Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

Commission File Number 0-21421

 

 

VCAMPUS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

703-893-7800

(Registrant’s telephone number, including area code)

 

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		7,363,804 shares
(Class)		(Outstanding at August 11, 2004)

 

 

Explanatory Note:

 

This quarterly report on Form 10-Q for the quarter ended June 30, 2004 includes financial statements for the three-month and six-month periods ended June 30, 2003 reflecting a different classification of certain revenues and expenses from classifications previously presented relating to our relationship with formerly one of our largest customer. The reclassification is a result of responding to comments we received from the Division of Corporation Finance of the SEC (the “Staff”) in connection with the Staff’s review of our Registration Statement on Form S-1 (File No. 333-108380) filed in August 2003.

 

While this reclassification causes revenues and expenses reported herein for the three-month and six-month periods ended June 30, 2003 to be lower than previously reported, it has no impact on our current or previously reported assets, liabilities or net loss.  See “Notes to Financial Statements” and “Management’s Discussion and Analysis of Operations and Results of Operations” for further information.

 

PART I — FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

VCAMPUS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

		Three Months Ended June 30,						Six Months Ended June30,
		2003			2004			2003			2004
Revenues:
Online tuition revenues		$	1,430,384		$	1,395,653		$	2,853,905		$	2,805,156
Development and other revenues		178,913			52,336			370,289			105,950
Other service revenues		31,597			16,955			61,366			47,890
Net revenues		1,640,894			1,464,944			3,285,560			2,958,996
Costs and expenses:
Cost of revenues		569,951			361,810			1,029,415			726,613
Sales and marketing		551,062			362,430			1,194,400			949,332
Product development and operations		638,930			804,783			1,362,880			1,385,034
General and administrative		435,538			451,688			900,220			897,865
Depreciation and amortization		246,470			337,665			495,420			586,599
Reorganization and other non-recurring charges		112,729			—			172,729			—
Stock-based compensation		13,005			32,498			66,814			61,976
Total costs and expenses		2,567,685			2,350,874			5,221,878			4,607,419
Loss from operations		(926,791		)	(885,930		)	(1,936,318		)	(1,648,423		)
Other income		207,138			173,899			207,138			173,899
Interest expense and amortization of debt discount and debt offering costs, net		(24,006		)	(1,585,830		)	(51,780		)	(1,612,542		)
Net loss		(743,659		)	(2,297,861		)	(1,780,960		)	(3,087,066		)
Dividends to preferred stockholders		(1,839,784		)	—			(2,419,032		)	—
Net loss attributable to common stockholders		$	(2,583,443	)	$	(2,297,861	)	$	(4,199,992	)	$	(3,087,066	)
Net loss per share, basic		$	(1.09	)	$	(0.34	)	$	(2.12	)	$	(0.51	)
Net loss per share — assuming dilution		$	(1.09	)	$	(0.34	)	$	(2.12	)	$	(0.51	)

 

See accompanying notes.

 

2

 

VCAMPUS CORPORATION
CONSOLIDATED BALANCE SHEETS

 

		December 31 2003			June 30 2004
					(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	534,984		$	3,304,454
Accounts receivable, less allowance of $5,000 at December 31, 2003 and June 30, 2004		290,530			293,166
Loans receivable from related party		83,745			66,859
Loans receivable—current		40,526			41,486
Prepaid expenses and other current assets		691,781			400,045
Total current assets		1,641,566			4,106,010
Property and equipment, net		509,662			418,712
Capitalized software costs and courseware development costs, net		1,653,295			1,893,612
Loans receivable—less current portion		33,726			17,114
Other assets		127,598			516,752
Other intangible assets, net		569,494			479,998
Goodwill		328,317			328,317
Total assets		$	4,863,658		$	7,760,515
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,222,987		$	509,700
Accrued expenses		369,763			367,364
Notes payable		225,000			—
Deferred revenues		1,010,563			306,112
Total current liabilities		2,828,313			1,183,176
Long-term liabilities:
Notes payable—less discount and current portion		—			88,484
Total liabilities		2,828,313			1,271,660
Commitments and contingencies:		—			—
Stockholders’ equity:
Common Stock, $0.01 par value per share; 36,000,000 shares authorized; 5,167,000 and 7,313,917 shares issued and outstanding at December 31, 2003 and June 30, 2004, respectively		51,670			73,139
Additional paid-in capital		92,376,579			99,895,686
Accumulated deficit		(90,392,904		)	(93,479,970		)
Total stockholders’ equity		2,035,345			6,488,855
Total liabilities and stockholders’ equity		$	4,863,658		$	7,760,515

 

See accompanying notes.

 

3

 

VCAMPUS CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Six Months Ended June 30
		2003			2004
Operating activities
Net loss		$	(1,780,960	)	$	(3,087,066	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		148,407			136,944
Amortization		347,013			449,655
Debt discount and financing costs amortization		42,420			1,503,368
Compensatory stock, stock options and stock warrants		66,814			61,976
Decrease in allowance for doubtful accounts		(288		)	—
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		79,047			(2,636		)
Decrease in prepaid expenses and other current  assets		273,292			432,266
Decrease in other assets		25,003			1,242
Increase (decrease) in accounts payable and accrued  expenses		27,206			(724,169		)
Decrease in deferred revenues		(7,635		)	(704,451		)
Net cash used in operating activities		(779,681		)	(1,932,871		)
Investing activities
Purchases of property and equipment		(319,023		)	(45,994		)
Capitalized software and courseware development costs		(399,093		)	(600,476		)
Increase in restricted cash		(601,784		)	—
Proceeds from loans receivable		17,500			17,500
Advances under loans (interest) receivable		(2,754		)	(1,847		)
Proceeds from loans receivable from related party		18,000			18,000
Advances under loans receivable from related party		(1,625		)	(1,114		)
Net cash used in investing activities		(1,288,779		)	(613,931		)
Financing activities
Proceeds from the issuance of common stock		—			2,157,106
Proceeds from the issuance of Series G convertible Preferred Stock		874,937			—
Proceeds from the issuance of Series H convertible Preferred Stock		1,740,240			—
Payments on capital lease obligations		(23,529		)	—
Proceeds from notes payable		—			3,384,166
Repayments of notes payable		—			(225,000		)
Net cash provided by financing activities		2,591,648			5,316,272
Net increase in cash and cash equivalents		523,188			2,769,470
Cash and cash equivalents at the beginning of the period		727,466			534,984
Cash and cash equivalents at the end of the period		$	1,250,654		$	3,304,454
Supplemental cash flow information
Interest paid		$	—		$	43,530

 

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, 2004. For further information, refer to the audited financial statements and footnotes thereto included in the VCampus Corporation (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2003.

