United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

 

ý	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2003.

 

OR

 

o	Transaction report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

For the transition period from               to                   ..

 

Commission File Number 0-21421

 

 

VCAMPUS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý    No  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  o    No   ý

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common Stock, $0.01 par value		1,581,306 shares
(Class)		(Outstanding at May 15, 2003)

 

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

VCAMPUS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended  March 31,
		2002			2003
Revenues:
Online tuition revenues		$	1,348,887		$	1,511,944
Development and other revenues		94,819			191,376
Other service revenues		21,995			29,769
Net revenues		1,465,701			1,733,089
Costs and expenses:
Cost of revenues		216,926			459,464
Sales and marketing		725,167			731,761
Product development and operations		628,261			723,950
General and administrative		417,451			464,682
Depreciation and amortization		436,447			248,950
Reorganization and other non-recurring charges		—			60,000
Stock-based compensation		1,200			53,809
Total costs and expenses		2,425,452			2,742,616
Loss from operations		(959,751		)	(1,009,527		)
Interest expense		(211,614		)	(27,774		)
Loss on debt extinguishment.		(267,488		)	—
Net loss		(1,438,853		)	(1,037,301		)
Dividends to preferred stockholders		(72,199		)	(579,248		)
Net loss attributable to common stockholders		$	(1,511,052	)	$	(1,616,549	)
Net loss per share, basic		$	(1.03	)	$	(1.03	)
Net loss per share—assuming dilution		$	(1.03	)	$	(1.03	)

 

See accompanying notes.

 

2

 

VCAMPUS CORPORATION

CONSOLIDATED BALANCE SHEETS

 

		December 31,			March 31,
ASSETS		2002			2003
					(Unaudited)
Current assets:
Cash and cash equivalents		$	727,466		$	1,342,839
Accounts receivable, less allowance of $31,000 at December 31, 2002 and March 31, 2003		354,340			552,878
Loans receivable from related parties		116,753			111,566
Loans receivable — current		38,689			39,139
Prepaid expenses and other current assets		659,587			567,962
Total current assets		1,896,835			2,614,384
Property and equipment, net		328,296			256,783
Capitalized software costs and courseware development costs, net		814,730			819,546
Loans receivable — less current portion		65,502			57,734
Other assets		190,446			190,537
Other intangible assets, net		748,492			694,528
Goodwill, net		328,317			328,317
Total assets		$	4,372,618		$	4,961,829
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	950,262		$	1,002,824
Accrued expenses		827,860			1,033,634
Capital lease obligation — current portion		23,529			3,707
Notes payable — current portion		140,159			161,369
Deferred revenues		783,003			1,221,045
Accrued dividends payable		—			68,745
Total current liabilities		2,724,813			3,491,324
Stockholders’ equity:
Series C convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of $7,910,172 and $7,760,214 at December 31, 2002 and March 31, 2003, respectively;  1,000,000 shares authorized; 623,339 and 611,522 shares issued and outstanding at December 31, 2002 and March 31, 2003, respectively		6,233			6,115
Series D convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of  $8,363,924 at December 31, 2002 and March 31, 2003; 1,200,000 shares authorized; 1,013,809 shares issued and outstanding at December 31, 2002 and March 31, 2003		10,138			10,138
Series E convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of $1,816,557 and $1,840,226 at December 31, 2002 and March 31, 2003, respectively;  3,000,000 shares authorized; 574,895 and 582,350 shares issued and outstanding at December  31, 2002 and March 31, 2003, respectively		5,749			5,824
Series F convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of  $1,050,000 at December 31, 2002 and March 31, 2003; 3,000,000 shares authorized; 3,000,000 shares issued and outstanding at December 31, 2002 and March 31, 2003		30,000			30,000
Series F-1 convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of $510,445 at December 31, 2002 and March 31, 2003; 1,458,413 shares authorized; 1,458,413 shares issued and outstanding at December  31, 2002 and March 31, 2003		14,584			14,584
Series F-2 convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of $965,230 at December 31, 2002 and March 31, 2003; 60,000 shares authorized; 27,578 shares issued and outstanding at December 31, 2002 and March 31, 2003		276			276
Series G convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of $1,091,652 and $2,000,588 at December 31, 2002 andMarch 31, 2003, respectively; 80,000 shares authorized; 49,320 and 78,041shares issued and outstanding at December 31, 2002 and March 31, 2003,  respectively		492			780
Common Stock, $0.01 par value per share; 36,000,000 shares authorized 1,573,904 and 1,581,306 shares issued and outstanding at December 31, 2002 and March 31, 2003, respectively		15,739			15,813
Additional paid-in capital		85,771,622			87,210,552
Accumulated deficit		(84,207,028		)	(85,823,577		)
Total stockholders’ equity		1,647,805			1,470,505
Total liabilities and stockholders’ equity		$	4,372,618		$	4,961,829

