Vertical Computer Systems, Inc. ("Vertical" or the "Company") was incorporated in the State of Delaware in March 1992. The Company operated as a non-reporting public shell company, with a wholly-owned subsidiary, which was sold at the time of acquiring Externet World, Inc. In October 1999, the Company acquired all the outstanding capital stock of Externet World, an Internet service provider ("ISP"), and became an operating entity. In December 1999, the Company acquired the Web technology of Emily(R) Solutions. The Emily(R) framework consists of executable programs, files, configuration data and documentation needed to create websites that communicate via Extensible Markup Language ("XML") and Hypertext Transfer Protocol ("HTTP"). In April 2000, the Company acquired 100% of the outstanding common stock of Scientific Fuel Technology, Inc., ("SFT"), a company with no operations. In connection with this acquisition, the Company issued 2,000,000 shares of common stock of the Company to the former SFT shareholders. Also in April 2000, the Company merged SFT into the Company. In connection with the merger, the outstanding shares of SFT were cancelled, the Company became the surviving entity, and the Company assumed SFT's reporting obligations under successor issuer status pursuant to Section 12g-3(a) under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
In May 2000, the Company acquired Globalfare.com, Inc. ("Globalfare"). In April 2003, Globalfare, entered into a services agreement whereby Globalfare would provide fulfillment services for all leisure travel services booked through the Zegato Services Concourse, for a commission on all sales. In March 2003, Globalfare entered into an agreement with Picasso Travel, Inc. ("Picasso") to provide the fulfillment requirement for the Zegato agreement. Also in May 2000, the Company paid $400,000 to acquire a 2.5% equity interest in iNetPurchasing, Inc. ("iNet"), and another $100,000 to receive a royalty on all iNet transactions for 20 years.
In June 2000, the Company acquired Pointmail.com, Inc. ("Pointmail").
In October 2000, the Company agreed to provide $250,000 in funding to TranStar Systems, Inc. ("TranStar"), formerly Apollo Industries, Inc., a Nevada corporation, in exchange for a 30% equity interest. In April 2003, the Company and Mike Radlovic ("Radlovic") entered into an agreement whereby Radlovic would purchase the Company's interest in TranStar. Pursuant to this agreement, the Company transferred all of its ownership representing 3,000,000 shares of TranStar common stock to Radlovic. In consideration of this sale, Radlovic issued a $250,000 note bearing interest at 10% per annum due in April 2007. The note is secured by 5,000,000 shares of TranStar common stock. Radlovic is currently the President, CEO, and a major shareholder of TranStar. In October 2000, in consideration for $25,000 from the Company, TranStar agreed to pay a royalty of 2% of all transaction fees up to $275,000 and 1% up to $3,000,000. In June 2002, Apollo Industries, Inc. changed is name to TranStar Systems, Inc. In April 2003, the Company and TranStar agreed to amend two $24,000 promissory notes bearing interest at 10% payable to the Company by TranStar, dated April 19 and May 8, 2001, as well as the royalty agreement, dated October 14, 2000. As part of the purchase by Radlovic of the Company's TranStar ownership interest, the due date for the two $24,000 notes was extended to April 5, 2006. The royalty rate in the royalty agreement dated October 2000 was increased to 3% of any transaction fees and any other revenues generated in perpetuity. In August 2004, the Company accepted an $8,000 payment from TranStar in full satisfaction of one of the $24,000 loans and the Company cancelled the note and returned 500,000 TranStar's shares held as collateral. The second $24,000 promissory note is in default. In connection with April 2003 transactions, TranStar also released and indemnified the Company from any obligations owed to TranStar or any third party.
