| VCAMPUS CORP Item 1A Risk Factors |
| This report contains forward-looking statements that involve risks and uncertainties |
| Our actual results could differ materially from those discussed in this report |
| Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report and in any documents incorporated in this report by reference |
| If any of the following risks, or other risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected |
| If that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment |
| We have incurred losses and anticipate future losses, which could have an adverse impact on the trading price of our common stock |
| We have incurred significant losses since our inception in 1984, including net losses attributable to common stockholders of dlra6dtta2 million, dlra6dtta6 and dlra5dtta9 million for the years ended December 31, 2003, 2004 and 2005, respectively |
| As of December 31, 2005, we had an 8 ______________________________________________________________________ accumulated deficit of dlra102dtta9 million, stockholders’ equity of dlra2dtta7 million and working capital of dlra0dtta7 million |
| We expect losses from operations to continue until our Select Partner business model matures |
| For these and other reasons, we cannot assure you that we will ever operate profitably, which could have an adverse impact on the trading price of the shares held by our stockholders |
| Our key objective is to be one of the leading providers of outsourced e-Learning services |
| Pursuing this objective may significantly strain our administrative, operational and financial resources |
| We cannot assure you that we will have the operational, financial and other resources to the extent required to meet our business objective, which means we might not survive or be successful |
| Failure to raise additional capital, as and when needed, could prevent us from executing our business strategy and could prevent us from maintaining compliance with Nasdaq listing standards |
| If we are not able to generate sufficient cash for ongoing operations, we will need to raise additional funds through public or private sale of our equity or debt securities or from other sources for the following purposes: · to execute on our Select Partner business model; · to fund our operating expenses; and · to maintain compliance with the minimum stockholders’ equity required for continued listing on Nasdaq |
| We cannot assure you that additional funds will be available if and when we need them, or that if funds are available, they will be on terms favorable to us and our stockholders |
| If we are unable to obtain sufficient funds or if adequate funds are not available on terms acceptable to us, we may be unable to meet our business objectives |
| A lack of sufficient funds could also prevent us from taking advantage of important opportunities or being able to respond to competitive conditions |
| Any of these results could have a material adverse effect on our business, financial condition and results of operations |
| Our need to raise additional funds could also directly and adversely affect stockholder investment in our common stock in another way |
| When a company raises funds by issuing shares of stock, particularly at a discount to the market price, the percentage ownership of the existing stockholders of that company is reduced, or diluted |
| If we raise funds in the future by issuing additional shares of stock (as we have in the past), stockholders may experience significant dilution in the value of their shares |
| Additionally, certain types of equity securities that we have issued in the past, including our currently outstanding Series A-1 and B-1 Preferred Stock, and may issue in the future could have rights, preferences or privileges senior to the rights of the holders of our common stock |
| We have in the past and may in the future fund the Company with debt obligations which typically require payment of principal and interest in cash, therefore, reducing the cash we would have available to meet operating requirements |
| We began making quarterly principal and interest payments in cash on our outstanding convertible debt in July 2005 |
| Cash payments for principal under these notes are dlra99cmam000 per quarter through the maturity date in April 2009 |
| Initial cash payments for interest under these notes were approximately dlra36cmam000 per quarter beginning July 2005 and will gradually be reduced as the principal is paid down |
| Additionally, debt obligations may make additional financing offerings more difficult to enter into which may result in less favorable financing terms for us |
| If we fail to maintain compliance with our Nasdaq Capital Market listing, the value and liquidity of our shares could be impaired |
| Our common stock is currently listed on the Nasdaq Capital Market (formerly known as the Nasdaq SmallCap Market) |
| Nasdaq has certain requirements that a company must meet in order to remain listed on the Nasdaq Capital Market |
| If we continue to experience losses from our operations or if we are unable to raise additional funds as needed, we may not be able to maintain compliance with the minimum dlra2dtta5 million stockholders’ equity requirement for 9 ______________________________________________________________________ continued listing on the Nasdaq Capital Market |
| At December 31, 2005, our stockholders’ equity was dlra2dtta7 million |