 

See accompanying notes.

 

3

 

VCAMPUS CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three Months Ended  March 31,
		2002			2003
Operating activities
Net loss		$	(1,438,853	)	$	(1,037,301	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		263,847			73,579
Amortization		172,600			175,371
Bad debt expense		50,000			—
Loss on debt extinguishment		267,488			—
Debt discount amortization		141,206			21,210
Compensatory stock options and warrants		1,200			53,809
Decrease in allowance for doubtful accounts		(16,001		)	(334		)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		28,265			(198,204		)
(Increase) decrease in prepaid expenses and other current assets		(110,727		)	91,625
(Increase) decrease in other assets		66,049			(91		)
Increase (decrease) in accounts payable and accrued expenses		(331,426		)	258,336
Increase (decrease) in deferred revenues		(118,714		)	438,042
Net cash used in operating activities		(1,025,066		)	(123,958		)
Investing activities
Purchases of property and equipment		—			(2,066		)
Capitalized software and courseware development costs		(80,748		)	(126,223		)
Proceeds from loans receivable		9,799			8,750
Advances under loans (interest) receivable		(1,855		)	(1,432		)
Proceeds from loans receivable from related party		—			6,000
Interest on loans receivable from related party		(2,000		)	(813		)
Net cash used in investing activities		(74,804		)	(115,784		)
Financing activities
Proceeds from the issuance of Series F convertible Preferred Stock		100,000			—
Proceeds from the issuance of Series G convertible Preferred Stock		—			874,937
Payments on capital lease obligations		(54,349		)	(19,822		)
Proceeds from notes payable		100,000			—
Net cash provided by financing activities		145,651			855,115
Net increase (decrease) in cash and cash equivalents		(954,219		)	615,373
Cash and cash equivalents at the beginning of the period		2,027,771			727,466
Cash and cash equivalents at the end of the period		$	1,073,552		$	1,342,839

 

See accompanying notes.

 

4

 

VCAMPUS CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note A — Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for any future period, including the year ending December 31, 2003. For further information, refer to the audited financial statements and footnotes thereto included in the VCampus Corporation (“VCampus” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2002.

 

Note B — Significant Accounting Policies

 

     In December 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure”. This statement amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions in SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting”, to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation

on reported net income and earnings per share in annual and interim consolidated financ ial statements. The adoption of the disclosure only requirements of SFAS No. 148 did not have a significant impact on the Company’s consolidated financial statements.

 

     The Company uses the intrinsic value method for stock option grants to individuals defined as employees under which no compensation is recognized for options granted at or above the fair market value of the underlying stock on the grant date. The Company uses the fair value method for stock options granted for services rendered by non-employees in accordance with the SFAS No. 123 “Accounting for Stock Based Compensation”.

     The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, to stock-based employee compensation.

 

 

Note C — Equity Transactions

 

     In February 2003, the Company issued 10,125 and 226 shares of Series G Preferred Stock at a purchase price of $39.50 per share to accredited investors and a placement agent, respectively.  Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 25,313 and 564 shares of common stock at $4.35 per share to the same accredited investors and placement agent, respectively.  Each share of Series G Preferred Stock is initially convertible into 10 shares of common stock at any time at the election of the holder.  The excess of the value of common stock into which the Series G Preferred Stock is convertible over the proceeds allocated to the Preferred Stock amounted to $48,995.  Such amount represented a beneficial conversion feature discount and was immediately recognized as a deemed dividend to preferred stockholders.

