of
unamortized
|
||||||||
debt
discount of $47,808 and $47,808, respectively
|
264,309 | 438,682 | ||||||
Convertible
note and accrued interest payable to related party
|
- | 178,370 | ||||||
Current
liabilities of discontinued operations
|
- | 763,355 | ||||||
Total
current liabilities
|
2,004,071 | 4,804,484 | ||||||
Accrued
expenses and other liabilities, net of current portion
|
806,045 | 81,318 | ||||||
Notes
payable to related parties, net of current portion and
|
||||||||
unamortized
debt discount of $27,883 and $75,690, respectively
|
340,000 | 604,310 | ||||||
Derivative
liability
|
4,650 | - | ||||||
Non-current
liabilities of discontinued operations
|
- | 1,737 | ||||||
Total
liabilities
|
3,154,766 | 5,491,849 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity:
|
||||||||
Series
A Preferred stock, par value $0.001 per share:
|
||||||||
Authorized —
48,000,000 shares
|
||||||||
Issued
and outstanding — 0 and 33,500,000 shares,
respectively
|
||||||||
(liquidation
preference of $0 and $1,675,000, respectively)
|
- | 33,500 | ||||||
Common
stock, par value $0.0001 per share:
|
||||||||
Authorized
— 500,000,000 shares
|
||||||||
Issued
and outstanding — 226,546,613 and 180,270,913 shares,
respectively
|
22,655 | 18,027 | ||||||
Additional
paid-in capital
|
34,022,485 | 33,618,742 | ||||||
Accumulated
deficit
|
(27,704,730 | ) | (25,670,695 | ) | ||||
Total
stockholders' equity
|
6,340,410 | 7,999,574 | ||||||
$ | 9,495,176 | $ | 13,491,423 |
See
accompanying notes to consolidated financial statements.
F-3
VillageEDOCS,
Inc. and subsidiaries
Consolidated
Statements of Operations
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Net
sales
|
$ | 10,291,252 | $ | 9,799,854 | ||||
Cost
of sales
|
2,942,089 | 2,691,875 | ||||||
Gross
profit
|
7,349,163 | 7,107,979 | ||||||
Operating
expenses:
|
||||||||
Product
and technology development
|
1,851,477 | 1,535,265 | ||||||
Sales
and marketing
|
1,967,083 | 1,624,005 | ||||||
General
and administrative
|
3,993,577 | 4,139,953 | ||||||
Depreciation
and amortization
|
828,738 | 743,627 | ||||||
Total
operating expenses
|
8,640,875 | 8,042,850 | ||||||
Loss
from continuting operations
|
(1,291,712 | ) | (934,871 | ) | ||||
Change
in fair value of derivative liability
|
3,100 | - | ||||||
Interest
expense, net of interest income
|
(144,579 | ) | (268,927 | ) | ||||
Other
income, net
|
42,291 | 129,815 | ||||||
Loss
from continuing operations before provision for
|
||||||||
income
taxes
|
(1,390,900 | ) | (1,073,983 | ) | ||||
Benefit for
income taxes
|
(63,000 | ) | (80,000 | ) | ||||
Loss
from continuing operations
|
(1,327,900 | ) | (993,983 | ) | ||||
(Loss)
income from discontinued operations (net of income tax provision of
$303,000 and $92,000, respectively)
|
(708,745 | ) | 377,741 | |||||
Net
loss
|
$ | (2,036,645 | ) | $ | (616,242 | ) | ||
Net
income (loss) available to common shareholders
|
||||||||
Basic
|
$ | (2,036,645 | ) | $ | (616,242 | ) | ||
Diluted
|
$ | (2,036,645 | ) | $ | (616,242 | ) | ||
Basic
earnings (loss) per share:
|
||||||||
Loss from
continuing operations
|
$ | (0.01 | ) | $ | - | |||
(Loss)
income from discontinued operations
|
$ | - | $ | - | ||||
Net
loss per share, basic
|
$ | (0.01 | ) | $ | - | |||
Diluted
earnings (loss) per share:
|
||||||||
Loss
from continuing operations
|
$ | (0.01 | ) | $ | - | |||
(Loss)
income from discontinued operations
|
$ | - | $ | - | ||||
Net
loss per share, diluted
|
$ | (0.01 | ) | $ | - | |||
Weighted
average shares outstanding -
|
||||||||
Basic
|
190,350,672 | 162,595,571 | ||||||
Diluted
|
190,350,672 | 197,497,477 |
See
accompanying notes to consolidated financial statements.
F-4
VillageEDOCS
and subsidiaries
Statements
of Stockholders' Equity
For
the Years Ended December 31, 2009 and 2008
Series
A
|
||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Additional
|
Accumulated
|
|||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Paid-in
Capital
|
Deficit
|
Total
|
||||||||||||||||||||||
Balances,
January 1, 2008
|
33,500,000 | $ | 33,500 | 152,770,913 | $ | 15,277 | $ | 32,397,585 | $ | (25,054,453 | ) | $ | 7,391,909 | |||||||||||||||
Estimated
fair value of common stock issued to
|
||||||||||||||||||||||||||||
employees
as compensation
|
- | - | 5,500,000 | 550 | 81,950 | - | 82,500 | |||||||||||||||||||||
Estimated
fair value of common stock
|
||||||||||||||||||||||||||||
issued
as acquisition cost of QSI
|
- | - | 22,000,000 | 2,200 | 547,800 | - | 550,000 | |||||||||||||||||||||
Estimated
fair value of common stock warrants
|
||||||||||||||||||||||||||||
issued
in connection with consulting services
|
- | - | - | - | 292,814 | - | 292,814 | |||||||||||||||||||||
Estimated
fair value of vested stock options
|
- | - | - | - | 298,593 | - | 298,593 | |||||||||||||||||||||
Net
loss
|
- | - | - | (616,242 | ) | (616,242 | ) | |||||||||||||||||||||
Balances,
December 31, 2008
|
33,500,000 | 33,500 | 180,270,913 | 18,027 | 33,618,742 | (25,670,695 | ) | 7,999,574 | ||||||||||||||||||||
Estimated
fair value of common stock issued to
|
||||||||||||||||||||||||||||
employees
as compensation
|
- | - | 12,775,700 | 1,278 | 126,479 | - | 127,757 | |||||||||||||||||||||
Conversion
of preferred stock to common stock
|
(33,500,000 | ) | (33,500 | ) | 33,500,000 | 3,350 | 30,150 | - | - | |||||||||||||||||||
Estimated
effect of accounting change
|
||||||||||||||||||||||||||||
for
derivative liability
|
- | - | - | - | (8,810 | ) | 2,610 | (6,200 | ) | |||||||||||||||||||
Estimated
fair value of common stock warrants
|
||||||||||||||||||||||||||||
issued
in connection with financing activities
|
- | - | - | - | 4,310 | - | 4,310 | |||||||||||||||||||||
Estimated
fair value of vested stock options
|
- | - | - | - | 251,614 | - | 251,614 | |||||||||||||||||||||
Net
loss
|
- | - | - | (2,036,645 | ) | (2,036,645 | ) | |||||||||||||||||||||
Balances,
December 31, 2009
|
- | $ | - | 226,546,613 | $ | 22,655 | $ | 34,022,485 | $ | (27,704,730 | ) | $ | 6,339,092 |
See
accompanying notes to consolidated financial statements.
F-5
VillageEDOCS,
Inc. and subsidiaries
Consolidated
Statements of Cash Flows
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
Flows from Operating Activities:
|
||||||||
Net
loss
|
$ | (2,036,645 | ) | $ | (616,242 | ) | ||
Adjustments
to reconcile net loss to net cash provided by
|
||||||||
operating
activities:
|
||||||||
Depreciation
and amortization
|
926,060 | 843,632 | ||||||
Provision
for doubtful accounts receivable
|
28,992 | 17,667 | ||||||
Estimated
fair value of stock options issued to
|
||||||||
employees
for services rendered
|
251,614 | 298,593 | ||||||
Estimated
fair value of warrants issued to consultants
|
23,194 | 75,819 | ||||||
Change
in fair value of derivative liability
|
(3,100 | ) | - | |||||
Common
stock issued and issuable to employees
|
||||||||
for
services rendered
|
115,626 | 82,500 | ||||||
Amortization
of debt discount and debt issuance costs
|
65,690 | 216,697 | ||||||
Loss
on discontinued operations
|
799,013 | - | ||||||
Changes
in operating assets and liabilities, net of
|
||||||||
acquisitions
and divestitures:
|
||||||||
Accounts
receivable
|
220,939 | 97,731 | ||||||
Inventories
|
(3,684 | ) | (9,043 | ) | ||||
Prepaid
expenses and other current assets
|
95,050 | (126,552 | ) | |||||
Other
assets
|
3,797 | 31,806 | ||||||
Accounts
payable
|
42,474 | (132,250 | ) | |||||
Accrued
expenses, other liabilities and interest
|
(433,650 | ) | (851,213 | ) | ||||
Deferred
revenue
|
(41,423 | ) | 109,329 | |||||
Net
cash provided by operating activities
|
53,947 | 38,474 | ||||||
Cash
Flows from Investing Activities:
|
||||||||
Purchases
of property and equipment
|
(70,266 | ) | (134,408 | ) | ||||
Cash
paid in acquisition of QSI, net of cash acquired
|
- | (286,435 | ) | |||||
Costs
incurred for purchase of QSI
|
- | (227,291 | ) | |||||
Cash
acquired from sale of TBS, net
|
2,090,084 | - | ||||||
Cash
acquired from sale of PFI, net
|
- | 53,832 | ||||||
Net
cash provided by (used in) investing activities
|
2,019,818 | (594,302 | ) | |||||
Cash
Flows from Financing Activities:
|
||||||||
(Payments)
proceeds from lines of credit, net
|
(759,971 | ) | 305,883 | |||||
Proceeds
from notes payable to related parties
|
865,000 | 300,000 | ||||||
Payments
on notes payable to related parties
|
(1,351,490 | ) | (148,510 | ) | ||||
Cash
paid for debt issuance costs
|
- | (65,000 | ) | |||||
Payments
on capital lease obligation
|
(21,917 | ) | (19,009 | ) | ||||
Payments
on convertible notes payable to related parties
|
(65,000 | ) | - | |||||
Net
cash (used in) provided by financing activities
|
(1,333,378 | ) | 373,364 | |||||
Net
change in cash and cash equivalents
|
740,387 | (182,464 | ) | |||||
Cash
and cash equivalents, beginning of year
|
567,447 | 749,911 | ||||||
Cash
and cash equivalents, end of year
|
$ | 1,307,834 | $ | 567,447 | ||||
Supplemental
disclosure of cash flow information -
|
||||||||
Cash
paid during the year for:
|
||||||||
Interest
|
$ | 197,590 | $ | 94,276 | ||||
Income
taxes
|
$ | 151,340 | $ | 172,340 | ||||
Supplemental
Schedule of Noncash Investing
|
||||||||
and
Financing Activities:
|
||||||||
Estimated
fair value of common stock issued in connection with
acquisition
|
$ | - | $ | 550,000 | ||||
Issuance
of note payable to related party in acquisition
|
$ | - | $ | 773,129 | ||||
Cumulative
effect of accounting change to accumulated deficit for derivative
liabilities
|
$ | 2,610 | $ | - | ||||
Cumulative
effect of accounting change to additional paid-in capital
|
||||||||
for
derivative liabilities
|
$ | 8,810 | $ | - | ||||
Conversion of preferred stock to common stock | $ | 33,500 | $ | - | ||||
Estimated
fair value of warrants issued as debt issuance costs
|
$ | - | $ | 149,661 | ||||
Reclassification
of warrant from accrued liabilities to additional
|
||||||||
paid-in
capital
|
$ | - | $ | 50,000 | ||||
Estimated
fair value of warrants issued in connection with
|
||||||||
consulting
services
|
$ | - | $ | 26,001 | ||||
Reclassification
of common stock issued to employees for
|
||||||||
services
from accrued liabilities to additional paid-in capital
|
$ | 98,106 | $ | - |
See
accompanying notes to consolidated financial statements.