On February 28, 2001, the Company invested $1,000,000 to obtain a 60% majority interest in Now Solutions, LLC. ("Now Solutions"). In order to facilitate the financing process, the Company had pledged a $1,500,000 deposit as collateral pursuant to a deposit pledge agreement to guarantee the payments of the loan to finance the purchase of Human Resource Information System ("HRIS"). In March 2001, Now Solutions acquired the Renaissance CS(R) Human Resources and Payroll assets from Ross Systems, Inc. ("Ross") for $6,100,000 and financed the purchase with a $5,500,000 loan from Coast Bank. The Renaissance Payroll System, which serves small and growing businesses, was a human resources software system and used by over 150 companies in North America. In January 2004, in connection with settlement of certain disputes, the Company purchased from the largest minority owner of Now Solutions, Arglen Acquisitions LLC ("Arglen") its 35% interest in Now Solutions for $1,400,000 in the form of a note and 20,000,000 unregistered shares of common stock of the Company, subject to registration rights and a lock-up agreement, and the Company cancelled warrants to purchase 80,763,943 common shares of the Company that were issued to Arglen in connection with the Company's acquisition of its 60% majority interest in Now Solutions. The $1,400,000 was payable as follows: (a) $800,000, which was paid at the closing and (b) $600,000, pursuant to a non-interest bearing secured promissory note providing for payments of $200,000 in April 2004, $100,000 in June 2004, and $300,000 in September 2004, which was issued at closing. When the Company did not make the April 2004 payment under the note, the Company began accruing interest under the note at the rate of 10% from its inception. Arglen brought suit to enforce the terms of the note and in August 2004, Arglen obtained a default judgment in Los Angeles court for the outstanding principal, plus attorney's fees and interest. The Company filed a motion in the Delaware court to stay the enforcement of the judgment pending resolution of the Delaware action. In December 2004, the Company recorded the expense of issuing 5,000,000 unregistered shares to Arglen at a fair market value of $82,273. These shares were issued pursuant to Arglen's settlement agreement whereby the Company was obligated to issue 5,000,000 unregistered shares of common stock of the Company to Arglen, due to the Company's failure to file a registration statement within 180 days from the closing date of the settlement. In March 2005, the Company issued the 5,000,000 shares to Arglen. In January 2004, the Company purchased the remaining 5% minority interest in Now Solutions from Stephen Parnes for $77,000 and 1,000,000 unregistered shares of the Company's common stock, which is subject to "piggy-back" registration rights and a lock-up agreement. In March 2004, Now Solutions, LLC was converted into a corporation named Now Solutions, Inc.
In May 2001, the Company paid $2,500 and issued 3-year warrants to purchase 1,000,000 shares of common stock at a strike price of $0.05 per share for exclusive licensing rights to a patent-pending fiber optics technology application created and owned by Aluizio Cruz. The U.S. Patent and Trademark Office (the "USPTO") granted a patent (No. 6,718,103) for an invention for "Transmission of Images over a Single Filament Fiber Optic Cable" in April 2004 in connection with this fiber optics technology application.
In August 2001, the Company acquired EnFacet, Inc. ("EnFacet").
In November 2001, the Company acquired certain assets of Adhesive Software, including the SiteFlash(TM) technology. EnFacet sold two products, NewsFlash(TM), which catered to the publishing industry and newspapers in particular, and SiteFlash(TM), an affiliation/syndication Web product). The Company continues to develop and market its other SiteFlash(TM) based products - ResponseFlash(TM), AffiliateFlash(TM), and UniversityFlash(TM). In April 2003, the Company entered into a software reseller agreement with Infotec, Inc. (`Infotec"), a Japanese systems integrator and outsourcer, to market SiteFlash's dynamic web content management product in Japan. On November 30, 2004, the USPTO granted a patent (No. 6,826,744) for an invention for "System and Method for Generating Web Sites in an Arbitrary Object Framework." This patent is the foundation of SiteFlash(TM), and forms the basis of the ResponseFlash(TM), NewsFlash(TM), UniversityFlash(TM) and AffiliateFlash(TM) products.
In November 2001, the Company entered into a license agreement with iNet whereby it licensed the Emily(R) software and technology for use in connection with iNet's e-procurement system in Texas, Maine and Idaho.