 

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 financial 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 loss and loss per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123 to stock-based employee compensation.

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2003			2004			2003			2004
Pro forma net loss:
As reported		$	(2,583,443	)	$	(2,297,861	)	$	(4,199,992	)	$	(3,087,066	)
Add: Non cash stock compensation included in reported net loss attributable to common stockholders		13,005			32,498			66,814			61,976
Deduct: Total employee non-cash stock compensation expense determined under fair value based method for all awards		(1,438,655		)	(872,773		)	(2,688,391		)	(1,508,518		)
Pro forma net loss		$	(4,009,093	)	$	(3,138,136	)	$	(6,821,569	)	$	(4,533,608	)
Net loss per common share:
Basic and diluted—as reported		$	(1.09	)	$	(0.34	)	$	(2.12	)	$	(0.51	)
Basic and diluted—pro forma		$	(1.69	)	$	(0.46	)	$	(3.45	)	$	(0.75	)

 

Note C — Equity Transactions

 

In March 2004, the Company raised $5,000,000 through the private placement of 20 units, at a purchase price of $200,000 per unit, and $1,000,000 in principal amount of Series B senior secured convertible notes. Each unit consisted of 50,000 shares of common stock (initially priced at $1.63 per share), a Series A senior secured convertible note in the original principal amount of $118,500 and a five-year warrant to purchase 61,350 shares of common stock with an initial exercise price of $2.386 (subject to adjustment) per share (“Units”). The Company issued an additional $250,000 of Series B senior secured notes in exchange for cancellation of existing short-term indebtedness in that amount. The Company issued to the Series B noteholders five-year warrants to purchase an aggregate of 383,439 shares of common stock with an initial exercise price of $2.386 (subsequently adjusted to $1.63) per share. An additional one quarter unit was issued to the lead investor’s counsel as payment for legal services in connection with the private placement.

 

5

 

Upon approval of the private placement by the Company’s stockholders at its annual meeting on May 18, 2004, $18,500 of principal of each of the Series A notes automatically converted into common stock at $1.63 per share and $100,000, or 50%, in principal of each of the Series B notes automatically converted into common stock at $1.63 per share. The total principal amount for both Series of notes converted upon approval by the stockholders was $999,625. The Series A and Series B notes mature on April 1, 2009 and bear interest at the rate of 8% per annum, payable quarterly in cash or stock (valued at the conversion price) at the Company’s option for the first year. Principal and interest on the notes are payable in cash over the following four years in quarterly installments. The initial exercise price for the warrants is equal to the average closing price of the Company’s common stock for the five trading days prior to the date of the private placement. Upon stockholder approval of the private placement, the exercise price of the warrants was adjusted to $1.63 per share.  The warrants first became exercisable on May 18, 2004, the date on which the Company’s stockholders approved the private placement.

 

The terms of the financing include a provision that in the event that the Company does not achieve a certain business milestone by September 30, 2004, and following the date of stockholder approval referenced above, (i) the Company shall issue to each purchaser, for each Unit purchased by such purchaser, an additional 9,058 shares of common stock and an additional 11,113 warrants; and (ii) the conversion price with respect to the notes and the warrant price with respect to the warrants shall be reset to $1.38 in accordance with the terms of the notes and the warrants. If the milestone is not achieved on or before September 30, 2004, the number of shares issued upon the mandatory conversion of the notes, which occured automatically on the date of stockholder approval in May 2004, will be adjusted prospectively as of September 30, 2004 to reflect a conversion price of $1.38 (subject to any adjustments required as of the mandatory conversion date) and such additional shares shall be issued to the holders of notes on or before October 10, 2004.

 

The terms of the financing include antidilution provisions to the effect that if and whenever in the period commencing after the issuance date (March 23, 2004) and ending 24 months thereafter (March 22, 2006) (the “Antidilution Period”), the Company issues or sells, or is deemed to have issued or sold, any shares of common stock, with the exception of specific customary issuances which are excluded, for a consideration per share less than the conversion price or exercise price in effect immediately prior to such time for the relevant shares, then concurrent with such dilutive issuance, the conversion price or exercise price for the notes and warrants, as the case may be, then in effect shall be reduced to an amount equal to the new securities issuance price.  The Company allocated the proceeds from the issuance of the notes to the notes and to that subset of warrants allocated to the notes on a pro-rata basis based on their relative fair values using the Black-Scholes option pricing model. The amount allocated to the warrants ($1,462,538) was recorded as a debt discount and will be amortized to interest expense over the period the notes are expected to be outstanding. Upon approval of the private placement by its stockholders, the Company recorded an additional $2,187,087 of debt discount for the instruments’ beneficial conversion feature which will be amortized over the expected term of the notes.  The fair value of the warrants allocated to the common stock on a pro-rata basis has been accounted for as cost of capital.

 

During the second quarter of 2004, an additional $175,000 of Series A and Series B senior secured convertible note principal was converted into 107,363 shares of common stock, resulting in $1,174,625 of aggregate principal converted since the date of issuance of the notes.  The Company expensed as additional interest a proportional amount of unamortized debt discount and offering costs associated with the debt converted totaling $1,399,694. The total outstanding principal remaining as of June 30, 2004 amounted to $2,475,000.