F-6
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
1.
|
Background,
Organization and Basis of
Presentation
|
VillageEDOCS,
Inc. (the “Company” or “VillageEDOCS”) was incorporated in 1995 in Delaware,
reincorporated in California in 1997, and reincorporated in Delaware in
September 2007. The Company has historically operated an electronic document
delivery service marketed to organizations throughout the United States and
internationally. On June 16, 2004, the holders of a majority of the voting
capital stock of the Company voted to approve a Plan of Restructuring that
included the reorganization of the Company's electronic document delivery
business into a wholly owned subsidiary of the Company. In connection with the
reorganization, the Company formed MessageVision, Inc. ("MVI") on October 25,
2004. Effective May 1, 2006, the Company acquired GoSolutions, Inc. ("GSI"). GSI
provides enhanced voice and data communications services including speech-driven
messaging, unified communications, and audio conferencing applications.
Effective August 1, 2008, the Company acquired Decision Management Company, Inc.
dba Questys Solutions (“QSI” or “Questys”). QSI provides products and services
for document and content management, automated data capture, electronic agenda
management, and business process workflow. On February 17, 2004, the Company
acquired Tailored Business Systems, Inc. ("TBS"), which it subsequently sold
effective December 4, 2009. Effective April 1, 2005, the Company acquired
Phoenix Forms, Inc. dba Resolutions ("PFI" or "Resolutions"), which it
subsequently sold effective December 1, 2007. The consolidated financial
statements include the accounts of the Company and those of MVI, TBS, GSI, and
QSI, its wholly owned subsidiaries, since October 25, 2004, February 17, 2004,
May 1, 2006, and August 1, 2008, respectively. The results of operations of TBS
are included through December 4, 2009. See Note 5 for additional information
regarding the acquisition of QSI and the Company’s accounting for TBS as a
discontinued operation. All significant inter-company transactions and balances
have been eliminated in consolidation.
2.
|
Going
Concern
|
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has incurred
significant losses since inception. The Company’s losses are continuing and may
continue until such time as the Company is able to sufficiently expand its
existing businesses or is able to consummate business combination transactions
with other businesses whose profits are sufficient to offset any ongoing losses
from operating the holding company that owns QSI, GSI, and MVI.
The
Company’s success is dependent upon numerous items, certain of which are the
successful growth of revenues from its products and services, its ability to
obtain new customers in order to achieve levels of revenues adequate to support
the Company’s current and future cost structure, and its success in obtaining
financing for equipment and operations, for which there is no assurance.
Unanticipated problems, expenses, and delays are frequently encountered in
establishing and maintaining profitable operations. These include, but are not
limited to, competition, the need to develop customer support capabilities and
market expertise, setbacks in product development, technical difficulties,
market acceptance and sales and marketing. The failure of the Company to meet
any of these conditions could have a materially adverse effect on the Company
and may force the Company to reduce or curtail operations. No assurance can be
given that the Company can achieve or maintain profitable
operations.
F-7
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
The
Company believes it will have adequate cash to sustain operations until it
achieves sustained profitability. However, until the Company has a history of
maintaining revenue levels sufficient to support its operations and repay its
working capital deficit, the Company may require additional financing. Sources
of financing could include capital infusions, additional equity financing or
debt offerings. Although cash flows from operations improved during 2009 to a
level sufficient to support operating expenses, we do not expect that such
levels will continue until at least the fourth quarter of 2010. Should such cash
flows decrease for any reason, management plans to obtain debt and equity
financing from new and existing stockholders. There can be no assurance that
funding will be available on acceptable terms, if at all, or that such funds, if
raised, would enable the Company to achieve or sustain profitable
operations.
These
factors raise substantial doubt about the Company’s ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the classification of liabilities that might result
from the outcome of these uncertainties.
3.
|
Summary of Significant
Accounting Policies
|
|
a.
|
Segments of an
Enterprise and Related
Information
|
The
Company reports information about segments of its business in its annual
financial statements and reports selected segment information in its quarterly
reports issued to stockholders. The Company also reports on its entity-wide
disclosures about the products and services that it provides, the material
countries in which it holds assets and reports revenues and its major customers.
The Company's four reportable segments are managed separately based on
fundamental differences in their operations. At December 31, 2009, the Company
operated in the following four reportable segments (see Note 12):
(a)
Electronic document delivery services,
(b)
Electronic content management solutions,
(c)
Integrated communications, and
(d)
Corporate.
The
Company evaluates performance and allocates resources based upon operating
income. The accounting policies of the reportable segments are the same as those
described in this summary of significant accounting policies.
|
b.
|
Concentration of
Credit Risk
|
The
Company extends credit to its customers and performs ongoing credit evaluations
of such customers. The Company does not obtain collateral to secure its accounts
receivable. MVI and GSI generally require a valid credit card or ACH debit
account to collateralize credit extended to non-corporate clients. The Company
evaluates its accounts receivable on a regular basis for collectibility and
provides for an allowance for potential credit losses as deemed necessary. At
December 31, 2009 and 2008, the Company has recorded an allowance for doubtful
accounts of approximately $52,000 and $47,000, respectively.
F-8
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
For the
years ended December 31, 2009 and 2008, independent representatives of one
customer accounted for approximately 30% and 37%, respectively, of total revenue
from continuing operations. For the years ended December 31, 2009 and 2008,
independent representatives of another customer accounted for approximately 20%
and 16%, respectively, of total revenue from continuing operations.
One
customer accounted for 23% of total accounts receivable at December 31, 2009. No
single customer accounted for more than 10% of accounts receivable at December
31, 2008.
At times,
deposits held with financial institutions may exceed the amount of insurance
provided on such deposits by the Federal Deposit Insurance Corporation (“FDIC”)
which provides deposit coverage with limits up to $250,000 per owner through
December 31, 2013. As of December 31, 2009 and 2008, the Company had a balance
of approximately $805,000 and $44,000, respectively, in excess of the FDIC
limit.
|
c.
|
Use of Estimates in
the Preparation of Financial
Statements
|
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates made by management
are, among others, the realizability of accounts receivable, valuation of
inventories, recoverability of long-lived assets, and valuation of derivative
liabilities, stock options, warrants, and deferred taxes. Actual results could
differ from those estimates.
|
d.
|
Property and
Equipment
|
Property
and equipment are stated at cost and are depreciated using the straight-line
method over the estimated useful lives of the assets, ranging from three to
seven years. Equipment under capital lease obligations is depreciated over the
shorter of the estimated useful life or the term of the lease. Major betterments
and renewals are capitalized, while routine repairs and maintenance are charged
to expense when incurred.
F-9
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
|
e.
|
Revenue
Recognition
|
The
Company recognizes revenue when persuasive evidence of an arrangement exists,
title transfer has occurred, or services have been performed, the price is fixed
or readily determinable and collectibility is probable. Sales are recorded net
of sales discounts.
The
Company recognizes revenue earned on software arrangements involving multiple
elements to be allocated to each element based on the relative fair market
values of each of the elements. The fair value of an element must be based on
vendor-specific objective evidence (“VSOE”) of fair value. Software license
revenue generated by QSI, allocated to a software product is recognized upon
delivery of the product, or deferred and recognized in future periods to the
extent that an arrangement includes one or more elements that are to be
delivered at a future date and for which VSOE has not been established.
Maintenance and support revenue is recognized ratably over the maintenance term.
First-year maintenance typically is sold with the related software license and
renewed on an annual basis thereafter. Estimated fair values of ongoing
maintenance and support obligations are based on separate sales of renewals to
other customers or upon renewal rates quoted in the contracts. For such
arrangements with multiple obligations, the Company allocates revenue to each
component of the arrangement based on the estimated fair value of the
undelivered elements. Fair value of services, such as consulting or training, is
based upon separate sales of these services. The Company at times may enter into
multiple-customer contracts in which the Company allocates revenue based on the
number of specified users at each customer, and recognizes revenue upon customer
acceptance and satisfying the other applicable conditions of the above described
accounting policy.
Services
revenue is recognized as the service is performed assuming that sufficient
evidence exists to estimate the fair value of the services. Consulting and
training services are billed based on contractual hourly rates and revenues are
recognized as the services are performed. Consulting services primarily consist
of implementation services related to the installation of the Company’s products
which do not require significant customization to or modification of the
underlying software code.
Revenue
from subscription agreements consists of fixed monthly fees and usage charges,
generally based on per minute rates. Subscription agreement revenue related to
QSI, MVI and GSI usage service charges are billed monthly in arrears and the
associated revenues are recognized in the month of service. Recurring charges
for the GoSolo (TM) platform are billed in advance on a monthly basis and
recorded as deferred revenues. The Company recognizes subscription agreement
revenue ratably over the service period, which management believes approximates
the actual provision of services. Professional service fee revenue consists of
consulting fees charged to enterprise clients for GoSolo(TM) platform
enhancements. The Company recognizes professional service fee revenue on a time
and materials basis over the service period, which management believes
approximates the actual provision of services. Wholesale enhanced voicemail
services consists of fees charged to telecommunications providers for use of the
GoSolo(TM) platform to provide their customers with hosted electronic voicemail,
billed monthly in arrears and the associated revenues are recognized in the
month of service.
F-10
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
Significant
management judgments and estimates must be made in connection with determination
of the revenue to be recognized in any accounting period. If the Company made
different judgments or utilized different estimates for any period, material
differences in the amount and timing of revenue recognized could
result.
|
f.
|
Product and Technology
Development
|
Product
and technology development expense includes personnel costs relating to
developing the features, content and functionality of QSI’s electronic content
management solutions, MVI's internet-enabled fax services and web site, and
GSI's communications services. Product and technology development costs are
expensed as incurred.
|
g.
|
Advertising
|
The
Company expenses all advertising costs as incurred. Advertising costs were
$68,191 and $28,628 from continuing operations, and $30,444 and $35,923 from
discontinued operations, for the years ended December 31, 2009 and 2008,
respectively.
h.
|
Risks
and Uncertainties
|
The
Company operates in industries that are subject to intense competition,
government regulation and rapid technological change. The Company’s operations
are subject to significant risks and uncertainties including financial,
operational, technological, regulatory and other risks associated with an
operating business, including the potential risk of business
failure.
i.
|
Fair
Value of Financial
Instruments
|
The
carrying amount of certain of the Company's financial instruments as of December
31, 2009 and 2008 approximate their respective fair values because of the
short-term nature of these instruments. Such instruments consist of cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses,
capital lease obligation, lines of credit, and notes payable. The fair value of
convertible notes payable to related party is not determinable as the borrowings
are with a related party.
j.
|
Earnings (Loss) per
Share
|
Basic
earnings (loss) per share is computed by dividing the net income (loss)
available to common stockholders by the weighted average number of common shares
assumed to be outstanding during the period of computation. Diluted earnings
(loss) per share is computed similar to basic earnings (loss) per share except
that the denominator is increased to include the number of additional common
shares that would have been outstanding if the potential shares had been issued
and if the additional common shares were dilutive. All potentially dilutive
shares, approximately 2,000,000 and 35,000,000 as of December 31, 2009 and 2008,
respectively, have been excluded from diluted loss per share, as their effect
would be anti-dilutive for the years then ended.