In October 2002, the Company's wholly-owned subsidiary, Emily(R) Solutions, Inc., a Nevada corporation, changed its name to Government Internet Systems, Inc. ("GIS"). The Company is licensing its proprietary technology ResponseFlash(TM) for use by GIS. GIS will market and distribute ResponseFlash(TM) and other technologies to government entities of the United States.
In February 2004, the Company purchased a 21% ownership interest in MedData Solutions, Inc. ("MedData") for 9,000,000 unregistered shares of common stock of the Company. MedData is a provider of Internet and Palm(R)-based software for real-time emergency medical services ("EMS") and trauma data management.
In August 2004, the Company licensed the use of the Forums and calendar applications of the Company's SiteFlash(TM) technology to Basix1, Inc. ("Basix1") for use in Basix1's Enterprise Knowledge Gateway ("EKG") software. Pursuant to the terms of the license, Basix1 is obligated to pay the Company 10% of all license fees generated from the exploitation of Basix1's EKG software. However, as of April 5, 2006, EKG has not been launched yet. Charles Kensicki, the President of Basix1, is currently a Director of GIS and of Now Solutions and the President of Taladin, Inc. ("Taladin").
During 2004, the Company and its subsidiaries have entered into various marketing and co-marketing agreements with Total Care Solutions, InfraHealth, Inc. and Basix1. During 2005, the Company's subsidiary, NOW Solutions, has entered a second level partnership with IBM. The Company is refocusing its resources to capitalize on its proprietary technology through either licensing the technology to third parties or marketing the technology through subsidiaries that are funded at the subsidiary level. The Company intends to become a software developer and distributor of products through subsidiaries that will specialize in niche markets except for GIS, which will market the ResponseFlash(TM) and other products particularly those in the homeland security sector to the United States government.
In November 2005, Taladin and Now Solutions entered into a license agreement whereby Taladin received the exclusive rights to commercially exploit emPath(R) for use by the United States federal, state and local governments and agencies in exchange for a license fee and royalties.
In 2006, the Company, in conjunction with NOW Solutions opened an office in Brazil to provide software development and to market the Company's software to distributors in Brazil.
The Company's software products that are presently being sold are HRIS emPath(R) 6.3, ResponseFlash(TM), SiteFlash(TM), NewsFlash(TM), and Emily(R). Now Solutions is marketing its new Web-based human resource payroll and information system in the United States and Canadian markets as well as launching a hosted solution. The Company intends to market its other software products in the United States, either through the Company or through its subsidiaries via agreements with national distributors.
Business Overview
The Company is a multi-national provider of Internet core technologies, administrative software, and derivative software application products through its distribution network. The Company's primary Internet core technologies include SiteFlash(TM), ResponseFlash(TM), and the Emily(R) XML Scripting Language, which can be used to build Web services. The Company's main administrative software product is emPath(R), which is designed to handle the most complex Payroll and Human Resources challenges.
The Company attempts to acquire and operate companies whose products, in the Company's belief, are proven and best of the breed; are profitable or on the path to profitability; complement each other; and provide cross-product distribution channels. The Company's ownership interest is typically a controlling interest. The Company's business model combines complementary, integrated software products, internet core technologies, and a multinational distribution system of partners, in order to create a distribution matrix that we believe is capable of penetrating multiple sectors through cross promotion.
The Company's current products address the following market segments:
Administrative Software
The Company's primary administrative software technology is emPath(R) 6.3, a human resources/payroll software, which is developed, marketed and maintained by its subsidiary, Now Solutions. The Company's administrative software is Web-based, meaning that it can be accessed on the Internet, and is in the final stage of being developed as an application service provider ("ASP") application. The Company believes that its administrative software services provide upfront cost savings and productivity increases for everyday operations with competitive set-up charges and implementation times.