 

During the second quarter of 2004, the Company issued 76,688 shares of common stock in full satisfaction of accrued financing costs incurred in conjunction with the March 2004 financing.

 

During the second quarter of 2004, the Company issued 300,483 shares of common stock upon the exercise of warrants and options.  Net cash proceeds to the Company from these exercises amounted to $595,521.

 

Note D — Net Loss Per Share

 

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

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2003			2004			2003			2004
Numerator:
Net loss		$	(743,659	)	$	(2,297,861	)	$	(1,780,960	)	$	(3,087,066	)
Accrued dividends to preferred stockholders		(1,839,784		)	—			(2,419,032		)	—
Net loss available to common stockholders		$	(2,583,443	)	$	(2,297,861	)	$	(4,199,992	)	$	(3,087,066	)
Denominator:
Denominator for basic earnings per share — weighted-average shares		2,375,442			6,761,850			1,978,089			6,017,219
Denominator for diluted earnings per share — adjusted weighted-average shares		2,375,442			6,761,850			1,978,089			6,017,219
Basic net loss per share		$	(1.09	)	$	(0.34	)	$	(2.12	)	$	(0.51	)
Diluted net loss per share		$	(1.09	)	$	(0.34	)	$	(2.12	)	$	(0.51	)

 

6

 

Note E — Intangible Assets

 

Other intangible assets were comprised of:

 

		December 31, 2003			June 30, 2004
Developed content		$	523,800		$	523,800
Trademarks and names		904,720			904,720
Customer base		304,820			304,820
		1,733,340			1,733,340
Less accumulated amortization		(1,163,846		)	(1,253,342		)
		$	569,494		$	479,998

 

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

 

2004 (remaining six months)		89,487
2005		133,490
2006		110,740
2007		66,078
2008		43,747
Thereafter		36,456
		$	479,998

 

Note F — Legal Proceedings

 

In 2002, the Virginia Department of Taxation completed an audit of the Company’s sales and use tax payments from August 1998 through October 2001. After some initial negotiations, adjustments were made to the initial draft assessment and the Company made a payment of $18,928, representing an uncontested portion of the assessment.  Thereafter, a formal assessment was issued by the Virginia Department of Taxation in July 2003 for $86,678, including interest of $17,278, primarily relating to assessment of use tax on the royalties paid by the Company to content providers for courses the Company delivered online. In October 2003, the Company appealed the assessment. In March 2004, the Company was notified that this appeal remains under review. The Company does not have a firm estimate of the probability of liability for this issue or the amount of anticipated legal costs, but has reason to believe that the potential liability will be reduced to the point where it will not be considered material. Accordingly, the Company cannot estimate at this time the amount of liability to be incurred, if any. No amounts have been accrued in the financial statements for this potential liability.

 

Note G — Reclassifications

 

The financial statements for the three and six months ended June 30, 2003 reflect a reclassification of certain revenues and expenses from prior period classifications.  The effect of the reclassifications is to reduce revenues, and sales and marketing expenses, by $91,410 and $179,833 for the three-month and six-month periods ended June 30, 2003, respectively. These entries have no effect on the Company’s current or previously reported assets, liabilities, or net loss.

 

In 1996, the Company entered into an agreement with Park University, which subsequently became one of its largest higher education customers, pursuant to which the Company provided the technological platform and support for administering and delivering this customer’s online degree program to its students.  The customer would pay the Company a fee for each student registered in the program.  Upon achieving certain student registration milestones under the program, pursuant to the terms of the renewal of this customer contract in 2000, the Company thereafter contributed a fixed dollar amount per additional registration thereunder to a marketing and development fund (the “Development Fund”) jointly administered by the Company and the customer.  The Development Fund’s primary goal was to fund marketing and development to grow online revenues for both that customer in the form of course registration fees and the Company in additional online tuition fees.  The Company initially recognized as revenue the entire portion of the online tuition fees received from Park University and recorded the entire portion of the Company’s contributions to the Development Fund as a marketing expense. Based in part upon a subsequent financial analysis performed by management regarding the relative benefits received by the Company and the customer from the Development Fund, and based in part on management’s assessment of the market price for the services the Company provided to the customer, assuming such services were provided with and then without the involvement of the Development Fund, the Company has determined that it should treat 50% of the Development Fund contributions as a reduction to revenue and the remaining 50% of the Development Fund contributions as a sales and marketing expense. It is management’s belief that the apportionment to revenues is appropriate based on its analysis.  The Company’s contract with Park University and the Development Fund were terminated in May 2004.  See Note H – “Significant Customers and Select Partners.”

 

7

 

Note H — Significant Customers and Select Partners

 

Park University notified the Company that it has entered into a contract with another vendor who began providing their e-learning services as of May 2004.  Consequently, Park University terminated its relationship with the Company in May 2004. Park University represented 41%, 36% and 28% of the Company’s revenues in the six months ended June 30, 2004, and in the years ended December 31, 2003 and 2002, respectively.

 

In connection with the termination of the Company’s relationship with Park University in May 2004, the Company and Park University entered into a settlement agreement and mutual release.  Pursuant to this agreement:  (1) each party agreed to release all claims against the other party; (2) the Company agreed to provide de minimus post-termination services to Park University; (3) Park University agreed to assume the obligation for all courseware development payments or royalties owed to Park University instructors and waived and released the Company from any undistributed amounts previously paid to the Company with respect thereto; (4) Park University waived claims for past or future payments to the Park Development Fund, including accrued payment obligations thereunder totaling approximately $372,000; and (5) the Company waived any claim to monies currently deposited in the Development Fund and not yet disbursed.  As a result of this settlement, the Company reversed $240,380 it had accrued in the first quarter of 2004 in connection with its obligation to the Development Fund.  Since the Company had been treating 50% of its contributions to the development fund as a reduction to online tuition revenue and the remaining 50% as a sales and marketing expense, of the amount reversed, $120,190 has been recorded as online tuition revenue and $120,190 as a reduction in marketing expenses in the second quarter of 2004.  Furthermore, the elimination of the Company’s obligation to contribute to the Development Fund during the second quarter of 2004 resulted in additional online tuition revenue to the Company of $66,397 as well as savings of $66,397 in marketing expenses in the same quarter.  Lastly, the Company reversed a liability and recorded other income of $77,000 as a result of Park’s assumption of obligations for courseware development payments owed to Park instructors.