F-11
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
k.
|
Comprehensive
Income
|
The
Company has no items of comprehensive income.
l.
|
Cash
and Cash
Equivalents
|
All
highly liquid instruments purchased with a maturity of three months or less at
the time of purchase are considered cash equivalents.
|
m.
|
Income
Taxes
|
The
Company accounts for income taxes in accordance with the asset and liability
method for financial accounting and reporting purposes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and the tax basis of assets and liabilities and
are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. A valuation allowance is
provided for certain deferred tax assets if it is more likely than not that the
Company will not realize tax assets through future operations.
|
n.
|
Stock-Based
Compensation
|
At
December 31, 2009, the Company had two stock-based compensation
plans.
All
share-based payments to employees, including grants of employee stock options
and restricted stock grants, are recognized in the consolidated financial
statements based upon their fair values. The Company uses the
Black-Scholes option pricing model to estimate the grant-date fair value of
share-based awards. Fair value is determined at the date of
grant. The consolidated financial statement effect of forfeitures is
estimated at the time of grant and revised, if necessary, if the actual effect
differs from those estimates. The estimated average forfeiture
rate for the years ended December 31, 2009 and 2008, of approximately 14%, and
17%, respectively, was based on historical forfeiture experience and estimated
future employee forfeitures.
The cash
flows resulting from the tax benefits resulting from tax deductions in excess of
the compensation cost recognized for those options to be classified as financing
cash flows. Due to the Company’s loss position, there were no such
tax benefits during the years ended December 31, 2009 and 2008.
Description
of Plans
The
Company’s equity incentive plans provide for awards of common stock and grants
of options to employees and directors of the Company to purchase the Company’s
shares, as determined by management and the board of directors, at or above the
fair value of such shares on the grant date. The options generally vest over a
five-year period beginning on the grant date and have a seven-year term. As of
December 31, 2009, the Company is authorized to issue up to 95,000,000 shares
under these plans and has approximately 49,100,000 shares available for future
issuances.
F-12
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
Summary
of Assumptions and Activity
The fair
value of stock-based awards to employees and directors is calculated using the
Black-Scholes option pricing model even though the model was developed to
estimate the fair value of freely tradeable, fully transferable options without
vesting restrictions, which differ significantly from the Company’s stock
options. The Black-Scholes model also requires subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly
affect the calculated values. The expected term of options granted is derived
from historical data on employee exercises and post-vesting employment
termination behavior. The risk-free rate selected to value any particular grant
is based on the U.S. Treasury rate that corresponds to the pricing term of the
grant effective as of the date of the grant. The expected volatility is based on
the historical volatility of the Company’s stock price. These factors could
change in the future, affecting the determination of stock-based compensation
expense in future periods. The fair value of options
granted was estimated using the following weighted average
assumptions:
2009
|
2008
|
|||||
Stock
options:
|
||||||
Expected
term (in years)
|
6.0
|
6.0
|
||||
Expected
volatility
|
182%
-202%
|
258%
- 273%
|
||||
Risk-free
interest rate
|
2.3%
|
3.0%
|
||||
Dividend
yield
|
-
|
-
|
A summary
of option activity as of December 31, 2009 and changes during the year then
ended, is presented below:
December
31, 2009
|
||||||||||||||||
Weighted-Average
|
||||||||||||||||
Remaining
|
Aggregate
|
|||||||||||||||
Exercise
|
Contractual
|
Intrinsic
|
||||||||||||||
Shares
|
Price
|
Term
(Years)
|
Value
|
|||||||||||||
Options
outstanding at January 1, 2009
|
42,730,939 | $ | 0.17 | |||||||||||||
Options
granted
|
3,050,000 | $ | 0.01 | |||||||||||||
Options
cancelled/forfeited
|
(4,690,000 | ) | $ | 0.10 | ||||||||||||
Options
expired
|
(719,963 | ) | $ | 1.07 | ||||||||||||
Options
exercised
|
- | $ | - | |||||||||||||
Options
outstanding at December 31, 2009
|
40,370,976 | $ | 0.15 | 4.4 | $ | 8,391 | ||||||||||
Options
vested or expected to vest
|
38,799,875 | $ | 0.15 | 4.3 | $ | 6,036 | ||||||||||
Options
exercisable at December 31, 2009
|
27,970,976 | $ | 0.19 | 3.7 | $ | 492 |
F-13
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
The
weighted-average grant date fair value of options granted during 2009 and 2008
was $0.01 and $0.04 per option, respectively. Upon the exercise of
options, the Company issues new shares from its authorized shares.
As of
December 31, 2009, there was approximately $380,000 of total unrecognized
compensation cost, net of forfeitures, related to employee and director stock
option compensation arrangements. That cost is expected to be recognized on a
straight-line basis over the next 2.6 weighted average years. The total fair
value of vested options issued to employees and directors during the years ended
December 31, 2009 and 2008 was $226,044 and $244,253, respectively, for
continuing operations, and $25,570 and $54,340, respectively, for discontinued
operations, net of an estimated forfeiture rate of 14% and 17%,
respectively.
The
expense was recorded in the accompanying consolidated statements of operations
as follows:
Years
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cost
of sales
|
$ | 31,317 | $ | 4,601 | ||||
General
and administrative
|
159,793 | 200,486 | ||||||
Sales
and marketing
|
13,032 | 19,679 | ||||||
Product
and technology
|
21,902 | 19,487 | ||||||
Discontinued
operations
|
25,570 | 54,340 | ||||||
$ | 251,614 | $ | 298,593 |
The
measurement date for the fair value of the equity instruments issued to
consultants and vendors in exchange for goods and services is determined at the
earlier of (i) the date at which a commitment for performance by the consultant
or vendor is reached or (ii) the date at which the consultant or vendor’s
performance is complete. In the case of equity instruments issued to
consultants, the fair value of the equity instrument is recognized over the term
of the consulting agreement.
All
issuances of the Company's stock to non-employees as non-cash consideration are
valued at the market value of the shares issued or the value of consideration
received whichever is more readily determinable. The majority of the non-cash
consideration received pertains to services rendered by consultants and others
and has been valued at the market value of the shares issued.
|
o.
|
Inventories
|
Inventories
consist primarily of supplies, forms, envelopes, and software licenses purchased
for resale. Cost is determined on a first-in, first-out
basis. The Company periodically reviews its inventory quantities on
hand and adjusts for excess and obsolete inventory based primarily on historical
usage rates and its estimated forecast of product demand. Actual
demand may differ from the Company's estimates. Once established,
write-downs of inventory are considered permanent adjustments to the basis of
the excess or obsolete inventory.
F-14
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
|
p.
|
Goodwill and Other
Intangible Assets
|
Goodwill
represents the excess of acquisition cost over the net assets acquired in a
business combination and is not amortized. The Company allocates its
goodwill to its various reporting units, determines the carrying value of those
businesses, and estimates the fair value of the reporting units so that a
two-step goodwill impairment test can be performed. In the first step
of the goodwill impairment test, the fair value of each reporting unit is
compared to its carrying value. Management reviews, on an annual
basis, the carrying value of goodwill in order to determine whether impairment
has occurred. Impairment is based on several factors including the
Company's projection of future discounted operating cash flows. If an impairment
of the carrying value were to be indicated by this review, the Company would
perform the second step of the goodwill impairment test in order to determine
the amount of goodwill impairment, if any.
The
changes in the carrying amount of goodwill for the year ended December 31, 2009
are as follows (see Note 5):
Balance,
January 1, 2009
|
$ | 7,244,732 | ||
Goodwill
of TBS disposed
|
2,721,205 | |||
Balance,
December 31, 2009
|
$ | 4,523,527 |
The
Company performed an impairment test on goodwill as of December 31, 2009.
Based on its analysis as of December 31, 2009, the Company's management believes
there is no impairment of its goodwill. There can be no assurance,
however, that market conditions will not change or demand for the Company's
products or services will continue, which could result in impairment of goodwill
in the future.
Identifiable
intangibles acquired in connection with business acquisitions are recorded at
their respective fair values (see Note 5). Deferred income taxes have been
recorded to the extent of differences between the fair value and the tax basis
of the assets acquired and liabilities assumed.
|
q.
|
Long-Lived
Assets
|
In the
event that facts and circumstances indicate that equipment or other long-lived
assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if an impairment charge is
necessary. The amount of long-lived asset impairment, if any, is
charged to operations in the period in which long-lived asset impairment is
determined. At December 31, 2009 and 2008, management believes there
is no impairment of its long-lived assets. There can be no assurance,
however, that market conditions will not change or demand for the Company's
products or services will continue, which could result in impairment of
long-lived assets in the future.
F-15
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
|
r.
|
Warranty
Costs
|
The
Company provides a limited 90 day warranty on certain products sold. Estimated
future warranty obligations related to certain products and services are
provided by charges to operations in the period in which the related revenue is
recognized. As of December 31, 2009 and 2008, management of the Company
determined that a warranty reserve was not necessary. In addition,
the charges to expense during the years ended December 31, 2009 and 2008 were
insignificant.
|
s.
|
Derivative
Liability
|
Effective
January 1, 2009, the Company adopted the provisions of an accounting
pronouncement which applies to any freestanding financial instruments or
embedded features that have the characteristics of a derivative, and to any
freestanding financial instruments that are potentially settled in an entity’s
own common stock. As a result of adopting this pronouncement, 310,000 of issued
and outstanding common stock purchase warrants previously treated as equity
pursuant to the derivative treatment exemption were no longer afforded equity
treatment. These warrants have an exercise price of $0.01, as amended, and
expire in February 2018. As such, effective January 1, 2009, the Company
reclassified the fair value of these common stock purchase warrants, which have
exercise price reset features, from equity to liability status as if these
warrants were treated as a derivative liability since their date of issue in
2008. On January 1, 2009, the Company reclassified from additional paid-in
capital, as a cumulative effect adjustment, $2,610 to beginning retained
earnings and $6,200 to a long-term derivative liability to recognize the
fair value of such warrants on such date. During 2009, the Company issued an
additional 155,000 warrants valued at $1,550 using the Black-Scholes option
pricing model and recorded as general and administrative expense in the
accompanying consolidated statements of operations and as a derivative liability
on the accompanying consolidated balance sheet. The fair value of the
465,000 common stock purchase warrants declined to $4,650 as of December 31,
2009. As such, the Company recognized a $3,100 gain from the change in fair
value of these warrants for the year ended December 31, 2009.