| To address our deficiency in the required minimum stockholders’ equity at September 30, 2005, we completed a dlra2dtta3 million equity private placement of our Series A-1 Preferred Stock in December 2005, which permitted us to demonstrate stockholders’ equity of approximately dlra3dtta95 million on a pro forma basis as of September 30, 2005 after giving effect to the net proceeds received in the financing |
| Nasdaq notified us in January 2006 that we had regained compliance with the stockholders’ equity requirement |
| However, Nasdaq will continue to monitor our stockholders’ equity and we would become subject to delisting proceedings if we fail to remain in compliance |
| We demonstrated compliance with the stockholders’ equity requirement at December 31, 2005 and our dlra2dtta3 million private placement of Series B-1 Preferred Stock in March 2006 further increased our stockholders’ equity |
| In addition, we received a notice in October 2005 from the Nasdaq Stock Market indicating we were not in compliance with Nasdaq’s requirements for continued listing because, for the previous 30 consecutive business days, the bid price of our common stock had closed below the minimum dlra1dtta00 per share requirement for continued inclusion under Nasdaq Marketplace Rule 4450(a)(5) (the “Minimum Bid Price Rule”) |
| Nasdaq stated in its notice that in accordance with Nasdaq Marketplace Rules, we will be provided 180 calendar days, or until April 26, 2006, to regain compliance with the Minimum Bid Price Rule |
| If at any time before April 26, 2006, the bid price of our common stock closes at dlra1dtta00 per share or more for a minimum of 10 consecutive business days, Nasdaq will provide us written notification that we have achieved compliance with the Minimum Bid Price Rule |
| No assurance can be given that we will regain compliance during the 180-day compliance period |
| The closing sale price of our common stock on March 20, 2006 was dlra0dtta62 per share |
| If we do not regain compliance during the compliance period, Nasdaq would then provide us with written notice that our common stock would be delisted from the Nasdaq Capital Market |
| The Nasdaq Capital Market and the Nasdaq Over-the-Counter Bulletin Board are significantly less active markets than the Nasdaq National Market |
| Stockholders could find it more difficult to dispose of their shares of our common stock than if our common stock were listed on the Nasdaq National Market |
| If our common stock were delisted from the Nasdaq Capital Market, it could be more difficult for us to obtain other sources of financing in the future |
| Moreover, if our common stock were delisted from the Nasdaq Capital Market, our stock could be subject to what are known as the “penny stock” rules |
| The “penny stock” rules place additional requirements on broker-dealers who sell or make a market in such securities |
| Consequently, if we were removed from the Nasdaq Capital Market, the ability or willingness of broker-dealers to sell or make a market in our common stock could decline |
| As a result, the ability of our stockholders to resell their shares, and the price at which they could sell their shares, of our common stock could be adversely affected |
| If our common stock were delisted from the Nasdaq Capital Market, it could be more difficult for us to retain existing and obtain new customers |
| The ability to continue to form new strategic relationships may be negatively impacted |
| As a result, delisting could result in a negative impact on our customer base and revenue, and, consequently, a negative impact on stockholder value |
| The large number of our shares eligible for future sale could have an adverse impact on the market price of our common stock |
| A large number of shares of common stock already outstanding, along with shares issuable upon exercise of options or warrants or conversion of convertible notes, are eligible for resale, which may adversely affect the market price of our common stock |
| As of December 31, 2005, we had 9cmam592cmam074 shares of common stock outstanding, 1cmam402cmam395 shares of common stock were issuable upon conversion of Series A-1 Preferred Stock, another 849cmam946 shares were issuable upon conversion of convertible notes and another 7cmam080cmam163 shares were issuable upon exercise of outstanding warrants and options |
| Substantially all of the shares subject to outstanding warrants and options will, when issued upon 10 ______________________________________________________________________ exercise, be available for immediate resale in the public market pursuant to currently effective registration statements under the Securities Act of 1933, as amended, or pursuant to Rule 701 or Rule 144 promulgated thereunder |
| Some of the shares that are or will be eligible for future sale have been or will be issued at discounts to the market price of our common stock on the date of issuance |
| In December 2005, we issued 2cmam342 shares of Series A-1 Preferred Stock (convertible into a total of 4cmam684cmam000 shares of common stock assuming the lowest reset conversion price of dlra0dtta50 per share) and warrants to purchase a total of 3cmam702cmam000 shares of common stock in a private placement financing and agreed to register the resale of all of these shares by May 2006 |
| We have agreed to register for resale all of the shares of common stock issued or issuable in connection with our December 2005 financing |
| Resales or the prospect of resales of these shares may have an adverse effect on the market price of our common stock |