 

In connection with an amendment to the settlement agreement with Park University under which the Company provided additional services to Park for the three days following the initial contract termination date, the Company recorded online tuition revenue of $46,620.

 

During the six months ended June 30, 2004, the Company entered into Select Partnership Agreements with the Kiplinger Washington Editors, Inc., the Association for Financial Professionals, PCI Global, Inc. and the National Council of State Boards of Nursing.  Through each of these agreements, the Company plans to develop and market on-line curricula for large targeted markets in financial management, certified treasury recertification, project management certification and continuing education in nursing.  With the exception of courseware developed for Kiplinger, all of the curricula relate to either continuing education credits or preparation for a professional certification or licensure, which the Company anticipates will fuel significant demand for the courses.  Kiplinger’s courses relate to education of individuals in personal financial management. Demand for these courses, marketed to large employers, is being driven by the trend from defined benefit to defined contribution retirement plans and employer’s interest in educating their employees on proper retirement investing.

 

8

 

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 our other SEC filings, and including, in particular, the availability of sufficient capital to finance our business plan on terms satisfactory to management, risks relating to uncertainties relating to dependence on strategic partners and third party relationships, implementation of our new Select Partner strategy, difficulties in maintaining compliance with Nasdaq listing requirements, dependence on online distribution, security risks, government regulations and competition.

 

Reclassification of Revenues and Sales and Marketing Expenses

 

This quarterly report on Form 10-Q for the quarter ended June 30, 2004 includes financial statements for the three-month and six-month periods ended June 30, 2003 reflecting a reclassification of certain revenues and expenses from prior period classifications and filings relating to our relationship with Park University, formerly one of our largest customers. The reclassification is a result of responding to comments we received from the Division of Corporation Finance of the SEC (the “Staff”) in connection with the Staff’s review of our Registration Statement on Form S-1 (File No. 333-108380) filed in August 2003.

 

While this reclassification causes revenues and expenses reported herein for the quarter and six months ended June 30, 2003 to be lower than previously reported, it has no impact on our current or previously reported assets, liabilities or net loss.

 

In 1996, we entered into an agreement with Park University, pursuant to which we provided the technological platform and support for administering and delivering this customer’s online degree program to its students.  The customer would pay us a fee for each student registered in the program.  Upon achieving certain student registration milestones under the program, pursuant to the terms of our renewal of this customer contract in 2000, we thereafter contributed a fixed dollar amount per additional registration thereunder to a marketing and development fund jointly administered by us and our customer.  The Development Fund’s primary goal was to fund marketing and development to grow online revenues for both the customer in the form of course registration fees and us in additional online tuition fees.  Our treatment for this arrangement had been to recognize as revenue the entire portion of the online tuition fees received from this customer and record the entire portion of our contributions to the Development Fund as a marketing expense. Based in part upon a subsequent financial analysis performed by management regarding the relative benefits received by us and our customer from the Development Fund, and based in part on management’s assessment of the market price for the services we provided to our customer, assuming such services were provided with and then without the involvement of the Development Fund, we have determined that we should treat 50% of the Development Fund contributions as a reduction to revenue and the remaining 50% of the Development Fund contributions as a sales and marketing expense. It is management’s belief that the apportionment to revenues is appropriate based on our analysis.  Our contract with this customer and related Development Fund were terminated in May 2004.  Accordingly, we will not be apportioning any future contributions to revenues under this approach beyond that date.

 

The effect of this reclassification was to reduce revenues, and sales and marketing expenses, by $91,410 and $179,833 for the three-month and six-month periods ended June 30, 2003. These entries have no effect on our current or previously reported assets, liabilities, or net loss.

 

Results of Operations

 

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

 

Summary

 

For the three months ended June 30, 2004, we incurred a net loss to common stockholders of $2,297,861 (or $0.34 per share), a decrease of 11.1% as compared to a net loss to common stockholders of $2,583,443 (or $1.09 per share) for the three months ended June 30, 2003. The net loss for the three months ended June 30, 2004 includes $1,530,415 of non-cash debt discount and debt offering costs amortization and $173,899 of other income as a result of settlements with a customer and a vendor.  The net loss for the three months ended June 30, 2003 includes $1,839,784 of non-cash deemed dividends to preferred stockholders in connection with the issuance of the Series H Preferred Stock and the June 2003 conversion of all preferred stock into common stock, $112,729 of costs related to legal settlements and other income of $207,138 related to the write-off of royalty obligations to one of our former content providers following the expiration of the relevant statute of limitations for bringing any action to enforce the obligations. Excluding the items mentioned above, the net loss for the three months ended June 30, 2004 and 2003 would be $941,344 and $838,068, respectively.

 

9

 

The following table sets forth unaudited selected financial data:

 

		For the Three Months Ended June 30,
		2003					2004
Revenues		$	1,640,894		100.0	%	$	1,464,944		100.0	%
Cost of revenues		569,951			34.7		361,810			24.7
Sales and marketing		551,062			33.6		362,430			24.7
Product development and operations		638,930			38.9		804,783			54.9
General and administrative		435,538			26.5		451,688			30.8
Depreciation and amortization		246,470			15.0		337,665			23.0
Reorganization and other non-recurring charges		112,729			6.9		—			0.0
Stock-based compensation		13,005			0.8		32,498			2.2
Loss from operations		(926,791		)	(56.5	)	(885,930		)	(60.5	)
Other income		207,138			12.6		173,899			11.9
Interest expense and amortization of debt discount and offering costs, net		(24,006		)	(1.5	)	(1,585,830		)	(108.2	)
Dividends to preferred stockholders		(1,839,784		)	(112.1	)	—			—
Net loss to common stockholders		$	(2,583,443	)	(157.4	)%	$	(2,297,861	)	(156.9	)%