These
common stock purchase warrants were initially issued in connection with a line
of credit with a financial institution. The common stock purchase warrants were
not issued with the intent of effectively hedging any future cash flow, fair
value of any asset, liability or any net investment in a foreign operation. The
warrants do not qualify for hedge accounting, and as such, all future changes in
the fair value of these warrants will be recognized currently in earnings until
such time as the warrants are exercised or expire. These common stock purchase
warrants do not trade in an active securities market, and as such, the Company
estimates the fair value of these warrants using the Black-Scholes option
pricing model using the following weighted average assumptions:
F-16
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
December
31,
|
January
1,
|
|||||||
2009
|
2009
|
|||||||
Annual
dividend yield
|
— | — | ||||||
Expected
life (years)
|
8.11 | 9.70 | ||||||
Risk-free
interest rate
|
3.62 | % | 2.46 | % | ||||
Expected
volatility
|
186 | % | 190 | % |
The
expected life is based on the remaining term of the warrants. The
risk-free interest rate is based on the U.S. Treasury rate that corresponds to
the pricing term. Expected volatility is based primarily on
historical volatility. Historical volatility was computed using daily pricing
observations for recent periods that correspond to the expected term. The
Company believes this method produces an estimate that is representative of
expectations of future volatility over the expected term of these warrants. The
Company currently has no reason to believe future volatility over the expected
remaining life of these warrants is likely to differ materially from historical
volatility.
|
t.
|
Fair Value
Measurement
|
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued a
pronouncement which defines fair value, establishes a framework for measuring
fair value in GAAP, and expands disclosures about fair value measurements. This
pronouncement does not require any new fair value measurements, but provides
guidance on how to measure fair value by providing a fair value hierarchy used
to classify the source of the information. In February 2008, the FASB
deferred the effective date of this pronouncement by one year for certain
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). On January 1, 2008, the Company adopted the
provisions of this pronouncement, except as it applies to those nonfinancial
assets and nonfinancial liabilities for which the effective date has been
delayed by one year, which the Company adopted on January 1, 2009. The
adoption of this pronouncement did not have a material effect on the Company’s
financial position or results of operations. The carrying values of cash,
accounts receivable, accounts payable, accrued expenses, capital lease
obligation, and debt instruments approximate their respective fair values due to
the short-term nature of these instruments.
The fair
value hierarchy distinguishes between assumptions based on market data
(observable inputs) and an entity’s own assumptions (unobservable inputs). The
hierarchy consists of three levels:
|
·
|
Level
one — Quoted market prices in active markets for identical assets or
liabilities;
|
F-17
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
|
·
|
Level
two — Inputs other than level one inputs that are either directly or
indirectly observable; and
|
|
·
|
Level
three — Unobservable inputs developed using estimates and assumptions,
which are developed by the reporting entity and reflect those assumptions
that a market participant would
use.
|
Determining
which category an asset or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy disclosures each
quarter. Liabilities measured at fair value on a recurring basis are summarized
as follows:
December
31,
|
||||||||||||||||
Level
1
|
Level
2
|
Level
3
|
2009
|
|||||||||||||
Fair
value of warrants
|
$ | — | $ | — | $ | 4,650 | $ | 4,650 | ||||||||
Total
|
$ | — | $ | — | $ | 4,650 | $ | 4,650 |
The
following table provides a reconciliation of the beginning and ending balances
for the Company’s derivative liability measured at fair value using Level 3
inputs:
Balance
at December 31, 2008
|
$
|
—
|
||
Cumulative
effect of EITF 07-5
|
6,200
|
|||
Issuance
of warrants
|
1,550
|
|||
Change
in fair value
|
(3,100
|
)
|
||
Balance
at December 31, 2009
|
$
|
4,650
|
The
Company has no assets that are measured at fair value on a recurring basis.
There were no assets or liabilities measured at fair value on a non-recurring
basis during the year ended December 31, 2009.
|
u.
|
Subsequent
Events
|
The
Company has evaluated subsequent events through the filing date of this Form
10-K, and determined that no subsequent events have occurred that would require
recognition in the consolidated financial statements or disclosure in the notes
thereto other than as discussed in the accompanying notes.
F-18
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
|
v.
|
New Accounting
Pronouncements
|
In June
2009, the FASB issued a pronouncement which establishes the FASB Accounting
Standards Codification™ as the source of authoritative accounting guidance under
GAAP. The rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. This
pronouncement is effective for periods ending after September 15, 2009. The
Company has concluded that the application of the pronouncement did not have a
material impact on its consolidated financial position and results of operations
as of and for the year ended December 31, 2009.
In
September 2009, the FASB issued an update to its accounting guidance regarding
multiple-deliverable revenue arrangements. The guidance addresses how to measure
and allocate consideration to one or more units of accounting. Specifically, the
guidance requires that consideration be allocated among multiple deliverables
based on relative selling prices. The guidance establishes a selling price
hierarchy of (1) vendor-specific objective evidence, (2) third-party evidence
and (3) estimated selling price. This guidance is effective for annual periods
beginning on or after June 15, 2010 but may be early adopted as of the beginning
of an annual period. The Company expects to adopt this guidance on January 1,
2010 and does not expect this guidance to have a material impact on its
consolidated financial position and results of operations.
In
October 2009, the FASB issued an update to its accounting guidance regarding
software revenue recognition. The guidance changes the accounting model for
revenue arrangements that include both tangible products and software elements.
Under this guidance, tangible products containing software components and
non-software components that function together to deliver the tangible product’s
essential functionality are excluded from the software revenue guidance in FASB
ASC Topic 985, “Software.” In addition, hardware components of a tangible
product containing software components are always excluded from the software
revenue guidance. This guidance is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010 but may be early adopted. The Company expects to adopt this
guidance on January 1, 2010 and does not expect this guidance to have a material
impact on its consolidated financial position and results of
operations.
In
January 2010, the FASB issued an update to its accounting guidance regarding
fair value measurement and disclosure. The guidance affects the disclosures made
about recurring and non-recurring fair value measurements. This guidance is
effective for annual reporting periods beginning after December 15, 2009, except
for the disclosures about purchases, sales, issuances and settlements in the
roll forward of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15,
2010. Early adoption is permitted. The Company is currently
evaluating the impact that this guidance will have on its consolidated financial
position and results of operations.
Other
recent accounting pronouncements issued by the FASB (including the Emerging
Issues Task Force) and the American Institute of Certified Public Accountants
did not or are not believed by management to have a material impact on the
Company’s present or future consolidated financial statements.
F-19
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
4.
|
Property and
Equipment
|
Property
and equipment consist of the following as of December 31, 2009 and
2008:
December
31,
|
||||||||
2009
|
2008
|
|||||||
Equipment
under capital lease
|
$ | 33,331 | $ | 33,331 | ||||
Computer
equipment
|
1,061,965 | 1,012,229 | ||||||
Furniture
and equipment
|
34,451 | 31,291 | ||||||
Software
|
209,900 | 203,199 | ||||||
1,339,647 | 1,280,050 | |||||||
Less-
accumulated depreciation
|
(1,122,279 | ) | (976,728 | ) | ||||
$ | 217,368 | $ | 303,322 |
Depreciation
expense for property and equipment for 2009 and 2008 was $145,839 and $180,394,
respectively, for continuing operations and $50,241 and $40,005 for discontinued
operations, respectively.
5.
|
Acquisitions,
Discontinued Operations, Dispositions, and Intangible
Assets
|
Discontinued
Operations and Disposition of TBS
On
December 4, 2009, the Company sold TBS to N. Harris Computer Corporation and its
affiliate for approximately $2.3 million in cash plus up to $0.7 million in
additional future payments subject to certain earn-out provisions as set forth
in an Intellectual Property Purchase Agreement (the “IPPA”) and a Share Purchase
Agreement (the “SPA” and, together with the IPPA, the “Sale
Agreements”).
The
Company’s Board of Directors approved the sale of the assets on December 2, 2009
as part of a strategy to reduce debt and focus on growth at the remaining
business units and growth by acquisition. The Company used $169,817
of the proceeds from the asset sale to pay outstanding amounts pursuant to a
line of credit with a bank on December 4, 2009 (see Note 6).
F-20
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
In 2009
and in connection with the disposal, the Company recorded a loss from
discontinued operations of $405,745, net of tax of $303,000. Such
loss included income from TBS’ operations of $393,268 before income taxes and a
loss on the disposal of approximately $799,013 (which consisted of net proceeds
of $2,130,147 (net of $36 of expenses and $169,817 paid directly to a bank to
pay off a line of credit), less the net assets sold of $2,929,160, which
includes goodwill and certain intangible assets with a carrying value of
$2,931,621 at the time of disposition, which were written off, and $40,063 of
cash conveyed to the buyer.
The
operations associated with this transaction and the loss on the sale have been
classified as income (loss) from discontinued operations in the accompanying
consolidated statements of operations. Prior to reclassification, the
operations associated with this transaction were classified into the Company’s
Government accounting solutions segment.
Discontinued
operations’ results were as follows:
Year
|
Year
|
|||||||
Ended
|
Ended
|
|||||||
December
31, 2009
|
December
31, 2008
|
|||||||
Results
of discontinued operations
|
||||||||
Net
sales
|
$ | 4,405,978 | $ | 5,376,539 | ||||
Income
before income taxes
|
$ | 393,268 | $ | 469,741 | ||||
Loss
on sale of discontinued operations:
|
||||||||
Sales
price, net
|
$ | 2,130,147 | $ | - | ||||
Net
assets sold
|
(2,929,160 | ) | - | |||||
Loss
on sale
|
$ | (799,013 | ) | $ | - | |||
Income
(loss) from discontinued operations before income taxes
|
$ | (405,745 | ) | $ | 469,741 | |||
Provision
(benefit) for income taxes
|
303,000 | 92,000 | ||||||
Income
(loss) from discontinued operations
|
$ | (708,745 | ) | $ | 377,741 |
Summarized
balance sheet information for the discontinued operations as of December 31,
2008 is set forth below:
December
31,
|
||||
2008
|
||||
Accounts
receivable, net
|
$ | 520,026 | ||
Inventories
|
41,031 | |||
Prepaid
expenses and other current assets
|
50,896 | |||
Current
assets of discontinued operations
|
611,953 | |||
Property
and equipment, net
|
85,466 | |||
Goodwill
|
2,721,205 | |||
Other
intangibles, net
|
257,500 | |||
Non-current
assets of discontinued operations
|
3,064,171 | |||
Assets
of discontinued operations
|
$ | 3,676,124 | ||
Accounts
payable
|
$ | 151,684 | ||
Current
portion of accrued expenses and other liabilities
|
220,341 | |||
Deferred
revenue
|
217,001 | |||
Lines
of credit
|
174,329 | |||
Current
liabilities of discontinued operations
|
763,355 | |||
Capital
lease
|
1,737 | |||
Liabilities
of discontinued operations
|
$ | 765,092 |
Acquisition
of Questys (“QSI”)
On August
4, 2008, the Company completed the purchase of 100% of the issued and
outstanding capital stock of QSI, from its sole shareholder, Vojin
Hadzi-Pavlovic and Gloria Hadzi-Pavlovic, Tenants in Common (the “Pavlovics”,
“Questys Shareholder”). The effective date of the acquisition is
August 1, 2008.
The
Company purchased Questys with $300,000 in cash, a secured promissory note in
the amount of $900,000 (see Note 6), and 22 million shares of the Company’s
common stock.
The terms
of the purchase were the result of arms-length negotiations. The
Pavlovics were not previously affiliated with the Company.