| See also the description of our recent Series B-1 Preferred Stock financing, representing additional shares available for future issuance, under the heading “Liquidity and Capital Resources” in the Management Discussion and Analysis of Financial Condition and Results of Operations in this report |
| Our substantial dependence on third-party relationships could impair our ability to achieve our business objectives and serve our customers |
| We rely on maintaining and developing relationships with customers, Select Partners, professional credentialing and certification organizations and other businesses that provide content for our products and services, corporations, government agencies, and associations and with companies that provide the Internet and related telecommunications services used to distribute our products and services to customers |
| We have relationships with a number of customers, professional credentialing and certification organizations and other businesses that provide us with course content for our online products and services, as well as access to their members who are the ultimate end users of our products |
| Some of the agreements we have entered into with these content providers limit our use of their course content, some do not cover use of any future course content and most may be terminated by either party upon breach of the agreement by the other party or bankruptcy of the other party |
| For example, our agreement with Certified Financial Analysts, or CFA, can be terminated by CFA in the event our common stock is involuntarily delisted from the Nasdaq Capital Market |
| Our ASP-based business model is not compatible with the business models of certain content providers which may lead them to terminate the future licensing of existing and new course content to us or fail to make this content available to us at commercially reasonable rates or terms necessary for success under our business model |
| Given our plans to introduce additional online courses in the future, we will need to license new course content from existing and prospective content providers |
| However we might not be able to maintain and modify, if necessary, our existing agreements with content providers, or successfully negotiate agreements with prospective content providers |
| If the fees we pay and/or the expenses we incur to acquire or distribute content increase, our operating costs and results of operations could be adversely affected |
| We might not be able to license or otherwise acquire course content at commercially reasonable rates or at all |
| We have licensed a Learning Management System from a third party provider under an agreement that expires on December 31, 2008 |
| If the provider does not perform on the contract, does not continue to upgrade and maintain the LMS, does not renew the agreement with VCampus or in some other way impairs our ability to provide the LMS to our customers, our ability to compete would be adversely affected |
| We depend heavily on third-party providers of Internet and related telecommunications services |
| In order to reach customers, our products and services have to be compatible with the web browsers they typically use |
| Our customers have access to us through their arrangements with Internet service providers |
| We also depend heavily on the third-party provider of our off-site data center and the related utilities (electricity and HVAC), physical security and access, and Internet services that it provides |
| 11 ______________________________________________________________________ For our customers, the professional credentialing and certification organizations and other businesses that provide content for our products and services, the companies that provide the Internet and related telecommunications services used to distribute our products and services to customers, and the web-site operators that provide links to our company web-sites, we cannot assure you that: · they regard their relationships with us as sufficiently important to their own businesses and operations; · they will not reassess their commitment to our products or services at any time in the future; · they will not develop their own competitive products or services; · the products or services by which they provide access or links to our products or services will achieve market acceptance or commercial success; or · our relationships with them will result in successful product or service offerings or generate significant revenues |
| If one or more of these entities fail to achieve or maintain market acceptance or commercial success, or if one or more of the entities that do succeed decide to end their relationship with us, we might not be able to generate sufficient revenues to be successful and stockholder investment would be impaired |
| We may be unable to effectively integrate any acquisitions we might make, which could disrupt or have a negative impact on our business |
| Part of our growth strategy includes pursuing acquisitions |