 

Net Revenues

 

		For the Three Months Ended June 30,
		2003					2004
Online tuition revenues		$	1,430,384		87.2	%	$	1,395,653		95.3	%
Online development and other revenues		178,913			10.9		52,336			3.6
Other service revenues		31,597			1.9		16,955			1.1
Total net revenues		$	1,640,894		100.0	%	$	1,464,944		100.0	%

 

Online tuition revenues decreased by 2.4% to $1,395,653 in the second quarter of 2004, compared to $1,430,384 for the same period in 2003.  The decrease was primarily due to decreases in higher education and corporate revenues ($59,000 and $49,000, respectively), partially offset by increases in government revenues as well as revenues from Select Partners ($30,000 and $43,000, respectively)

 

Online development and other revenues decreased 70.7% to $52,336 in the second quarter of 2004, compared to $178,913 for the second quarter of 2003.  The decrease was primarily due to a decline in course development and professional services orders as we move away from developing and hosting courses that are proprietary to our customers to the co-development of courses under our Select Partner strategy.  While we don’t charge our Select Partners development fees for these courses, we receive a relatively higher percentage of the revenue from their sale, in lieu of such development fees.

 

Other service revenues decreased 46.3% to $16,955 in the second quarter of 2004, compared to $31,597 for the second quarter of 2003.  Our contract with the U.S. Army, under which all licensing and support revenues were generated, was terminated in May 2004.  Accordingly, we do not expect to recognize any more licensing and support revenues under this contract.

 

Cost of Revenues

 

Cost of revenues decreased 36.5% to $361,810 in the second quarter of 2004 as compared to $569,951 for the second quarter of 2003.  The decrease was due to the sale of a higher percentage of courses with relatively lower associated royalty costs.

 

Operating Expenses

 

Sales and Marketing. Sales and marketing expenses decreased 34.2% to $362,430 in the second quarter of 2004 as compared to $551,062 for the second quarter of 2003.  During the second quarter of  2003, we contributed $182,823 to a marketing and development fund (the “Development Fund”) jointly administered by VCampus and Park University as required pursuant to the terms of our contract with them.  The Development Fund’s primary goal was to fund marketing and development to grow online revenues for both Park and derivatively for us in the form of course registration fees.  Amounts required to be contributed by VCampus to the Development Fund were determined under the contract based on meeting or exceeding certain thresholds in course registrations on Park’s virtual campus, which was hosted by VCampus.  Financial statements included in this report reflect 50% of these contributions as a marketing expense in the same period as we recognized revenue from such registrations and the remaining 50% of these contributions as a reduction to revenue.  Contributions to the Development Fund that we accounted for as marketing expense represented 16.9% of the recognized revenues attributable to that customer in the second quarter of 2003.  The Development Fund and our contract with Park University were terminated in May 2004, in connection with which, we and Park University entered into a settlement agreement and mutual release.  As a result of this settlement, in the second quarter of 2004 we reversed $240,380 that we had accrued in the first quarter of 2004 in connection with our obligation to the Development Fund.  Of that amount, $120,190 was recorded as online tuition revenue and $120,190 as a reduction in marketing expenses in the second quarter of 2004.  Furthermore, the elimination of our obligation to contribute to the Development Fund during the second quarter of 2004 resulted in savings of $66,397

 

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in marketing expenses in the same quarter.  Excluding transactions related to the Development Fund, sales and marketing expenses were $482,620 and $459,650 in the second quarter of 2004 and 2003, respectively, an increase of 5% primarily due to increased headcount and out-of-pocket costs in sales and marketing associated with the Select Partner program in the second quarter of 2004.

 

Product Development and Operations. Product development and operations expenses increased 26.0% to $804,783 in the second quarter of 2004 as compared to $638,930 for the second quarter of 2003.  The increase was due to the fact that following the release of our enhanced course management system in the first quarter of 2004, we did not capitalize any software development costs (due to their nature) in the second quarter of 2004, whereas in the second quarter of 2003 software development costs had been capitalized in accordance with our accounting policies.

 

General and Administrative. General and administrative expenses increased 3.7% to $451,688 in the second quarter of 2004 as compared to $435,538 for the second quarter of 2003.  The increase was primarily due to the payment of incentive compensation amounts to employees in the second quarter of 2004, partially offset by the elimination of expenses resulting from the expiration of the employment agreement and related termination of employment of our Vice Chairman in December 2003.

 

Depreciation and Amortization. Depreciation and amortization increased 37.0% to $337,665 in the second quarter of 2004 as compared to $246,469 for the second quarter of 2003.  The increase was primarily due to the release of our enhanced Course Management System in the first quarter of 2004, as a result of which we began amortizing costs we had capitalized for its development.

 

Stock-based Compensation.  Stock-based compensation expense for the three months ended June 30, 2004 and 2003 consists of the fair value of stock issued as customary payment to our non-employee directors for their participation in Board of Directors and Board Committee meetings and the fair market value of stock issued to consultants.

 

Other income.  Other income in the second quarter of 2003 consists of the write-off of royalty obligations to one of our former content providers following the expiration of the relevant statute of limitations for bringing any action to enforce the obligations.  Other income in the second quarter of 2004 consists of amounts recorded in connection with the settlements with Park University and one of our content providers which resulted to the write-off of royalty obligations.

 

Interest Expense.  Interest expense for the three months ended June 30, 2003 primarily consists of amortization of debt discount and deferred debt offering costs related to the remaining balance of the $925,000 of convertible promissory notes issued in December 2001.  Interest expense for the three months ended June 30, 2004 primarily consists of amortization of debt discount and deferred debt offering costs and accrual of interest payable related to the $3,649,625 ($2,475,000 following mandatory and voluntary partial conversions in the second quarter of 2004) of convertible promissory notes issued in March 2004.