F-21
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
Questys
is a California corporation formed in 1981 and is co-located with Corporate and
MVI in Santa Ana, California. The Company purchased Questys to add
new products and services for document and content management, document
archiving, document imaging, automated data capture, electronic agenda
management, and business process workflow. In addition, as Questys
has clients in a number of markets, including corporate, government, healthcare,
financial services, education, legal, law enforcement, manufacturing, and
retail, the Company expects to benefit from the potential expansion into the
newly expanded customer base of several of the Company’s products and services
believed to be complementary.
In
connection with the acquisition of QSI, the Company incurred $227,291 in
acquisition-related costs including, but not limited to, expenses incurred for a
finder’s fee, legal, accounting and travel.
The
acquisition price was comprised of the following:
Cash
paid at closing
|
$ | 300,000 | ||
Promissory
note to seller, net of debt discount of $126,871
|
773,129 | |||
Estimated
fair value of VillageEDOCS' common stock
|
550,000 | |||
Legal,
accounting, and other costs
|
227,291 | |||
$ | 1,850,420 |
The
following represents an allocation of the purchase price over the historical net
book
value of the acquired assets and liabilities of QSI as of August 1, 2008, the
effective date of the acquisition:
Cash
|
$ | 13,565 | ||
Accounts
receivable
|
309,887 | |||
Prepaid
expenses and other current assets
|
55,298 | |||
Property
and equipment
|
95,587 | |||
Other
assets
|
12,006 | |||
Total
liabilities
|
(1,008,198 | ) | ||
Net
tangible liabilities assumed
|
(521,855 | ) | ||
Identifiable
intangibles:
|
||||
Trade
name
|
210,000 | |||
Technology
|
390,000 | |||
Customer
relationships
|
730,000 | |||
Covenant
Not to Compete
|
70,000 | |||
Goodwill
|
972,275 | |||
$ | 1,850,420 |
F-22
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
The pro
forma combined historical results, as if QSI had been acquired as of January 1,
2008 are estimated as follows:
Year
|
||||
Ended
|
||||
December
31,
2008
|
||||
Net
sales
|
$ | 11,565,584 | ||
Net
loss
|
$ | (620,065 | ) | |
Weighted
average common shares
|
||||
outstanding:
|
||||
basic
and diluted
|
175,433,927 | |||
Loss
per share:
|
||||
basic
and diluted
|
$ | - |
The pro
forma information has been prepared for comparative purposes only and does not
purport to be indicative of what would have occurred had the acquisition
actually been made at such date, nor is it necessarily indicative of future
operating results.
Other
Intangible Assets
On May
12, 2006, the Company entered into a Patent License Agreement (the “License
Agreement”) with Catch Curve, Inc. (“Catch Curve”). Pursuant to the
License Agreement, Catch Curve granted the Company a worldwide, non-exclusive,
non-divisible, fully paid-up license to use certain patented technology in
connection with any facsimile products or services made or sold by the Company
or its subsidiaries. The Company made aggregate license payments of
$600,000 over the thirty-two month period that began on May 12, 2006 and ended
December 31, 2008. The License Agreement stipulates that $350,000 of
the total license fee was attributable to sales of products and services prior
to the date of the License Agreement. The remainder of $250,000 is
attributable to sales of products and services subsequent to the date of the
License Agreement. Accordingly, on May 12, 2006, the Company recorded an
intangible asset in the amount of $250,000. The intangible asset is
being amortized over 58 months, the estimated life of the patents covered by the
License Agreement.
F-23
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
Other
intangible assets consist of the following as of December 31, 2009:
Estimated Useful
|
Gross
|
Net
|
||||||||||||
Life
|
Carrying
|
Accumulated
|
Carrying
|
|||||||||||
(Years)
|
Amount
|
Amortization
|
Amount
|
|||||||||||
Corporate:
|
||||||||||||||
License
agreement
|
Five
|
$ | 250,000 | $ | (187,492 | ) | $ | 62,508 | ||||||
QSI:
|
||||||||||||||
Customer
relationships
|
Ten
|
$ | 730,000 | $ | (103,417 | ) | $ | 626,583 | ||||||
Technology
|
Five
|
390,000 | (110,500 | ) | 279,500 | |||||||||
Trade
name
|
Five
|
210,000 | (59,500 | ) | 150,500 | |||||||||
Covenant
not to compete
|
Two
|
70,000 | (49,583 | ) | 20,417 | |||||||||
$ | 1,400,000 | $ | (323,000 | ) | $ | 1,077,000 | ||||||||
GSI:
|
||||||||||||||
Customer
relationships
|
Ten
|
$ | 2,200,000 | $ | (806,667 | ) | $ | 1,393,333 | ||||||
Technology
|
Five
|
490,000 | (359,333 | ) | 130,667 | |||||||||
Trade
names and marks
|
Ten
|
420,000 | (154,000 | ) | 266,000 | |||||||||
$ | 3,110,000 | $ | (1,320,000 | ) | $ | 1,790,000 | ||||||||
$ | 4,760,000 | $ | (1,830,492 | ) | $ | 2,929,508 |
F-24
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
Other
intangible assets consist of the following as of December 31, 2008:
Estimated
Useful
|
Gross
|
Net
|
||||||||||||
Life
|
Carrying
|
Accumulated
|
Carrying
|
|||||||||||
(Years)
|
Amount
|
Amortization
|
Amount
|
|||||||||||
Corporate:
|
||||||||||||||
License
agreement
|
Five
|
$ | 250,000 | $ | (135,772 | ) | $ | 114,228 | ||||||
QSI:
|
- | |||||||||||||
Customer
relationships
|
Ten
|
$ | 730,000 | $ | (30,417 | ) | $ | 699,583 | ||||||
Technology
|
Five
|
390,000 | (32,500 | ) | 357,500 | |||||||||
Trade
name
|
Five
|
210,000 | (17,500 | ) | 192,500 | |||||||||
Covenant
not to compete
|
Two
|
70,000 | (14,583 | ) | 55,417 | |||||||||
$ | 1,400,000 | $ | (95,000 | ) | $ | 1,305,000 | ||||||||
GSI:
|
||||||||||||||
Customer
relationships
|
Ten
|
$ | 2,200,000 | $ | (586,667 | ) | $ | 1,613,333 | ||||||
Technology
|
Five
|
490,000 | (261,333 | ) | 228,667 | |||||||||
Trade
names and marks
|
Ten
|
420,000 | (112,000 | ) | 308,000 | |||||||||
$ | 3,110,000 | $ | (960,000 | ) | $ | 2,150,000 | ||||||||
$ | 4,760,000 | $ | (1,190,772 | ) | $ | 3,569,228 |
Amortization
of other intangible assets was $639,720 and $506,721 during 2009 and 2008,
respectively, for continuing operations and $47,084 and $60,000 during 2009 and
2008, respectively, for discontinued operations. During 2009, the
Company wrote off $210,416 of intangible assets in connection with the sale of
TBS.
F-25
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
The
estimated amortization expense for the next five years
approximates:
December
31,
|
||||
2010
|
$ | 625,000 | ||
2011
|
498,000 | |||
2012
|
455,000 | |||
2013
|
405,000 | |||
2014
|
335,000 | |||
Thereafter
|
611,000 | |||
$ | 2,929,000 |
6.
|
Debt
|
Bank Lines of
Credit
On
February 6, 2008, the Company and The Private Bank of The Peninsula (“Bank”)
entered into an agreement for an asset based line of credit (the
“Line”). On March 5, 2009, the Company received a fully
executed agreement between it and the Bank to amend the agreement for the Line
(the "Amendment"). The effective date of the Amendment was February
24, 2009. Pursuant to the Amendment, the Bank renewed the Line and
modified the terms to include an interest rate that was floating and was
calculated at Wall Street Journal prime plus five percent (5%) on the cash
borrowed provided that the minimum rate was eight and one half percent (8.5%)
and minimum interest was $7,000 per three month period. Interest on
outstanding borrowings was payable monthly. In addition, the
Company was required to pay an amendment fee of $10,000 and, upon each advance,
a fee equal to one quarter of one percent (0.25%) of the advance, and was
subject to covenants as to minimum quarterly income and cash
flow. The Bank’s maximum commitment amount for the Line, as amended,
was $1.0 million. Advances were generally limited to 80% of eligible
domestic accounts receivable. Outstanding advances under the Line
were secured by a first lien position on all of the Company’s accounts
receivable, contract rights, chattel paper, documents, and payment and by a
second lien on its inventory, intellectual property, and
equipment. As of December 31, 2009, there were outstanding borrowings
of $130,592 on the Line and the Company was in compliance with all loan
covenants, except a quarterly income covenant. As a result of failing
to comply with the quarterly income covenant, the Bank increased the interest
rate to 13.5% per annum effective November 19, 2009. Availability on
the Line as of December 31, 2009 was approximately $30,000.
The Line
matured on February 24, 2010 and, pursuant to an extension granted by the Bank,
the Company repaid all outstanding advances in February and March
2010.
F-26
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
During
2008, the Company paid a facility fee of $15,000 to the Bank in connection with
the Line and paid a finder’s fee in the amount of $50,000 to Dragonfly Capital
Partners LLC (“Dragonfly”). In addition, the Company issued the Bank
and Dragonfly warrants to purchase shares of its common stock (see Note
7). The Company recorded the finders’ fees and warrants as debt
issuance costs in the accompanying consolidated balance sheets at December 31,
2009 and 2008, and amortized $5,417 and $59,583, respectively, of the cash fees
to interest expense during the years then ended. Effective January 1,
2009, the Company issued an additional 235,000 warrants to the Bank (see Note 7)
and the Company reclassified the Bank’s warrants from additional paid-in capital
to a derivative liability in connection with the adoption of an accounting
pronouncement and the reset features of the Bank’s warrant
agreement. The warrants were valued using the Black-Scholes option
pricing model at $4,310.
Effective
September 30, 2006, VillageEDOCS obtained a $500,000 revolving line of credit
(“RLOC”) with a financial institution. The RLOC was guaranteed by a
stockholder of the Company. Interest on outstanding borrowings was
payable monthly at an annual rate of interest equal to LIBOR plus
2%. On May 8, 2009, the Company retired the RLOC using the proceeds
of the Williams May 2009 Note (see below). The terms of the note
payable financing were deemed more favorable to the Company than the renewal
terms offered by the financial institution.
QSI had
an unsecured line of credit agreement with a financial institution for
borrowings up to the maximum of $100,000 with no maturity date (“QSI
RLOC”). Borrowings bore interest at the prime rate, plus
2.775%. On August 3, 2009, as stipulated by the QSI acquisition
agreements, the Company repaid the outstanding borrowings of $100,000 in full
and closed the line of credit using the proceeds of the Williams July 2009 Note
(see below).
Vojin Hadzi-Pavlovic and
Gloria Hadzi-Pavlovic
Effective
August 1, 2008 and in connection with the acquisition of Questys (see Note 5),
the Company issued a secured promissory note to the Pavlovics (the “Pavlovic
Note”) in the amount of $900,000. The Pavlovics are a related party
as a result of the common stock issued to them by the Company in connection with
the acquisition of Questys. The Pavlovic Note is non-interest bearing
and may be prepaid in whole or in part at any time without penalty and is due on
August 1, 2011. Principal payments are due in three equal annual
installments of $300,000 each on August 1, 2009, August 1, 2010, and August 1,
2011. On August 1, 2009, the Company paid the first installment of
$300,000 using the proceeds of the Williams July 2009 Note (see
below). The Pavlovic Note is secured by certain assets of Questys as
defined in a Security Agreement dated as of August 1, 2008. As of
December 31, 2009, payment obligations under the Pavlovic Note were subordinate
in certain respects to the rights of the Private Bank of the Peninsula to the
extent set forth in a Subordination Agreement dated as of August 1,
2008.