 

     In March 2003, the Company issued 18,370 shares of Series G Preferred Stock at a purchase price of $27.22 per share to accredited investors.  Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 45,925 shares of common stock at $2.99 per share to the same accredited investors.  Each share of Series G Preferred Stock is initially convertible into 10 shares of common stock at any time at the election of the holder.  The excess of the value of common stock into which the Series G

 

5

 

Preferred Stock is convertible over the proceeds allocated to the Preferred Stock amounted to $103,186.  Such amount represented a beneficial conversion feature discount and was immediately recognized as a deemed dividend to preferred stockholders.  The issuance of the Series G Preferred Stock in March 2003 triggered an antidilution adjustment in the conversion price of the Series G Preferred Stock issued in February 2003 from $3.95 to $2.72.  As a result, the number of common shares potentially issuable upon conversion of the Series G Preferred Stock issued in February 2003 has increased from 103,527 to 150,229.  The Company recorded a deemed dividend of $184,481 in connection with this adjustment.

 

Note D — Net Loss Per Share

 

The following table sets forth the computation of basic and diluted net loss per share:

 

 

Note E — Intangible Assets

 

Other intangible assets were comprised of:

 

 

VCampus expects amortization expense for other intangible assets to be as follows:

 

2003 (remaining nine months)		$	156,615
2004		210,579
2005		157,536
2006		131,014
Thereafter		38,784
		$	694,528

 

Note F — Legal Proceedings

 

     In June 2002, a former employee (separated in June 1998) filed suit against the Company in Dallas County, Texas. The suit alleges damages in the following amounts: $56,250 from an allegedly earned unpaid bonus, $231,250 based on an alleged change of control in the Company and $360,000 for the Company’s alleged failure to allow him to exercise stock options. After thorough investigations, the Company has rejected this former employee’s claims several times in the past and the Company continues to believe these claims are without merit and plans to vigorously defend against them. The case was subject to mediation in December 2002, which failed to produce a settlement. The case is scheduled for trial in September 2003.  The plaintiff filed a motion for partial summary judgment on the issue of the unpaid bonus.  The court has preliminarily ruled that the former employee is entitled to a payment of $56,250 for his bonus claim. Although the Court’s ruling is preliminary, the Company has accrued for it. The Company is currently negotiating a full settlement with the former employee. The Company at this time cannot provide a definitive estimate of legal fees required for the case; however they may become material as the case progresses. The Company cannot estimate at this time the amount or probability of additional liabilities to be incurred, if any. Accordingly, no additional amounts have been accrued in the financial statements.

 

      In March 2003, the Montgomery County, Maryland Circuit Court issued an order for VCampus to pay its landlord in Rockville, Maryland $93,453 of back rent due and all future rents ($499,535) less any rents received by the landlord from any re-leasing of the premises. The order calls for the future rent amount to be paid monthly at a rate of $13,433 through the end of the lease term in 2005. The Company plans to contest the liability for future rents beyond December 2003 ($323,231) per the lease terms. The liability for back rents and rents through December 2003 and attorney’s fees is reflected on the Company’s balance sheet. The Company cannot provide a definitive estimate of the probability of the liability to be incurred, if any, for rent beyond December 2003. Accordingly, no amounts have been accrued in the financial statements for this potential liability.

 

6

 

Note G — Subsequent Pro Forma Events

 

     In May 2003, the Company issued 5,585 shares of Series H Preferred Stock at a purchase price of $240.00 per share to accredited investors.  Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 139,625 shares of common stock at $5.00 per share to the same accredited investors.  Each share of Series H Preferred Stock is initially convertible into 100 shares of common stock at any time at the election of the holder.  The excess of the value of common stock into which the Series H Preferred Stock is convertible over the proceeds allocated to the Preferred Stock amounted to $270,908. Such amount represented a beneficial conversion feature discount and was immediately recognized as a deemed dividend to preferred stockholders.