 

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

 

Summary

 

For the six months ended June 30, 2004, we incurred a net loss to common stockholders of $3,087,066 (or $0.51 per share), a decrease of 26.5% as compared to a net loss to common stockholders of $4,199,992 (or $2.12 per share), for the six months ended June 30, 2003. The net loss for the six months ended June 30, 2004 includes $1,539,806 of non-cash amortization of debt discount and debt offering costs, and $173,899 of other income as a result of settlements with a customer and a vendor.  The net loss for the six months ended June 30, 2003 includes $2,419,032 of non-cash deemed dividends to preferred stockholders in connection with the issuance of the Series G and Series H Preferred Stock and the June 2003 conversion of all preferred stock into common stock, $172,729 of costs related to legal settlements and other income of $207,138 related to the write-off of royalty obligations to one of our former content providers following the expiration of the relevant statute of limitations for bringing any action to enforce the obligations. Excluding the items mentioned above, the net loss for the six months ended June 30, 2004 and 2003 would be $1,721,159 and $1,815,369, respectively.

 

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The following table sets forth unaudited selected financial data:

 

		For the Six Months Ended June 30,
		2003					2004
Revenues		$	3,285,560		100.0	%	$	2,958,996		100.0	%
Cost of revenues		1,029,415			31.3		726,613			24.6
Sales and marketing		1,194,400			36.4		949,332			32.1
Product development and operations		1,362,880			41.5		1,385,034			46.8
General and administrative		900,220			27.4		897,865			30.3
Depreciation and amortization		495,420			15.1		586,599			19.8
Reorganization and other non-recurring charges		172,729			5.3		—			0.0
Stock-based compensation		66,814			2.0		61,976			2.1
Loss from operations		(1,936,318		)	(58.9	)	(1,648,423		)	(55.7	)
Other income		207,138			6.3		173,899			5.9
Interest expense and amortization of debt discount and offering costs, net		(51,780		)	(1.6	)	(1,612,542		)	(54.5	)
Dividends to preferred stockholders		(2,419,032		)	(73.6	)	—			0.0
Net loss to common stockholders		$	(4,199,992	)	(127.8	)%	$	(3,087,066	)	(104.3	)%

 

Net Revenues

 

		For the Six Months Ended June 30,
		2003					2004
Online tuition revenues		$	2,853,905		86.8	%	$	2,805,156		94.8	%
Online development and other revenues		370,289			11.3		105,950			3.6
Other service revenues		61,366			1.9		47,890			1.6
Total net revenues		$	3,285,560		100.0	%	$	2,958,996		100.0	%

 

Online tuition revenues decreased 1.7% to $2,805,156 for the six months ended June 30, 2004 compared to $2,853,905 for the same period in 2003.  The decrease was primarily due to decreases in higher education and corporate revenues ($53,000 and $112,000, respectively), partially offset by increases in government revenues as well as revenues from Select Partners ($47,000 and $69,000, respectively).

 

Online development and other revenues decreased 71.4% to $105,950 for the six months ended June 30, 2004 compared to $370,289 for the same period in 2003.  The decrease was primarily due to a decline in course development and professional services orders as we move away from developing and hosting courses that are proprietary to our customers to the co-development of courses under our Select Partner strategy.  While we don’t charge our Select Partners development fees for these courses, we receive a relatively higher percentage of the revenue from their sale, in lieu of such development fees.

 

Other service revenues decreased 22.0% to $47,890 for the six months ended June 30, 2004, compared to $61,366 for the same period in 2003.  Our contract with the U.S. Army, under which all licensing and support revenues were generated, was terminated in May 2004.  Accordingly, we do not expect to recognize any more licensing and support revenues under this contract.

 

Cost of Revenues

 

Cost of revenues decreased 29.4% to $726,613 for the six months ended June 30, 2004 as compared to $1,029,415 for the same period in 2003.  The decrease was due to the sale of a higher percentage of courses with relatively lower associated royalty costs.

 

Operating Expenses

 

Sales and Marketing. Sales and marketing expenses decreased 20.5% to $949,332 for the six months ended June 30, 2004 as compared to $1,194,400 for the same period in 2003.  During the six months ended June 30, 2003, we contributed $359,668 to a marketing and development fund (the “Development Fund”) jointly administered by VCampus and Park University as required pursuant to the terms of our contract with them.  The Development Fund’s primary goal was to fund marketing and development to grow online revenues for both Park and derivatively for us in the form of course registration fees.  Amounts required to be contributed by VCampus to the Development Fund were determined under the contract based on meeting or exceeding certain thresholds in course registrations on Park’s virtual campus, which was hosted by VCampus.  Financial statements included in this report reflect 50% of these contributions as a marketing expense in the same period as we recognized revenue from such registrations and the remaining 50% of these contributions as a reduction to revenue.  Contributions to the Development Fund that we accounted for as marketing expense represented 16.3% of the recognized revenues attributable to that customer for the six months ended June 30, 2003.  The Development Fund and our contract with Park University were terminated in May 2004, in connection with which we and Park University entered into a settlement agreement and mutual release.  As a result of this settlement, in the second quarter of 2004 we reversed $240,380 we had accrued in the first quarter of 2004 in connection with our obligation to the Development Fund.  Of that amount, $120,190 was recorded as online tuition revenue and $120,190 as a reduction in marketing expenses in the second quarter of 2004.  Furthermore, the elimination of our obligation to contribute to the Development Fund during the second quarter of 2004

 

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resulted in savings of $66,397 in marketing expenses in the same quarter.  Excluding transactions related to the Development Fund, sales and marketing expenses were $949,332 and $1,014,566 for the six months ended June 30, 2004 and 2003, respectively, a decrease of 6.4% primarily due to lower out-of-pocket costs in the 2004 period.