In
connection with the issuance of the Pavlovic Note, the Company recorded a debt
discount of $126,871 as a result of imputed interest. The Company is
amortizing the discount using the effective interest method through August 1,
2011. During the years ended December 31, 2009 and 2008, $42,291 and
$17,621, respectively, of interest expense was recognized in connection with the
amortization of debt discount related to this note.
F-27
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
Prior to
August 1, 2008 (effective date of acquisition of Questys), the Pavlovics made
aggregate advances to Questys in the amount of $115,000, which were assumed in
the acquisition (the “Pavlovic Shareholder Debt”). The Pavlovic
Shareholder Debt is non-interest bearing and the Company and the Pavlovics have
agreed to the repayment of the outstanding balance as follows: (i)
$35,000 on or before August 1, 2009, (ii) $40,000 on or before August 1, 2010,
and (iii) $40,000 on or before the August 1, 2011. On
August 3, 2009, the Company paid the first installment of $35,000 using the
proceeds of the Williams July 2009 Note (see below).
In
connection with the acquisition of the Pavlovic Shareholder Debt, the Company
recorded a debt discount of $16,546 as a result of imputed
interest. The Company is amortizing the discount using the effective
interest method through August 1, 2011. During the years ended
December 31, 2009 and 2008, $5,516 and $2,298, respectively, of
interest expense was recognized in connection with the amortization of debt
discount related to this debt.
The Silver Lake Group,
LLC
The
Company funded the requirement for the initial $300,000 payment for the purchase
of QSI from the proceeds of a $300,000 related party secured promissory note
offering subscribed to by The Silver Lake Group, LLC (“SLG”) on August 4, 2008
(the “SLG Note”). SLG is owned by Ricardo A. Salas, a Director of the
Company. The SLG Note was originally due on October 31, 2008 and bore
interest at a rate of nine percent (9%) per annum through October 31,
2008.
On
October 30, 2008, VillageEDOCS, Inc. and SLG entered into an Amendment to
Secured Promissory Note (“Amendment”) to modify the maturity date, interest
rate, and repayment terms of the SLG Note. As of October 31, 2008,
the remaining principal balance of the SLG Note, as amended, was $250,000 and no
interest was outstanding. Pursuant to the Amendment, the SLG Note
matured on March 31, 2009 and bore interest from November 1, 2008 at a rate of
twelve percent (12%) per annum. As of December 31, 2009, the SLG Note
was paid in full. As of December 31, 2008, the outstanding principal
balance due pursuant to the SLG note was $151,490. The SLG Note was
secured by the accounts receivable of GSI, as defined in a Security Agreement
dated as of August 1, 2008. Payment obligations under the SLG Note
were subordinate in certain respects to the rights of the Bank to the extent set
forth in a Subordination Agreement entered into effective August 1,
2008.
F-28
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
C. Alan and Joan P.
Williams
On May 6,
2009 the Company arranged for an unsecured promissory note financing with C.
Alan Williams and Joan P. Williams in the amount of $430,000 (the “Williams May
2009 Note”). The Williams May 2009 Note bore a per annum interest
rate equal to the most favorable rate paid by the Williams plus two percent
(2%). The Company’s interest rate in effect through December 15, 2009
(date of repayment) with respect to the Williams May 2009 Note was
4.87%. The interest rate was subject to adjustment once per
month. The term of the Williams May 2009 Note was thirty-six (36)
months, with monthly installments paid by the Company consisting of principal
and interest on the first of each month, beginning on August 1,
2009. Payment obligations under the Williams May 2009 Note were
subordinate in certain respects to the rights of the Private Bank of the
Peninsula.
The
Company used the proceeds from the Williams May 2009 Note, to retire the RLOC on
May 8, 2009 (see above). The terms of the Williams May 2009 Note were
deemed more favorable to the Company than the renewal terms offered by the
financial institution.
On July
30, 2009 the Company arranged for an unsecured promissory note financing with C.
Alan Williams and Joan P. Williams in the amount of $435,000 (the “Williams July
2009 Note”). The Williams July 2009 Note bore interest at ten percent
(10%) per annum. The term of the Williams July 2009 Note was twelve
(12) months, with monthly installments paid by the Company at the end of each
month consisting of principal and interest, beginning on July 31,
2009. Payment obligations under the Williams July 2009 Note were
subordinate in certain respects to the rights of the Private Bank of the
Peninsula.
The
Company used the proceeds from the Williams July 2009 Note, to retire a line of
credit with a financial institution on August 4, 2009 and to make installment
payments to Vojin and Gloria Hadzi-Pavlovic pursuant to the agreement for the
Company’s purchase of QSI dated as of August 1, 2008 (see Note 5).
On
February 17, 2004, the Company borrowed $1,700,000 from C. Alan and Joan P.
Williams and issued a convertible promissory note, which bore interest at ten
percent (10%) per annum (the “Williams Convertible Note”). During
2005, all but $65,000 of the principal amount due pursuant to this note was
converted into shares of the Company's common stock. In October
2009, the Williams agreed to extend the due date of the note to October 31, 2011
(see Note 11). The note and accrued interest were due at the earlier
of one of three events: 1) October 31, 2011; 2) acquisition of a controlling
interest in the Company by a third party; or 3) the Company achieved equity
financing of a minimum of $3,000,000. Effective April 14, 2005,
pursuant to an amendment to the note, the conversion price was fixed at $0.14
per share. As an incentive for Mr. and Mrs. Williams to provide the
loan, the Company issued them a warrant to purchase 5,000,000 shares of the
Company's restricted common stock at $0.10 per share exercisable until February
17, 2009. Effective February 17, 2009, the Company and the Williams
agreed to extend the expiration date of the warrant to February 16, 2012 in
exchange for the Williams’ agreement to extend their guaranty of the RLOC
through December 31, 2010. The extension of the warrants did not have
a material effect on the consolidated financial statements.
F-29
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
During
the years ended December 31, 2009 and 2008, $35,439 and $6,500, respectively, of
interest expense was recognized in connection with these notes.
On
December 15, 2009, the Company paid $927,917 to C. Alan and Joan P. Williams in
full satisfaction of all outstanding principal and interest owed to the Williams
pursuant to the Williams Convertible Note, the Williams May 2009 Note, and the
Williams July 2009 Note.
At
December 31, 2008, the amount owed by the Company to the Williams pursuant to
the unpaid balance of the convertible promissory note payable was $65,000 in
principal and $113,370 in unpaid interest. The interest rate in
effect as of December 31, 2008 was ten percent (10%) per annum.
Interest
Expense
Interest
expense recognized on all lines of credit and notes payable was $144,579 and
$268,927, respectively, for continuing operations and $10,718 and $13,626,
respectively, for discontinued operations during the years ended December 31,
2009 and 2008.
Interest
expense noted above included non-cash charges (related to amortization of debt
discount and debt issuance costs) of $65,690 and $216,697, respectively, during
2009 and 2008.
F-30
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
7.
|
Stockholders’
Equity
|
|
a.
|
Common and Preferred
Stock
|
Effective
September 7, 2007, the Company reincorporated in Delaware under the name
VillageEDOCS, Inc. Pursuant to its Articles of Incorporation filed
with the State of Delaware, the Company is authorized to issue two classes of
shares of stock. The first class is designated as preferred
stock. The total number of shares of Series A Preferred stock that
the Company is authorized to issue is forty eight million (48,000,000) of $0.001
par value per share. The second class is designated as common
stock. The total number of shares of common stock that the Company is
authorized to issue is five hundred million (500,000,000) of $0.0001 par
value.
The
Company is authorized to issue up to 48,000,000 shares of Series A Convertible
Preferred Stock, par value $0.001 ("Series A Preferred Stock"). Each
share of Series A Preferred Stock shall be convertible into one share of common
stock. Series A Preferred Stock will be immediately convertible into
common stock, however, the Company is prohibited from effecting any conversion
of the Series A Preferred Stock, and the holder shall not have the right to
convert any portion of the Series A Preferred Stock, to the extent that after
giving effect to such conversion, the holder (together with the holder's
affiliates) would beneficially own in excess of 4.99% of the number of shares of
common stock outstanding immediately after giving effect to the
conversion. The foregoing restriction may be waived (a) upon sixty-one
days prior notice from the holder to the Company and (b) shall not apply in the
event of a sale of substantially all of the assets or securities of the Company,
a merger involving the corporation or an underwritten public offering of the
Company's common stock. No dividends shall be payable with respect to
the Series A Preferred Stock. The Series A Preferred Stock shall have
no voting rights, except with respect to changes in the powers, preferences or
rights of the Preferred Stock. The liquidation preference of
the Series A Preferred Stock is equal to $0.05 per share (the “Liquidation
Value”). Upon liquidation of the Company, holders of Series A Preferred
Shares will be paid the Liquidation Value prior to distribution of any amounts
to holders of our common stock.
Effective
December 23, 2009, C. Alan Williams converted 33,500,000 shares of the Company’s
Series A Preferred Stock into 33,500,000 shares of the Company’s common
stock. The transaction resulted in no consideration to the Company
because the Series A Preferred Stock was convertible for no additional
consideration. Mr. Williams had previously purchased these shares
from Barron Partners, LP in a private transaction not involving the
Company. After the conversion by Mr. Williams, the Company had no
shares of its Series A preferred Stock outstanding.
F-31
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
On April
8, 2009 and pursuant to the terms of their respective employment agreements, the
Company issued 6,879,200 shares of its restricted common stock to K. Mason
Conner, who is the Company’s President and Chief Executive Officer and a
Director, and 5,896,500 shares of its restricted common stock to H. Jay Hill,
who is the Company’s Executive Vice President of Corporate Development and a
Director. These shares were valued at $0.01 per share (the estimated
fair value on the measurement date) for an aggregate total of $127,757, $98,106
of which was included in accrued liabilities as of December 31, 2008. For the
year ended December 31, 2009, the Company accrued $85,975 related to incentive
stock compensation for Messrs. Conner and Hill.
On
November 17, 2008, the Company issued 2,500,000 shares of its common stock to K.
Mason Conner pursuant to the 2002 Equity Incentive Plan. Mr. Conner
is an officer and director of the Company. These shares were valued
at $0.015 per share (the estimated fair value on the measurement date) and
recorded as compensation expense.
On
November 17, 2008, the Company issued 2,000,000 shares of its common stock to H.
Jay Hill pursuant to the 2002 Equity Incentive Plan. Mr. Hill is and
officer and director of the Company. These shares were valued at
$0.015 per share (the estimated fair value on the measurement date) and recorded
as compensation expense.
On
November 17, 2008, the Company issued 1,000,000 shares of its common stock to
Michael A. Richard pursuant to the 2002 Equity Incentive Plan. Mr.
Richard is an officer of the Company. These shares were valued at
$0.015 per share (the estimated fair value on the measurement date) and recorded
as compensation expense.