| Any integration process may be complex and time consuming, may be disruptive to the business and may cause an interruption of, or a distraction of management’s attention from, the business as a result of a number of obstacles, including but not limited to: · the loss of key customers of the acquired company; · the incurrence of unexpected expenses and working capital requirements; · a failure of our due diligence process to identify significant issues or contingencies or to properly assess the value and determine an appropriate purchase price; · difficulties assimilating the operations and personnel of the acquired company; · difficulties effectively integrating the acquired technologies with our current technologies; · Our inability to retain key personnel of acquired entities; · failure to maintain the quality of customer service; · Our inability to achieve the financial and strategic goals for the acquired and combined businesses; and · difficulty in maintaining internal controls, procedures and policies |
| Any of the foregoing obstacles, or a combination of them, could increase selling, general and administrative expenses in absolute terms and/or as a percentage of net sales, which could in turn negatively impact our net income and cash flows |
| As part of our plans to grow our business, we periodically evaluate potential acquisition candidates that we believe would compliment our e-Learning business |
| We have limited experience acquiring other businesses and there can be no assurance that we will be successful completing acquisitions or integrating the operations of acquired companies into our business |
| We cannot predict the effect expansion may have on our core business |
| Regardless of whether we are successful in completing any acquisitions, the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses |
| 12 ______________________________________________________________________ Our facilities, personnel and financial and management systems may not be adequate to effectively manage the future expansion we believe necessary to increase our revenues and remain competitive |
| We anticipate that future expansion will be necessary in order to increase our revenues |
| In order to effectively manage our expansion, we may need to attract and hire additional sales, administrative, operations and management personnel |
| We cannot assure you that our facilities, personnel and financial and management systems and controls will be adequate to support the expansion of our operations, and provide adequate levels of service to our customers and partners |
| If we fail to effectively manage our growth, our business could be harmed |
| We operate in a highly competitive industry and may not be able to compete effectively |
| The market for online educational and training products and services is highly competitive and we expect that competition will continue to intensify |
| There are no substantial barriers to entry into our business, and we expect that established and new entities will enter the market for online educational and training products and services in the near future |
| A number of our existing competitors, as well as a number of potential new competitors (including some of our strategic partners), have longer operating histories, greater name recognition, larger customer bases, more diversified lines of products and services and significantly greater resources than we do |
| Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential customers |
| In the past few years, a number of our customers have demanded upgrades to our technology platform |
| Our relatively limited capital resources might not afford us a full opportunity to meet these demands |
| Recently, we have noticed that some of the more widely available online course offerings, particularly those targeted to the corporate training market, are increasingly competing primarily on price, which commoditization drives down margins for all competitors in our industry |
| In competing against us, our strategic partners could use information obtained from us to gain an additional competitive advantage over us |
| Our current and potential competitors might develop products and services that are superior to ours or that achieve greater market acceptance than ours |
| We might not compete effectively and competitive pressures might prevent us from acquiring and maintaining the customer base necessary for us to be successful |
| As the revenue potential for online delivery of educational and training courses continues to grow, the market is likely to attract a number of large, well-capitalized competitors seeking to diversify their revenue streams into this market |
| Not only will some of these potential competitors be well capitalized and be willing to operate in the market at a loss to build market share, they may also acquire and/or substantially fund our other competitors which could weaken demand for our products and make it more difficult for us to reach or even prevent us from reaching profitability |
| The loss of services of any member of our key personnel could prevent us from adequately executing on our business strategy |
| Our future success depends on the continued contributions of our key senior management personnel, consisting of Narasimhan Kannan, Chief Executive Officer, Christopher Nelson, Chief Financial Officer, Ronald Freedman, Senior Vice President, e-Learning Solutions, Laura Friedman, Vice President—Co-Publishing, and Kerry Frederick, Vice President of Content Sales |
| We do not maintain “key man” life insurance on any of our executive officers |
| The loss of services of any of our key management personnel, whether through resignation or other causes, or the inability to attract qualified personnel as needed, could prevent us from adequately executing our business strategy |