 

Product Development and Operations. Product development and operations expenses increased 1.6% to $1,385,034 for the six months ended June 30, 2004 as compared to $1,362,880 for the same period in 2003.  The increase was due to the fact that following the release of our enhanced course management system in the first quarter of 2004, we did not capitalize any software development costs (due to their nature) in the second quarter of 2004, whereas for the six months ended June 30, 2003, we had capitalized software development costs in accordance with our accounting policies.  The increase was partially offset by a reduction in headcount devoted to operations in the second quarter of 2003.

 

General and Administrative. General and administrative expenses remained essentially unchanged at $897,865 for the six months ended June 30, 2004 as compared to $900,220 for the same period in 2003. The payment of incentive compensation amounts to employees in the second quarter of 2004 was offset by the elimination of expenses resulting from the expiration of the employment agreement and related termination of employment of our Vice Chairman in December 2003.

 

Depreciation and Amortization. Depreciation and amortization increased 18.4% to $586,599 for the six months ended June 30, 2004 as compared to $495,419 for the same period in 2003.  The increase was primarily due to the release of our enhanced Course Management System in the first quarter of 2004 as a result of which we began amortizing costs we had capitalized for its development.

 

Stock-based Compensation.  Stock-based compensation expense for the six months ended June 30, 2004 and 2003 consists of the fair value of stock issued as customary payment to our non-employee directors for their participation in Board of Directors and Board Committee meetings and the fair market value of stock issued to consultants.

 

Other income.  Other income for the six months ended June 30, 2003 consists of the write-off of royalty obligations to one of our former content providers following the expiration of the relevant statute of limitations for bringing any action to enforce the obligations.  Other income for the same period in 2004 consists of amounts recorded in connection with the settlements with Park University and one of our content providers which resulted in the write-off of royalty obligations.

 

Interest Expense.  Interest expense for the six months ended June 30, 2003 primarily consists of amortization of debt discount and deferred debt offering costs related to the remaining balance of the $925,000 of convertible promissory notes issued in December 2001.  Interest expense for the six months ended June 30, 2004 primarily consists of amortization of debt discount and deferred debt offering costs and accrual of interest payable related to the $3,649,625 ($2,475,000 following mandatory and voluntary partial conversions in the second quarter of 2004) of convertible promissory notes issued in March 2004.

 

Liquidity and Capital Resources

 

As of June 30, 2004, we had $3,304,454 in cash and cash equivalents, an increase of $2,469,470 from December 31, 2003, attributable primarily to cash raised in connection with our March 2004 private placement financing. Net cash used in operating activities was $1,932,871 and $779,681 for the six months ended June 30, 2004 and 2003, respectively.  The increase in cash used in operating activities was primarily due to the paydown of accounts payable following our March 2004 private placement.

 

Net cash utilized in investing activities was $613,931 and $1,288,779 for the six months ended June 30, 2004 and 2003, respectively. The use of cash for investing activities in both periods was primarily attributable to software development costs that were capitalized and the purchase of computer equipment in furtherance of our plans to upgrade our technological infrastructure.

 

Net cash provided by financing activities was $5,316,272 for the six months ended June 30, 2004 and $2,591,648 for the six months ended June 30, 2003.  In March 2004, we raised $5,000,000 in gross cash proceeds through the private placement of 20 units, at a purchase price of $200,000 per unit, and Series B senior secured convertible notes in the aggregate principal amount of $1,000,000. Each unit consisted of 50,000 shares of common stock (initially priced at $1.63 per share), a Series A senior secured convertible note in the original principal amount of $118,500 and a five-year warrant to purchase 61,350 shares of common stock. We issued an additional $250,000 of Series B senior secured notes in exchange for cancellation of existing short-term indebtedness in that amount. We issued to the Series B noteholders five-year warrants to purchase an aggregate of 383,439 shares of common stock. The exercise price for the warrants , as adjusted upon shareholder approval in May 2004, is now $1.63 per share.  During the second quarter of 2004, an additional $175,000 of Series A and Series B senior secured convertible note principal was converted into 107,363 shares of common stock, resulting in $1,174,625 of aggregate principal converted as of the end of the second quarter.  During the second quarter of 2004, we issued 300,483 shares of common stock upon the exercise of warrants and options.  Net proceeds to us from these exercises amounted to $595,521.

 

13

 

Upon approval of the private placement by VCampus’ stockholders at our annual meeting on May 18, 2004, $18,500 of principal of each of the Series A notes was converted into common stock at $1.63 per share and $100,000, or 50%, in principal of each of the Series B notes was converted into common stock at $1.63 per share. The total principal amount for both Series converted upon approval of the stockholders was $999,625. Therefore, following stockholder approval, a total of $2,650,000 of the placement was recorded as equity and $2,650,000 as senior debt. The notes mature on April 1, 2009 and bear interest at the rate of 8% per annum payable quarterly in cash or stock (valued at the conversion price) at VCampus’ option for the first year. Principal and interest on the notes are payable in cash over the following four years in quarterly installments.

 

We have sustained continuing operating losses in 2003 and for the six months ended June 30, 2004 and had an accumulated deficit of $93.5 million as of June 30, 2004. We expect negative cash flow from operations to continue until the online revenue stream matures. We have historically funded our operating cash deficits through the sale of equity, and to a lesser extent, borrowings. We believe we have adequate capital from the March 2004 financing and access to adequate additional resources to fund operations until operations reach cash flow positive. However, in the event revenues do not meet anticipated levels or we are unable to raise additional funding to meet working capital requirements, we may need to further reduce operating expenses. If we are unable to raise additional funding to meet working capital requirements, we may be unable to maintain compliance with Nasdaq SmallCap Market listing requirements and we might not be able to achieve our business objectives. VCampus believes it has available capital on hand and sources for additional debt or equity capital in amounts necessary to meet its cash needs through 2004 and into 2005. However, such capital, if needed and available, may not have terms favorable to us or our current stockholders. Furthermore, the terms of the debt and equity financing conducted in March 2004, which includes antidilution protection, may significantly hinder our ability to raise further capital in the future. Our obligations with respect to the repayment of the debt may have a significant impact on our cash flow.