On August
1, 2008 and in connection with the acquisition of Questys, the Company issued
22,000,000 shares of its common stock to the Pavlovics (see Note
5). These shares were valued at $0.025 per share (the estimated fair
value on the measurement date) and recorded as additional purchase
price.
The
Company did not issue any shares of its preferred stock during either of the
years ended December 31, 2009 and 2008.
|
b.
|
Stock
Options
|
The
Company has adopted an equity incentive plan (the “2002 Plan”) that authorizes
the issuance of options to acquire up to 90,000,000 shares of common stock, as
amended, to employees and certain outside consultants. The 2002
Plan allows for the issuance of either non-qualified or, subject to stockholder
approval, incentive stock options pursuant to Section 422 of the Internal
Revenue Code. Options vest at the discretion of the Board of Directors as
determined at the grant date, but not longer than a ten-year
term. Under the 2002 Plan, the exercise price of each option shall
not be less than fair market value on the date the option is
granted. The number of options under the 2002 Plan available for
grant at December 31, 2009 and 2008 was approximately 45,700,000 and 43,000,000,
respectively.
F-32
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
During
1997, the Board of Directors of the Company adopted a stock option plan (the
“1997 Plan”) that authorizes the issuance of options to acquire up to 5,000,000
shares of common stock to employees and certain outside
consultants. The 1997 Plan allows for the issuance of either
non-qualified or incentive stock options pursuant to Section 422 of the Internal
Revenue Code. Options vest at the discretion of the Board of Directors as
determined at the grant date, but not longer than a ten-year
term. Under the 1997 Plan, the exercise price of each option shall
not be less than 85 percent of fair market value on the date the option is
granted. The number of options under the 1997 Plan available for
grant at December 31, 2009 and 2008 was approximately 3,400,000 and 4,200,000,
respectively.
d. Warrants
From time
to time, the Company issues warrants pursuant to various consulting and third
party agreements.
In
December 2008, and in connection with a retainer agreement dated September 15,
2007 that was cancelled by the Company effective February 28, 2009, the Company
issued a warrant to purchase 1,304,074 shares of its common stock at $0.023 per
share (fair value on the measurement date) to a consultant in consideration for
public relations services. The warrant vested immediately and is
exercisable over a five year period from date of grant. The warrant
was valued using the Black-Scholes option pricing model, was valued at $26,001,
was recorded as prepaid consulting expense, and was amortized to general and
administrative expense in the Company’s statements of operations over the three
month service period that began on December 1, 2008. During the year
ended December 31, 2009, the Company recorded $17,334 of consulting expense in
connection with this warrant. During the year ended December 31,
2008, the Company recorded $8,667 of consulting expense in connection with this
warrant.
In
consideration for the Line, (see Note 6) the Company issued the Bank an
immediately exercisable warrant to purchase 75,000 shares of its restricted
common stock at an exercise price of $0.062 per share through February 6,
2018. The warrants were valued using the Black-Scholes option pricing
model at $4,500 and were recorded as debt issuance cost in the accompanying
consolidated balance sheet at December 31, 2009. The Company
amortized such cost over the one-year life of the related debt
instrument. During the years ended December 31, 2009 and 2008, the
Company recorded $375 and $4,125, respectively, of interest expense in the
accompanying consolidated statements of operations. Effective January
1, 2009, the Company reclassified the fair value of these warrants, which have
exercise price reset features, from equity to liability status as if these
warrants were treated as a derivative liability since their date of issue in
February 2008 and issued an additional 390,000 warrants to the Bank pursuant to
the terms of the warrant agreement valued at $5,860 using the Black-Scholes
option pricing model (see the heading “Derivative Liability” under Note 3),
which was expensed during 2009. During 2008, the Company recorded $4,125 of
interest expense in the accompanying consolidated statements of
operations.
As a
finder’s fee for the Line (see Note 6), the Company issued Dragonfly an
immediately exercisable warrant to purchase 2,419,355 shares of its restricted
common stock at an exercise price of $0.062 per share through February 6,
2013. The warrants were valued using the Black-Scholes option pricing
model at $145,161 and were recorded as debt issuance cost in the accompanying
unaudited condensed consolidated balance sheet at December 31,
2009. The Company amortized such cost over the one-year life of the
related debt instrument. During 2009 and 2008, the Company recorded
$12,091 and $133,070, respectively, of interest expense in the accompanying
consolidated statements of operations.
F-33
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
On
February 8, 2008, the Company issued Agile Equity LLC an immediately exercisable
warrant to purchase 653,214 shares of its common stock at $0.077 per share
through February 8, 2009 in consideration for consulting services
rendered. The warrant was valued at $50,484 based on the
Black-Scholes option pricing model. During 2008, the Company expensed consulting
fees of $484 in accordance with the timing of the services
performed.
On
October 1, 2007, and in connection with a retainer agreement dated September 15,
2007, the Company issued a warrant to purchase 2,000,000 shares of its common
stock at $0.05 per share (fair value on the measurement date) to a consultant in
consideration for public relations services. The warrants are
exercisable over a five year period from date of grant. The warrants
were valued using the Black-Scholes option pricing model at $100,000 and were
recorded as general and administrative expense in the Company’s statements of
operations over the twelve month vesting period that began on September 15,
2007. During 2008, the Company recorded $66,668 of consulting expense
in connection with this warrant.
The
following represents a summary of the warrants outstanding for the year ended
December 31, 2009:
Weighted
Average
|
||||||||
Number
|
Exercise
Price
|
|||||||
of Warrants
|
Per Share
|
|||||||
Outstanding
at January 1, 2009
|
10,017,643 | $ | 0.07 | |||||
Granted
|
390,000 | 0.01 | ||||||
Exercised
|
- | - | ||||||
Expired/Forfeited
|
(653,214 | ) | (0.08 | ) | ||||
Balance
at December 31, 2009
|
9,754,429 | $ | 0.07 | |||||
Weighted
average fair value of warrants granted in 2009:
|
$ | 0.01 | ||||||
Weighted
average fair value of warrants granted in 2008:
|
$ | 0.05 |
F-34
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
8.
|
Income
Taxes
|
The
components of the (benefit) provision for income taxes for December 31, 2009 and
2008 are presented in the following table:
|
December
31
|
December
31
|
|||||||
|
2009
|
2008
|
|||||||
Current:
|
|||||||||
Federal
|
$ | (38,000 | ) | $ | (52,000 | ) | |||
State
|
(25,000 | ) | (28,000 | ) | |||||
(63,000 | ) | (80,000 | ) | ||||||
Deferred:
|
|||||||||
Federal
|
- | - | |||||||
State
|
- | - | |||||||
$ | (63,000 | ) | $ | (80,000 | ) |
At
December 31, 2009, the Company had approximately $24,592,000 and $23,655,000,
respectively, of federal and state net operating loss carryforwards for tax
reporting purposes available to offset future taxable income; federal and state
net operating loss carryforwards expire through 2027 and 2028, 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, 2009, the effect of such limitation, if imposed, has not been
determined.
At
December 31, 2009, the Company had approximately $23,000 of California research
and development tax credit carryforwards which carry forward
indefinitely.
At
December 31, 2008, the Company had approximately $24,693,000 and $23,529,000,
respectively, of federal and state net operating loss carryforwards for tax
reporting purposes available to offset future taxable income.
At
December 31, 2008, the Company had approximately $23,000 of California research
and development tax credit carryforwards which carry forward
indefinitely.
Deferred
tax assets consist primarily of the tax effect of net operating loss
carryforwards. The Company has provided a full valuation allowance on the
deferred tax assets because of the uncertainty regarding
realizability. The valuation allowance increased approximately
$159,000 and decreased $(779,000) during the years ended December 31, 2009 and
2008, respectively.
F-35
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
Deferred
tax assets (liabilities) consist of the following:
|
December
31,
|
December
31,
|
||||||
Deferred
tax assets:
|
2009
|
2008
|
||||||
Net
operating loss carryforwards
|
$ | 9,354,000 | $ | 9,416,000 | ||||
Accrued
expenses
|
92,000 | 141,000 | ||||||
Other
|
74,000 | (31,000 | ) | |||||
Less
valuation allowance
|
(8,424,000 | ) | (8,265,000 | ) | ||||
$ | 1,096,000 | $ | 1,261,000 | |||||
Deferred
tax liabilities:
|
||||||||
Purchased
Intangibles
|
$ | (1,083,000 | ) | $ | (1,246,000 | ) | ||
Property
and equipment and intangibles
|
(13,000 | ) | (15,000 | ) | ||||
Total
deferred tax liabilities
|
(1,096,000 | ) | (1,261,000 | ) | ||||
Net
deferred tax assets (liabilities)
|
$ | - | $ | - |
A
reconciliation of income taxes from continuing operations computed at the
federal statutory rate of 34% to the provision for income taxes is as follows
for the years ended December 31:
2009
|
2008
|
|||||||
Computed
benefit at federal statutory rate
|
$ | (438,000 | ) | $ | (243,000 | ) | ||
State
income tax benefit, net of federal effect
|
(46,000 | ) | 2,000 | |||||
Permanent
items
|
98,000 | 196,000 | ||||||
Other
|
47,000 | (61,000 | ) | |||||
Uncertain
tax positions reserve
|
110,000 | 81,000 | ||||||
Payable
adjustment
|
(8,000 | ) | (169,000 | ) | ||||
State
net operating loss adjustment
|
(1,000 | ) | 197,000 | |||||
State
effective tax rate adjustment
|
16,000 | 146,000 | ||||||
Change
in valuation allowance
|
159,000 | (229,000 | ) | |||||
$ | (63,000 | ) | $ | (80,000 | ) |
On
January 1, 2007, the Company adopted the provisions of an accounting
pronouncement that establishes a single model to address accounting for
uncertain tax positions, clarifies the accounting for income taxes by
prescribing a minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements, and provides guidance on
de-recognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. Upon adoption, the
Company recognized no adjustment in the amount of unrecognized tax
benefits. As of the date of adoption, the Company had no unrecognized
tax benefits.
F-36
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
A portion
of the net operating loss carryforwards as of December 31, 2009 includes amounts
related to stock option deductions. Any excess tax benefits from
share-based compensation are only realized when income taxes payable is reduces,
with the corresponding credit posted to additional paid-in capital.
The
following table summarizes the changes to unrecognized tax benefits for the
years ended December 31, 2009 and 2008 (in thousands):
Balance
at January 1, 2008
|
$ | - | ||
Additions
based on tax positions related to the current year
|
81 | |||
Additions
based on tax positions of prior years
|
- | |||
Balance
at December 31, 2008
|
81 | |||
Additions
based on tax positions related to the current year
|
110 | |||
Additions
based on tax positions related to the prior year
|
- | |||
Reductions
as a result of lapse of applicable statute of limitations
|
- | |||
Balance
at December 31, 2009
|
$ | 191 |
The
Company and its subsidiaries are subject to federal income tax as well as income
tax of multiple state jurisdictions. The Company is not currently
under examination by the IRS, state and local taxing
authorities. However, to the extent allowed by law, the taxing
authorities may have the right to examine prior periods where NOLs and tax
credits were generated and carried forward, and make adjustments up to the
amount of the carryforwards.
The
Company has elected to recognize potential accrued interest and penalties
related to unrecognized tax benefits as income tax expense. As
of December 31, 2009, the Company has accrued interest and penalties associated
with uncertain tax positions of $28,000.