Internet Core Technologies
Internet core technologies provide the software foundation to support internet-based platforms for the delivery of individual software products that can be sold independently or combined with another software product for rapid deployment of all software products throughout the Company's distribution system. The Company acquired its Internet core technologies, continuing to develop specialized software applications that the Company can utilize in new products.
The Company's primary core internet technology is SiteFlash(TM). The SiteFlash(TM) technology utilizes XML and publishes content on the Web, enabling the user to build and efficiently operate Websites with the unique ability to separate form, function, and content. SiteFlash(TM) uses an advanced component-based structure to separate, parse, and store the various components of even the most complex Web pages, which permits these components to be named, organized, filed and eventually redeployed onto the Web pages of a Website. Once all of the components of the Web page are converted into "objects," they can be grouped, as required by the user, into the three main types of web page components: content, form and function. Content consists of text, pictures or multimedia. Form includes graphics and web site colors, layout and design. Function refers to the activities performed by or actions executed on the website. In this way, each element of a Website created using SiteFlash(TM) is interchangeable with any other similar element, and these elements may be grouped together in almost any combination to create complex Websites. This separation of form, function, and content also allows for the rapid creation of affiliated Websites. This unique ability is patented (U.S. Patent number 6,826,744) and has many applications in the Web arena. The Company intends to license this patent.
The Company offers SiteFlash(TM) as a stand-alone product and also as a technology platform for products targeted at specific vertical markets. The SiteFlash(TM) technology focuses on content management, e-commerce, and workflow and has led to the development of two additional software application products: ResponseFlash(TM) and NewsFlash(TM). ResponseFlash(TM) has been installed and approved and is currently being implemented by the Metropolitan Emergency Communications Agency in Marion County, which includes Indianapolis, Indiana. NewsFlash(TM) is used by newspapers (e.g. La Opinion and Japan's Hochi), UniversityFlash(TM) is being used in higher education (e.g., California State Fullerton University), and SiteFlash is used by consulting organizations for resale (e.g., Infotec in Japan). SiteFlash(TM) architectural concepts enable integration with existing technological components within many organizations. Additional key features that differentiate SiteFlash(TM) from other products are its affiliation/syndication capability, its multi-lingual capability and its multi-modal (any output device including PDAs, wireless phones, etc.) framework. Initially, Government Internet Systems ("GIS"), a majority-owned subsidiary of the Company, will focus in marketing ResponseFlash(TM), a Web-based emergency communication system, in the homeland security area to all government sectors excluding the public education (i.e., schools, colleges, and universities).
The second core Internet technology the Company has developed is the patent-pending Emily(R) XML scripting language, which is Java compatible. XML is a flexible way to create common information formats and share both the format and the date on the World Wide Web, intranets, and elsewhere.
Business Operations And Divisions
The Company markets SiteFlash(TM) directly. SiteFlash is a technology that provides dynamic Web content management, e-commerce and workflow. SiteFlash(TM) allows for massive affiliation/replication/syndication of content and application services and has both multi-lingual and multi-modal capabilities (meaning it is accessible through any output device, including computers, cell phones, BlackberryTM devices, pagers, and PDAs). This core product is rooted in a patented (US Patent number 6,826,744) technology that layers the web site into three distinct components - form, function and content. SiteFlash(TM) then allows an arbitrary combination of these components - which means that re-usability of code, graphical user interface ("GUI") elements and content can be increased, without significant additional programming. SiteFlash(TM) is XML-enabled and easily integrates with diverse software systems that may exist in the target environment. In addition, the Company continues to develop and market its other SiteFlash(TM) based products: ResponseFlash(TM), NewsFlash(TM), AffiliateFlash(TM), and UniversityFlash(TM). The Company intends to market ResponseFlash(TM) through its subsidiary GIS and NewsFlash(TM) through its subsidiary EnFacet.