 

Park University, one of our largest higher education customers notified us that it has entered into a contract with another vendor that began providing their e-learning services as of May 2004.  As a result, Park University terminated its relationship with VCampus as of May 2004. Park University represented 41%, 36% and 28% of our revenues for the six months ended June 30, 2004, and in the years ended December 31,2003 and 2002, respectively.  As of a result of a settlement we have reached with Park University related to monies contributed to the Development Fund established by us and Park and not yet disbursed, we realized approximately $450,000 by reversing amounts previously accrued, which is reflected on our statements of operations and cash flows in the second quarter of 2004.

 

If we do not address our capital and funding needs, we will be materially adversely affected. Our future capital requirements will depend on many factors, including, but not limited to, acceptance of and demand for our products and services, including our new Select Partner Program, maintenance and renewal of customer contracts, customer demands for technology upgrades, the types of arrangements that we may enter into with customers and agents, and the extent to which we invest in new technology and research and development projects.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

In the normal course of business, we are exposed to a variety of risks including market risk associated with interest rate movements. Our exposure to market risk for changes in interest rates relates primarily to any investments we may hold at various times and also related to our outstanding convertible debt. When investing, our purchases consist of highly liquid investments with maturities at the date of purchase generally no greater than twelve months, thus, due to the short-term nature of such investments and our usual intention to hold these investments until maturity, the impact of interest rate changes would not have a material impact on our results of operations. In addition, essentially all of our debt obligations are at fixed interest rates. Given the fixed rate nature of the debt, the impact of interest rate changes also would not have a material impact on our results of operations.

 

Item 4.  Controls and Procedures.

 

(a) Disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are designed only to provide assurance that they will meet their objectives.  As of the end of the period covered by this report, VCampus carried out an evaluation, under the supervision and with the participation of VCampus’ management, including VCampus’ Chief Executive Officer and Chief Financial Officer, of the effectiveness of  VCampus’ disclosure controls and procedures (as defined in Rule 13a-15(e)) pursuant to Exchange Act Rule 13a-15.  Based upon that evaluation, the VCampus Chief Executive Officer and Chief Financial Officer have concluded that VCampus’ disclosure controls and procedures are effective to provide the reasonable assurance discussed above.

 

(b) No change in VCampus’ internal controls over financial reporting occurred during VCampus’ last fiscal quarter that has materially affected, or is reasonably likely to materially affect, VCampus’ internal control over financial reporting.

 

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PART II — OTHER INFORMATION

 

Item 2. Changes in Securities

 

(a)       No modifications.

 

(b)      No limitations or qualifications.

 

(c)       From April 1, 2004 to June 30, 2004, we sold the following unregistered securities:

 

76,688 shares of common stock at $1.63 per share to a financial advisor in the March 2004 financing as payment for services.

 

284,515 shares of common stock to various investors upon the exercise of warrants with strike prices between $1.63 and $3.85 per share.

 

720,639 shares of common stock to investors in the March 2004 financing upon their mandatory and voluntary partial conversion of their convertible promissory notes at $1.63 per share on May 18, 2004

 

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 VCampus.

 

Item 4. Submission of Matters to a Vote of Security Holders

 

Our Annual Meeting of Stockholders was held on May 18, 2004. The following is a brief description of each matter voted upon at the meeting and the number of affirmative votes and the number of negative votes cast with respect to each matter.

 

(a)  The stockholders approved an amendment to the bylaws to decrease the required minimum number of authorized directors from five to four with 3,768,762 shares voting for, 0 shares voting against and 460 shares abstained.

 

(b)  The stockholders elected the following persons as our Directors: Narasimhan P. Kannan, Edson D. deCastro, John D. Sears and Martin E. Maleska. The votes for and against (withheld) each nominee were as follows:

 

15

 

Nominee		Votes For		Votes Withheld		Votes Abstained
Narasimhan P. Kannan		3,768,762		0		300
Edson D. deCastro		3,768,762		0		300
John D. Sears		3,768,762		0		300
Martin E. Maleska		3,768,762		0		300

 

(c)  The stockholders ratified and approved the $5.3 million common stock and convertible note financing completed in March 2004 and authorized the full conversion of the securities issued thereunder into common stock pursuant to the terms thereof with 3,475,012 shares voting for, 0 shares voting against and 460 shares abstained.

 

(d)  The stockholders approved an amendment to our Amended and Restated Certificate of Incorporation to eliminate all the authorized shares of preferred stock in each currently designated series of preferred stock with 3,768,762 shares voting for, 0 shares voting against and 460 shares abstained.

 

(e)  The stockholders approved the reservation of an additional 1,000,000 shares for issuance under our 1996 Stock Plan; with 3,766,330 shares voting for, 2,432 shares voting against and 460 shares abstained.

 

(f)  The stockholders ratified and approved the appointment of Reznick Fedder & Silverman, Bethesda, Maryland, as our independent registered public accounting firm for the fiscal year ending December 31, 2004 with 3,767,744 shares voting for, 0 shares voting against and 460 shares abstained.

 

Item 6. Exhibits

 

(a) Exhibits

 

Exhibit No.		Description
10.99		VCampus’ standard form of Online Content Conversion and Distribution Agreement (also known as the form of Select Partner Agreement)
31.1		Certification of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 Rule 13a-14 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 Rule 13a-14 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(b) Reports on Form 8-K.  During the quarter ended June 30, 2004, we filed the following current reports on Form 8-K:

 

1.               Form 8-K on May 4, 2004 announcing our financial results for the first quarter of 2004; and

 

2.               Form 8-K on June 24, 2004 disclosing for Regulation FD purposes materials presented at an investor conference.

 

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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 Financial Officer
		(Principal Financial and Accounting Officer)

 

 

Date: August 9, 2004

 

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EXHIBIT INDEX

 

Exhibit No.		Description
10.99		VCampus’ standard form of Online Content Conversion and Distribution Agreement (also known as the form of Select Partner Agreement)
31.1		Certification of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 Rule 13a-14 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 Rule 13a-14 as adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

18