 

     The following table sets forth selected balance sheet data as of March 31, 2003, on a pro forma basis, after giving effect to the May 2003 financing.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Statements in this Form 10-Q that are not descriptions of historical facts are forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those set forth herein and in the Company’s other SEC filings, and including, in particular, the availability of sufficient capital to finance the Company’s business plan on terms satisfactory to the Company, risks relating to uncertainties relating to dependence on strategic partners and third party relationships, management of rapid growth, dependence on online distribution, acquisitions, security risks, government regulations and competition.

 

 

Results of Operations

 

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

 

Summary

 

For the three months ended March 31, 2003, the Company incurred a net loss to common stockholders of $1,616,549 or $1.03 per share, as compared to a net loss to common stockholders of $1,511,052 or $1.03 per share, for the three months ended March 31, 2002. The net loss to common stockholders for the three months ended March 31, 2002 includes loss on debt extinguishment of $267,488. The net loss to common stockholders for the three months ended March 31, 2003 includes dividends to preferred stockholders of $579,248.

 

Net Revenues

 

 

Online tuition revenues increased 12.1% to $1,511,944 in the first quarter of 2003, compared to $1,348,887 for the same period in 2002. The increase is primarily due to an increase in revenue from higher education and government clients ($184,000 and $213,000, respectively), which was partially offset by a decrease in revenue from clients within the downsizing telecommunications industry ($233,000).

 

Online development and other revenues increased 101.8% to $191,376 in the first quarter of 2003, compared to $94,819 for the first quarter of 2002.  The increase is primarily due to an increase in course development and professional services orders.

 

7

 

The following table sets forth selected financial data:

 

 

Cost of Revenues

 

Cost of revenues increased 111.8% to $459,464 in the first quarter of 2003 as compared to $216,926 for the first quarter of 2002. The increase was primarily due to the sale of courses with relatively high associated royalties under one of the Company’s large customer contracts, which expires in June 2003.

 

Operating Expenses

 

Sales and Marketing. Sales and marketing expenses increased 0.9% to $731,761 in the first quarter of 2003 as compared to $725,167 for the first quarter in 2002. During the first quarter of 2003 and 2002, the Company contributed $176,845 and $113,029, respectively, to a marketing and development fund (the “Development Fund”) jointly administered by the Company and one of its larger customers as required pursuant to the terms of the Company’s contract with that customer.  The Development Fund’s primary goal is to fund marketing and development to grow online revenues for both that customer and derivatively for the Company in the form of course registration fees.  Amounts required to be contributed by the Company to the Development Fund are determined under the contract based on meeting or exceeding certain thresholds in course registrations on that customer’s virtual campus. These amounts are expensed as marketing costs in the same period as the Company recognizes revenue from such registrations.  Contributions to the Development Fund represented 27.1% and 26.9% of the recognized revenues attributable to that customer in the first quarter of 2003 and 2002, respectively.

 

Product Development. Product development expenses increased 15.2% to $723,950 in the first quarter of 2003 as compared to $628,261 for the first quarter of 2002.  The increase was primarily due to costs associated with two significant development projects underway in the first quarter of 2003.

 

General and Administrative. General and administrative expenses increased 11.3% to $464,682 in the first quarter of 2003 as compared to $417,451 for the first quarter of 2002. The increase was primarily due to costs associated with the hiring of the Company’s new Chief Executive Officer.

 

Depreciation and Amortization. Depreciation and amortization expense decreased 43.0% to $248,950 in the first quarter of 2003 as compared to $436,447 for the first quarter of 2002. The decrease was due primarily to the fact that many of the Company’s fixed and intangible assets have been fully depreciated and amortized, respectively.

 

     Stock-based Compensation.  Stock-based compensation expense for the three months ended March 31, 2003 and 2002 consists of the fair value of stock options (using the Black-Sholes valuation method) issued to certain consultants to the Company.  Stock-based compensation expense for the three months ended March 31, 2003 also includes the fair value of stock issued as customary payment to  the Company’s non-employee directors for their participation in Board and Board Committee meetings.

 

Interest expense. Interest expense for the three months ended March 31, 2003 and 2002 primarily consists of debt discount and deferred debt offering costs amortization related to the remaining balance of the $925,000 of convertible promissory notes issued in December 2001.