The Company's business operations are grouped into the following divisions: Now Solutions, GIS, Vertical Internet Solutions ("VIS"), EnFacet, Globalfare.com ("Globalfare"), Pointmail, minority and other limited interests, joint ventures, and strategic partnerships. Each of these divisions is discussed below.
Now Solutions, Inc.
On February 28, 2001, the Company acquired 60% of Now Solutions, a Delaware corporation which develops and maintains human resource software. The remaining 40% of Now Solutions was purchased from Arglen and Stephen Parnes in 2004 as described above.
In March 2001, Now Solutions purchased the rights to HRIS and various other assets and liabilities relating to HRIS from Ross in exchange for approximately $5,100,000 in cash and a promissory note of $1,000,000.
Now Solutions is a company specializing in end-to-end, fully integrated human resource and payroll solutions to large and mid-size companies. Now Solutions has clients encompassing private businesses to governmental agencies, who typically employ 500 or more employees. Now Solutions has recently released a new version of their product offering called "emPath(R) 6.3", which handles complex human resource and payroll situations where the clients may have employees from different unions, multiple state locations, and intricate compensation circumstances. The Company believes that the competitive advantage of emPath(R) 6.3 is its speed of implementation through a formula-builder technology, which may increase the customer's return on investment. Now Solutions' product suite is targeted to address the needs of management in today's dynamic business environment and gives organizations a user friendly, multi-lingual (i.e., English, Canadian French, Spanish and Chinese) and flexible software solution, without the multi-million dollar implementation budgets of the major competitors.
The existing revenue model of Now Solutions is based upon three components: licensing fees, professional consulting services, and renewable maintenance fees. However, Now Solutions intends to offer its software on an ASP model in order to be able to service small customers, which management believes will increase the market reach of its products. When this is implemented, Now Solutions plans to collect service fees associated with this service.
For the 12 months ended December 31, 2005, Now Solutions had approximately $3,230,000 of total assets, revenues of approximately $6,490,000 and a net loss of approximately $291,000.
Government Internet Systems, Inc.
The Company's 81.5% owned subsidiary, GIS, a Nevada corporation was formerly Emily(R) Solutions, Inc. The Company will license its proprietary technology, ResponseFlash(TM), to GIS to market and distribute this technology to government entities (excluding state universities and schools) in the United States. GIS seeks to enter into agreements to distribute other non-Company products particularly in the homeland security sector. GIS has already entered into co-marketing agreements with Basix1 and InfraHealth. The Company has completed development and installation of ResponseFlash(TM) for the Metropolitan Emergency Communications Agency, Indiana. The Company has submitted proposals to various city, county and state governments.
For the 12 months ended December 31, 2005, GIS had no assets and no material revenue or expenses.
Vertical Internet Solutions, Inc
VIS., a California corporation, is a wholly-owned subsidiary of the Company formed in May 2000. The Company acquired the rights to Emily(R) Solutions Web technology in December 1999. The Emily(R) Solutions' work platform, "the Emily(R) Framework", consists of executable programs, files, configuration data and documentation needed to create Web-based applications that communicate via XML and HTTP. HTTP is the set of rules for exchanging files (text, graphic images, sound, video, and other multimedia files) on the Web. The Emily(R) Framework was developed to be an engineering package comparable to other Web development tools, such as Allaire Cold Fusion(R) or Microsoft FrontPage(R). The primary component of the Emily(R) Framework is Markup Language Executive ("MLE"), a programming language that runs on Windows(R), Linux and several UNIX platforms. The Emily(R) scripting language has been enabled to work on Java. In addition, the Company has also filed two patents related to Emily(R): (a) one patent application related to the Emily(R) programming language; (b) one patent application related to the Emily(R) XML Enabler Agent and Emily(R) XML Broker. The patent application for the Emily(R) XML Scripting Language was published in February 2003. Both patents are still pending. For an update of this discussion since fiscal year-end, please see "Subsequent Events" under Note 16 of the Notes to Consolidated Financial Statements. Emily(R)'s marketing is currently on hold.