Utilization
of the net operating loss carryforwards may be subject to a substantial annual
limitation due to ownership change limitations that have occurred previously or
that could occur in the future as provided by Section 382 of the Internal
Revenue Code of 1986, as amended, as well as similar state
provisions. These ownership changes may limit the amount of the net
operating loss and tax credit carryforwards that can be utilized annually to
offset future taxable income. Since the Company’s formation, the
Company has raised capital through the issuance of capital stock on several
occasions which may have resulted in a change of control, as defined by Section
382, or could result in a change of control in the future. The
Company has not completed a study to assess whether a change of control has
occurred or whether there have been multiple changes of control since the
Company’s formation due to the significant complexity and cost associated with
such study and that there could be additional changes in control in the
future. If the Company has experienced a change of control at any
time since Company formation, utilization of the Company’s net operating loss
carryforwards would be subject to an annual limitation under Section
382. Any limitation may result in expiration of a portion of the
carryforwards before utilization. Further, once a study is completed
and any limitation known, the amounts currently presented as an uncertain tax
position may change. Any carryforwards that will expire prior to
utilization as a result of such limitations will be removed from deferred tax
assets with a corresponding reduction of the valuation
allowance.
F-37
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
9.
|
Loss per
Share
|
The
following table reconciles basic earnings per share and diluted earnings per
share and the related weighted average number of shares outstanding for the year
ended December 31, 2008.
Numerator
|
Denominator
|
Per
Share
|
||||||||||
(Loss)
|
(Shares)
|
Amount
|
||||||||||
Basic
earnings per share:
|
||||||||||||
Net
loss
|
$ | (616,242 | ) | - | $ | - | ||||||
Loss
available to common shareholders
|
(616,242 | ) | 162,595,571 | - | ||||||||
Effect
of dilutive securities:
|
||||||||||||
Options
and warrants
|
- | 127,835 | - | |||||||||
Convertible
note payable to related party
|
- | 1,274,071 | - | |||||||||
Convertible
preferred stock
|
- | 33,500,000 | - | |||||||||
Diluted
earnings per share:
|
||||||||||||
Loss available
to common shareholders plus assumed exercises
|
$ | (616,242 | ) | 197,497,477 | $ | - |
10.
|
Commitments and
Contingencies
|
|
a.
|
Leases
|
The
Company leases certain property and equipment under operating lease agreements
(including related party leases – see Note 11) which expire on various dates
through 2013 and provide for monthly lease payments ranging from $108 to
$13,747.
F-38
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
Future
annual minimum payments under non-cancelable operating leases are as
follows:
Operating
Leases
|
||||||||||||
Related
Parties
|
Other
|
Total
|
||||||||||
2010
|
$ | 165,000 | $ | 326,000 | $ | 491,000 | ||||||
2011
|
55,000 | 186,000 | 241,000 | |||||||||
2012
|
- | 77,000 | 77,000 | |||||||||
2013
|
- | 11,000 | 11,000 | |||||||||
Total
minimum lease payments
|
$ | 220,000 | $ | 600,000 | $ | 820,000 |
Rent
expense for the years ended December 31, 2009 and 2008 was $703,038 (including
$155,429 of related party rent) and $853,667 (including $163,218 of related
party rent), respectively, for continuing operations and $122,698 (including
$87,406 of related party rent), and $169,604 (including $95,352 of related party
rent), respectively, for discontinued operations.
|
b.
|
Litigation
|
The
Company is, from time to time, involved in various legal and other proceedings
which arise in the ordinary course of operating its business.
In
connection with the acquisition of GSI the Company is entitled to certain rights
of indemnification from GoSolutions Equity, LLC, which is a former shareholder
of GSI that became a shareholder of the Company as a result of our acquisition
of GSI. The Company made a claim of indemnification from this entity
in connection with the bankruptcy of one of GSI’s significant customers – Vartec
Telecom, Inc. – and the facts and circumstances relating to the procurement and
maintenance of the Primerica Life Insurance account and related Citigroup
affiliates. GoSolutions Equity, LLC has indicated that it does not
believe that we have a valid basis for making such indemnification
claims.
The
Company has engaged in limited discussions with GoSolutions Equity, LLC as it
relates to the indemnification claims notice and their response to such claims
notice. However, the Company is unable to advise whether it will be
successful in the indemnification claims against GoSolutions Equity,
LLC. Pursuant to the agreement with GSI, if the Company is
successful, GoSolutions Equity, LLC would only be required to return up to
approximately 4.4 million of the Company’s shares issued to that entity to
satisfy such indemnification claims. GoSolutions Equity, LLC is not
required to contribute cash to satisfy any indemnification
claims.
F-39
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
In the
opinion of management, the amount of ultimate liability, if any, with respect to
these actions will not materially affect the consolidated financial position or
results of operations of the Company.
|
c.
|
Consulting and
Employee Agreements
|
The
Company has entered into a variety of consulting and employee agreements for
services to be provided to the Company in the ordinary course of
business. These agreements call for minimum salary levels and/or
option grants and/or common share issuances and various payments upon
performance of services and/or termination of the agreements (except for
cause).
|
d.
|
Indemnities and
Guarantees
|
During
the normal course of business, the Company has made certain indemnities and
guarantees under which it may be required to make payments in relation to
certain transactions. The Company indemnifies its directors,
officers, employees and agents to the maximum extent permitted under the laws of
the States of California, Delaware, Florida, and Georgia. These
indemnities include certain agreements with the Company’s officers under which
the Company may be required to indemnify such person for liabilities arising out
of their employment relationship. In connection with its facility
leases, the Company has indemnified its lessors for certain claims arising from
the use of the facilities. In connection with the Company's
acquisition of TBS, the parties have agreed to indemnify each other from claims
relating to the acquisition agreement to a maximum of $1,500,000 except in the
event of fraud, willful misconduct, or breaches of certain representations and
warranties contained in the agreement. In connection with the
Company's acquisitions of QSI and GSI, the parties have agreed to indemnify each
other from claims relating to the acquisition agreement. The duration
of these indemnities and guarantees varies and, in certain cases, is
indefinite. The majority of these indemnities and guarantees do not
provide for any limitation of the maximum potential future payments the Company
could be obligated to make. Historically, the Company has not been
obligated to make significant payments for these obligations and no liabilities
have been recorded for these indemnities and guarantees in the accompanying
consolidated balance sheets.
F-40
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
11.
Related Party
Transactions
The
Company has borrowed significantly from related parties, issued a significant
number of options and warrants to related parties, and issued a significant
number of shares of its common stock to related parties upon conversion of
convertible promissory notes payable as described more fully in Notes 6 and
7.
GSI
leases the St. Petersburg office space pursuant to a noncancelable operating
lease agreement expiring in April 30, 2011 at a cost of $12,653, $13,232,
$13,841, $14,485, and $15,164 per month for each of the twelve month periods
ended April 2007, 2008, 2009, 2010, and 2011,
respectively. The building in which the office space is
located is owned by an entity in which a member of GoSolutions Equity, LLC (a
related party) owns an interest.
12.
Segment
Reporting
The
Company's operations are classified into four principal reportable segments that
provide different products or services. Separate management of each
segment is required because each business unit is subject to different
marketing, production, and technology strategies. The Company
operates in the following four reportable segments:
(a) Electronic
document delivery services,
(b) Electronic
content management solutions,
(c) Integrated
communications, and
(d) Corporate.
The
Company evaluates performance and allocates resources based upon operating
income. The accounting policies of the reportable segments are the
same as those described in the summary of accounting
policies. Inter-segment sales are eliminated upon
consolidation.
The
following table summarizes segment asset and operating balances for continuing
operations by reportable segment, has been prepared in accordance with the
internal accounting policies, and may not be presented in accordance with
GAAP:
F-41
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
Year
|
Year
|
|||||||
ended
/ As of
|
ended
/ As of
|
|||||||
December
31
|
December
31
|
|||||||
2009
|
2008
|
|||||||
Net
revenue from external customers:
|
||||||||
Electronic
document delivery services
|
$ | 2,576,842 | $ | 2,761,147 | ||||
Electronic
content management solutions
|
2,157,280 | 979,553 | ||||||
Integrated
communications
|
5,557,130 | 6,059,154 | ||||||
Corporate
|
- | - | ||||||
Total
net revenue from external customers:
|
$ | 10,291,252 | $ | 9,799,854 | ||||
Operating
income (loss) from continuing operations:
|
||||||||
Electronic
document delivery services
|
$ | 519,948 | $ | 295,534 | ||||
Electronic
content management solutions
|
(638,676 | ) | (33,926 | ) | ||||
Integrated
communications
|
753,019 | 1,102,461 | ||||||
Corporate
|
(1,926,416 | ) | (2,298,940 | ) | ||||
Total
operating loss from continuing operations:
|
$ | (1,292,125 | ) | $ | (934,871 | ) | ||
Depreciation
and amortization from continuing operations:
|
||||||||
Electronic
document delivery services
|
$ | 74,026 | $ | 89,154 | ||||
Electronic
content management solutions
|
264,781 | 111,646 | ||||||
Integrated
communications
|
438,209 | 491,106 | ||||||
Corporate
|
51,722 | 51,721 | ||||||
Total
depreciation and amortization:
|
$ | 828,738 | $ | 743,627 | ||||
Interest
expense, net of interest income:
|
||||||||
Electronic
document delivery services
|
$ | 16,580 | $ | 6,507 | ||||
Electronic
content management solutions
|
23,344 | 6,507 | ||||||
Integrated
communications
|
51 | (408 | ) | |||||
Corporate
|
104,604 | 256,321 | ||||||
Total
interest expense, net of interest income:
|
$ | 144,579 | $ | 268,927 |
continued…
F-42
VillageEDOCS,
Inc. and subsidiaries
Notes to
Consolidated Financial Statements
For the
Years Ended December 31, 2009 and 2008
Year
|
Year
|
|||||||
ended
/ As of
|
ended
/ As of
|
|||||||
December
31
|
December
31
|
|||||||
2009
|
2008
|
|||||||
Income
(loss) from continuing operations:
|
||||||||
Electronic
document delivery services
|
$ | 498,464 | $ | 283,906 | ||||
Electronic
content management solutions
|
(655,320 | ) | 16,695 | |||||
Integrated
communications
|
755,576 | 1,134,016 | ||||||
Corporate
|
(2,230,938 | ) | (2,542,391 | ) | ||||
Total
loss from continuing operations:
|
$ | (1,632,218 | ) | $ | (1,107,774 | ) | ||
Identifiable
assets:
|
||||||||
Electronic
document delivery services
|
$ | 489,664 | $ | 675,212 | ||||
Electronic
content management solutions
|
2,189,328 | 2,628,589 | ||||||
Integrated
communications
|
5,663,529 | 6,197,418 | ||||||
Corporate
|
1,152,655 | 314,080 | ||||||
Total
identifiable assets:
|
$ | 9,495,176 | $ | 9,815,299 | ||||
Capital
expenditures:
|
||||||||
Electronic
document delivery services
|
$ | 34,309 | $ | 79,946 | ||||
Electronic
content management solutions
|
11,344 | 4,931 | ||||||
Integrated
communications
|
13,944 | 40,467 | ||||||
Discontinued
operations
|
10,669 | 9,064 | ||||||
Corporate
|
- | - | ||||||
Total
capital expenditures:
|
$ | 70,266 | $ | 134,408 |
F-43