 

8

 

Liquidity and Capital Resources

 

As of March 31, 2003, the Company had $1,342,839 in cash and cash equivalents. Cash utilized in operating activities was $123,958 for the three months ended March 31, 2003. Net cash used in operating activities for the same period in 2002 was $1,025,066. The decrease in cash utilized in operating activities is primarily due to a $500,000 customer prepayment received in the first quarter of 2003. Material customer prepayments are not expected to recur in foreseeable future quarters.

 

Net cash utilized in investing activities was $115,784 for the three months ended March 31, 2003 and $74,804 for the three months ended March 31, 2002. The use of cash for investing activities in both periods was primarily attributable to software development costs that were capitalized.

 

      Net cash provided by financing activities was $855,115 for the three months ended March 31, 2003 and $145,651 for the three months ended March 31, 2002.  In February 2003, the Company raised $400,000 through the issuance of 10,125 and 226 shares of Series G Preferred Stock at a purchase price of $39.50 per share to accredited investors and a placement agent, respectively.  Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 25,313 and 564 shares of common stock at $4.35 per share to the same accredited investors and placement agent, respectively.  In March 2003, the Company raised $500,000 through the issuance of 18,370 shares of Series G Preferred Stock at a purchase price of $27.22 per share to accredited investors.  Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 45,925 shares of common stock at $2.99 per share to the same accredited investors.

 

     In May 2003, the Company raised approximately $1,340,000 through the issuance of 5,585 shares of Series H Preferred Stock at a purchase price of $240.00 per share to accredited investors. Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 139,625 shares of common stock at $5.00 per share to the same accredited investors.

 

     The Company expects negative cash flow from operations to continue until the online revenue stream matures. The Company believes it has access to adequate resources to fund operations until operations reach cash flow positive.  However, in the event revenues do not meet anticipated levels or the Company is unable to raise additional funding to meet working capital requirements, the Company may need to further reduce operating expenses. If the Company is unable to raise additional funding to meet working capital requirements, it may be unable to maintain compliance with Nasdaq Small Cap Market listing requirements.  In addition to anticipated capital from operations, the Company believes it has available sources for debt or equity capital in amounts necessary to meet its cash needs through 2003.  However, such capital, if available, may not have terms favorable to the Company or its current stockholders.

 

     If the Company does not address its funding needs, it will be materially adversely affected. The Company’s future capital requirements will depend on many factors, including, but not limited to, acceptance of and demand for its products and services, maintenance and renewal of customer contracts, customer demands for technology upgrades, the types of arrangements that the Company may enter into with customers and resellers, and the extent to which the Company invests in new technology and research and development projects.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

9

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

 

     In June 2002, a former employee (separated in June 1998) filed suit against the Company in Dallas County, Texas. The suit alleges damages in the following amounts: $56,250 from an allegedly earned unpaid bonus, $231,250 based on an alleged change of control in the Company and $360,000 for the company’s alleged failure to allow him to exercise stock options. After thorough investigations, the Company has rejected this former employee’s claims several times in the past and the Company continues to believe these claims are without merit and plans to vigorously defend against them. The case was subject to mediation in December 2002, which failed to produce a settlement. The case is scheduled for trial in September 2003.  The plaintiff filed a motion for summary judgment on the issue of the unpaid bonus.  The court has preliminarily ruled that the former employee is entitled to a payment of $56,250 for his bonus claim. Although the Court’s ruling is preliminary, the Company has accrued for it. The Company is currently negotiating a full settlement with the former employee The Company at this time cannot provide a definitive estimate of legal fees required for the case; however they may become material as the case progresses. The Company cannot estimate at this time the amount or probability of additional liabilities to be incurred, if any. Accordingly, no additional amounts have been accrued in the financial statements.