For the 12 months ended December 31, 2005, VIS had assets of approximately $326,000 and no material revenue or expenses.
EnFacet, Inc.
EnFacet is a software-products company that markets NewsFlash(TM). NewsFlash(TM) is based on SiteFlash(TM), which is a patented (US patent number 6,826,744) technology. NewsFlash(TM) caters to the publishing industry and newspapers in particular.
For the 12 months ended December 31, 2005, EnFacet had no material assets, revenue of $18,000, and a net loss of approximately $79,000.
Globalfare.com
In May 2000, the Company acquired Globalfare. After the terrorist attacks at the World Trade Center, the Company had suspended website and travel fulfillment operations. In April 2003, Globalfare entered into a services agreement whereby Globalfare would provide fulfillment services for all leisure travel services booked through the Zegato Services Concourse, for a commission on all sales. In March 2003, Globalfare entered into an agreement with Picasso to provide the fulfillment requirement for the Zegato agreement. The interface between Picasso and Zegato became operational in November 2004.
For the 12 months ended December 31, 2005, Globalfare.com had no assets, no revenue and no expenses.
Pointmail.com, Inc.
In June 2000, the Company acquired Pointmail, which owned a Web-based e-mail software, to compliment the Company's existing "ThePostmaster.Net" Internet email service. "ThePostmaster.Net" is currently inactive and the Company has no plans for "ThePostmaster.Net" at this time.
For the 12 months ended December 31, 2005, Pointmail.com had no assets, no revenues and no expenses.
Taladin, Inc.
In November 2005, Taladin and Now Solutions entered into a license agreement whereby Taladin received the exclusive rights to commercially exploit emPath(R) for use by the United States federal, state and local governments and agencies in exchange for a license fee and royalties.
For an update of transaction concerning Taladin fiscal year-end, please see "Subsequent Events" under Note 16 of the Notes to Consolidated Financial Statements.
For the 12 months ended December 31, 2005, Taladin had no assets, no revenue and no expenses.
Minority Interests and Royalty Interests
MedData Solutions, Inc.
In February 2004, the Company purchased a 21% ownership interest in MedData from Robert Farias, who is currently a director of Now Solutions. MedData is a provider of Internet and Palm-based software for real-time EMS and trauma data management.
Basix1, Inc.
In August 2004, the Company licensed the use of the Forums and calendar applications of the Company's SiteFlash(TM) technology to Basix1 for use in Basix1's EKG software. Pursuant to the terms of the license, Basix1 is obligated to pay the Company 10% of all license fees generated from the exploitation Basix1's EKG software. However, as of April 5, 2006, EKG has not been launched yet. Also in August 2004, the Company and its subsidiaries have entered into various marketing and co-marketing agreements with Basix1. Mr. Chuck Kensicki, the President of Basix1, is currently a Director of GIS and of Now Solutions, Inc. and President of Taladin.
iNet Purchasing, Inc.
In April 2000, the Company acquired a 2.5% minority interest in iNet and is entitled to a royalty on all iNet transactions for up to 40 years. iNet is a developer of Internet-based procurement services targeted at the specific needs of public sector purchasing in the state and local government arena through PublicBuy.net. In November 2001, the Company entered into a license agreement with iNet, where the Emily(R) software and technology were licensed for use in connection with iNet's e-procurement system in Texas, Maine, and Idaho in exchange for a 20% commission on subscription fees. In April 2005, iNet Purchasing was acquired by SicommNet. The Company is entitled to retain the entire $495 sales price for sales to any vendors, although no royalties have been received from iNet as of April 5, 2006.
As of December 31, 2005, all of the iNet investments and advances paid for royalties were fully reserved. There have been no revenues or expenses in relation to the investments for the twelve months ended December 31, 2005.
TranStar Systems, Inc.
TranStar, formerly Apollo, is based in Claremont, California. TranStar is a systems integrator and consulting firm that is establishing an e-business platform focused on multiple-application smart card based solutions for credit, debit and other high volume informational transactions with a large customer base. The Company is entitled to receive 3% of any transaction fees and any other revenues generated by TranStar in perpetuity.
As of December 31, 2005, the investment in notes receivable and all of the advances paid to TranStar for royalties have been fully reserved. No royalties have been received from TranStar as of April 5, 2006.
Software Distributors and Strategic Marketing Alliances
Infotec, Inc. In April 2003, the Company and Infotec, a Japanese corporation, entered into a software reseller agreement whereby Infotec agreed to market, distribute, provide maintenance and technical support for the Company's SiteFlash software in the territory of Japan and pay the Company a fee on all sales and maintenance fees.
During 2004, the Company, GIS and Now Solutions entered into marketing agreements with Total Care Technologies, Basix1, and InfraHealth, Inc. During 2005, the Company's subsidiary, Now Solutions., has entered a second level partnership with IBM. The Company has also retained consultants to advise the Company regarding the government sector.
Competition
The Company has substantial competition from software and hardware vendors, system integrators, and multinational corporations focused upon information technology. Now Solutions' competitors include PeopleSoft, Oracle, Lawson, Cyborg/Hewitt, Kronos, DLGL, Ultimate and SAP. The Company's competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than the Company. The Company cannot guarantee that it will be able to compete successfully against current or future competitors or that competitive pressures will not have a material and adverse effect on the Company's financial position, results of operations and cash flows.
The Company's ability to compete will also depend upon its ability to continually improve its products and services, the enhancements the Company develops, the quality of its customer service, and the ease of use, performance, price and reliability of its products and services.
Strategic Overview
The Company believes that each of Vertical's business units has distinct marketing advantages for the niche markets they serve. The Company plans to find national and regional marketers and international resellers such as Infotec, who can commercially exploit the Company's products in these niche markets. By utilizing the strategic advantages each individual business unit possesses, the Company plans to leverage its strengths and exploit the network of customers, vendors, and support agencies that the Company has built. The Company has three business units in North America (Now Solutions, GIS, Globalfare) that focus either in a selective targeted market like GIS does for the federal governmental market with ResponseFlash(TM) or with marketing a best-of-breed software product to all potential markets such as Now Solutions. The Company currently seeks to use a combination of direct marketing and strategic partnerships to commercially exploit its products derived from SiteFlash(TM), namely NewsFlash(TM), UniversityFlash(TM), and AffiliateFlash(TM). In this way, the Company hopes to define the best potential markets for its SiteFlash(TM) products, and then license the product to one of the Company's subsidiaries to exploit. At this time, the Company has placed both its Emily(R) software and international bridge network on hold while it concentrates on these immediate opportunities within its existing business units.
One of the Company's strategies is to enter into co-marketing agreements with other companies, particularly those with best-of-breed products that compliment its business units. The existing strategy with potential co-marketing partners is to segregate the co-marketing agreements whereby each business unit will have a separate agreement with the co-marketing partner for their particularly target market. For example, Basix1 and InfraHealth have separate agreements with Now Solutions, GIS and the Company. Additionally, the business units will enter into agreements with each other where the opportunity exists to cross-promote/market their products. For example, GIS will promote Now Solutions' products to federal governmental agencies.
The Company believes it possesses certain competitive advantages because of its proprietary software, including the patent for SiteFlash(TM). The Company is exploring various opportunities to exploit the proprietary software, which includes the possibility of licensing the software to major companies in non-competitive niche markets.
Although the Company's current marketing effort focuses upon several sectors, it has recently concentrated on the United States federal, state and local government for the following reasons: (i) companies which it either controls or is affiliated with have government clients which has created the potential to cross-promote/market the Company's products and Web services; (ii) products which are suited to the current governmental environment demanding for cross-agency and federal, state and local interface, like ResponseFlash(TM); and (iii) the increased security environment caused by the terrorist attacks of September 11, 2001 necessitates improvements in secure communications and agency-to-agency contacts that can be facilitated by ResponseFlash(TM).