 

      In March 2003, the Montgomery County, Maryland Circuit Court issued an order for VCampus to pay its landlord in Rockville, Maryland $93,453 of back rent due and all future rents ($499,535) less any rents received by the landlord from any re-leasing of the premises. The order calls for the future rent amount to be paid monthly at a rate of $13,433 through the end of the lease term in 2005. The Company plans to contest the liability for future rents beyond December 2003 ($323,231) per the lease terms. The liability for back rents and rents through December 2003 and attorney’s fees is reflected on the Company’s balance sheet. The Company cannot provide a definitive estimate of the probability of the liability to be incurred, if any, for rent beyond December 2003. Accordingly, no amounts have been accrued in the financial statements for this potential liability.

 

Item 2. Changes in Securities

 

(a)		No modifications.
(b)		No limitations or qualifications.
(c)		From January 1, 2003 to March 31, 2003, the Company issued the following unregistered securities:
1.			10,125 and 226 shares of Series G Preferred Stock at a purchase price of $39.50 per share to accredited investors and a placement agent, respectively.  Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 25,313 and 564 shares of common stock at $4.35 per share to the same accredited investors and placement agent, respectively.
2.			18,370 shares of Series G Preferred Stock at a purchase price of $27.22 per share to accredited investors.  Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 45,925 shares of common stock at $2.99 per share to the same accredited investors.

 

 

The sales of the above securities were deemed to be exempt from registration under the Act in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the “Act”), or Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. Recipients of the securities in each such transaction represented their intentions to acquire such securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the instruments issued in such transactions. All recipients had adequate access to information about the Company.

 

Item 6. Exhibits

 

      (a)    Exhibits

 

Exhibit No.

 

Exhibit No.		Description
10.82		Certificate of Designations for the Series H Preferred Stock filed in Delaware on May 12, 2003.
10.83		Securities Purchase Agreement dated May 13, 2003 relating to the sale of Series H Preferred Stock and warrants.
10.84		Form of warrant issued to the Series H holders on May 13, 2003.
10.85		Registration Rights Agreement dated May 13, 2003 relating to the Series H financing.
99.1		Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.
99.2		Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.

 

10

 

(b)	Reports on Form 8-K.
	1.	VCampus filed a current report on Form 8-K on January 24, 2003 disclosing the terms of the employment agreements it entered into with Messrs. Neal and Kannan as well as portions of a presentation delivered to various participants in the securities industry.
	2.	VCampus filed a current report on Form 8-K on February 25, 2003 announcing the sale of 10,351 shares of Series G convertible Preferred Stock.

 

 

11

 

SIGNATURES

 

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

 

	VCAMPUS CORPORATION
	By:		/s/ NARASIMHAN P. KANNAN
	Narasimhan P. Kannan
	Chief Executive Officer
	By:	/s/ CHRISTOPHER L. NELSON
	Christopher L. Nelson
	Chief Operating Officer and Chief Financial Officer
	(Principal Financial and Accounting Officer)

 Date: May 15, 2003

 

12

 

Section 302 Certification

CERTIFICATION

Securities and Exchange Act of 1934 Rule 13a-14 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002:

I, Narasimhan P. Kannan, CEO, certify that:

1.               I have reviewed this quarterly report on Form 10-Q of VCampus Corporation;

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.               designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.              evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c.               presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.               all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b.              any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.               The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	May 15, 2003		By:	/s/ NARASIMHAN P. KANNAN
				Narasimhan P. Kannan
				Chief Executive Officer

 

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Section 302 Certification

CERTIFICATION

Securities and Exchange Act of 1934 Rule 13a-14 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002:

I, Christopher L. Nelson, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of VCampus Corporation;

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.               designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.              evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c.               presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.               all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b.              any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.               The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:	May 15, 2003		By:	/s/ CHRISTOPHER L. NELSON
				Christopher L. Nelson
				Chief Financial Officer

 

 

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EXHIBIT INDEX

 

Exhibit No.		Description
10.82		Certificate of Designations for the Series H Preferred Stock filed in Delaware on May 12, 2003.
10.83		Securities Purchase Agreement dated May 13, 2003 relating to the sale of Series H Preferred Stock and warrants.
10.84		Form of warrant issued to the Series H holders on May 13, 2003.
10.85		Registration Rights Agreement dated May 13, 2003 relating to the Series H financing.
99.1		Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
99.2		Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act

 

 

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