Proprietary Rights
The Company relies upon a combination of contract provisions and patent, copyright, trademark and trade secret laws to protect its proprietary rights in its products and services. The Company distributes its products and services under agreements that grant users or customers a license to use its products and services and relies on the protections afforded by the copyright laws to protect against the unauthorized reproduction of its products. In addition, the Company protects its trade secrets and other proprietary information through agreements with employees and consultants. Now Solutions' emPath(R) software technology is protected by copyright and trademark. The USPTO granted a patent (No. 6,718,103) for an invention for "Transmission of Images over a Single Filament Fiber Optic Cable" in April 2004. This patent is in a theoretical stage only and is intended to be used for transmitting images on fiber optics that might improve in orders of magnitude today's capacity of fiber optics to transmit images and data. The Company has filed for a Continuation in Part for patent number 6,718,103 to pursue possible additional derivative patents. The USPTO granted a patent (No. 6,826,744) for an invention for "System and Method for Generating Web Sites in an Arbitrary Object Framework" on November 30, 2004. The Company has filed for a Continuation in Part for patent number 6,826,744 to pursue possible additional derivative patents. This patent is the foundation of Vertical's product, SiteFlash(TM), and forms the basis of the ResponseFlash(TM), NewsFlash(TM), UniversityFlash(TM) and AffiliateFlash(TM) products. In addition, the Company has also filed for two patents related to Emily(R): (a) one patent application related to the Emily(R) programming language; (b) one patent application related to the Emily(R) XML Enabler Agent and Emily(R) XML Broker. The patent application for the Emily(R) XML Scripting Language was published in February 2003. Both patents are still pending. For an update of this discussion since fiscal year-end, please see "Subsequent Events" under Note 16 of the Notes to Consolidated Financial Statements.
Although the Company intends to protect its rights as described above, there can be no assurance that these measures will be successful. Policing unauthorized use of Vertical's products and services is difficult and the steps taken may not prevent the misappropriation of its technology and intellectual property rights. In addition, effective patent, trademark, trade secret and copyright protection may be unavailable or limited in certain foreign countries. The Company seeks to protect the source code of its products as a trade secret and as an unpublished copyright work. Source code for certain products has been or will be published in order to obtain patent protection or to register copyright in such source code. The Company believes that its products, trademarks and other proprietary rights do not infringe on the proprietary rights of third parties. There can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to current or future features or contents of services or products or that any such assertion may not result in litigation or require the Company to enter into royalty arrangements.
Regulatory Environment; Public Policy
In the United States and most countries in which the Company conducts its operations, the Company is generally not regulated other than pursuant to laws applicable to businesses in general and value-added services specifically. In some countries, the Company is subject to specific laws regulating the availability of certain material related to, or to the obtaining of, personal information. Adverse developments in the legal or regulatory environment relating to the interactive online services and Internet industry in the United States, Europe, Asia, Latin America or elsewhere could have a material adverse effect on the Company business, financial condition and operating results. A number of legislative and regulatory proposals from various international bodies and foreign and domestic governments in the areas of telecommunications regulation, particularly related to the infrastructures on which the Internet rests, access charges, encryption standards and related export controls, content regulation, consumer protection, advertising, intellectual property, privacy, electronic commerce, and taxation, tariff and other trade barriers, among others, have been adopted or are now under consideration. The Company is unable at this time to predict which, if any, of the proposals under consideration may be adopted and, with respect to proposals that have been or will be adopted, whether they will have a beneficial or an adverse effect on the Company's business, financial condition and operating results.
Employees
As of April 5, 2006, the Company has 30 full-time employees and 21 consultants, of which 29 full-time employees are employed at Now Solutions (21 are employed in the United States and 8 are employed in Canada). The Company is not a party to any collective bargaining agreements.
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