| Our results of operations have fluctuated significantly from period to period, and a failure to meet the expectations of investors or the financial community at large could result in a decline in our stock price |
| Our expense levels are based in part on our expectations as to future revenues |
| Quarterly sales and operating results generally depend on the online revenues and development and other revenues, which are difficult to forecast |
| In addition, past results have shown our business to be subject to a material adverse seasonality associated with the large number of holidays in the calendar fourth quarter |
| We may not be able to adjust 13 ______________________________________________________________________ spending in a timely manner to compensate for any unexpected revenue shortfall |
| Accordingly, any significant revenue shortfall would have an immediate adverse impact on our business and financial condition |
| Our operating results may fluctuate significantly in the future as a result of a variety of factors, some of which are outside of our control |
| These factors include: · demand for online education and especially the demand for professional certification and continuing education; · the budgeting cycles of customers, particularly in the government sector; · seasonality of revenues corresponding to holidays in the United States; · capital expenditures and other costs relating to the expansion of operations or the acquisition of complimentary businesses; · the introduction of new products or services by us or our competitors; · the mix of the products and services sold and the channels through which those products and services are sold; · pricing or accounting changes; and · general economic conditions |
| As a strategic response to a changing competitive environment, we may elect from time to time to make certain pricing, service or marketing decisions that could have a material adverse effect on us |
| We believe that period-to-period comparisons of our operating results should not be relied upon as an indication of future performance |
| Due to all of the foregoing factors, it is possible that in some future quarter, our operating results will be below the expectations of public market analysts and investors |
| In such event, the price of our common stock would likely decline |
| We also believe that the price of our shares has been adversely affected, and may continue to be adversely affected, by short sales by unknown groups and by the involuntary listing of our shares in the unregulated Berlin Stock Exchange |
| The Berlin Stock Exchange is known to permit “naked shorts” and creates an environment for the speculation in shares that is not permitted under US law |
| We rely on significant customers, and if we fail to maintain and develop relationships with such customers, we might not generate revenues necessary to achieve our business objectives |
| A significant portion of our revenues is generated by a limited number of customers |
| For the twelve months ended December 31, 2005, two customers, the US Department of Veterans’ Affairs and a large insurance company, accounted for approximately 36prca and 20prca of our revenues, respectively |
| In 2004, three customers, the US Department of Veterans’ Affairs, Park University and a large insurance company, accounted for approximately 27prca, 25prca and 21prca of our revenues, respectively |
| We expect that we will continue to depend on large contracts with a limited number of significant customers at least through the near future |
| This situation can cause our revenue and earnings to fluctuate between quarters based on the timing of contracts |
| Most of our customers have no obligation to purchase additional products or services from us |
| Park University elected not to renew its relationship with VCampus as of May 2004 |
| Park University represented 25prca of VCampus revenues in 2004 and 36prca in 2003 |
| In addition to the loss of the revenue from Park University, our ability to compete effectively in the higher education market space has been adversely impacted by the loss of this customer |
| If we fail to maintain and develop relationships with significant customers, we might not be able to generate revenues necessary to achieve our business objectives |
| 14 ______________________________________________________________________ We rely heavily on a limited number of contracts with the US government, which are subject to termination for convenience by the government at any time |
| While we have experienced no such terminations and have had contracts with these agencies for a number of years, should such terminations occur, they could cause a material adverse impact on our operations |
| During the twelve months ended December 31, 2005 and 2004, 39prca and 35prca, respectively, of our net revenues were derived from performance on a limited number of contracts with US government agencies, primarily the Department of Veterans Affairs, which represented 36prca and 27prca of our net revenues for the twelve months ended December 31, 2005 and 2004, respectively |
| Therefore, any significant disruption or deterioration of our relationship with the US government agencies with which we do business would significantly reduce our revenues |
| Our competitors continuously engage in efforts to expand their business relationships with the government and are likely to continue these efforts in the future |
| Our contracts with the government are generally multiyear contracts, however, they are subject to non-renewal annually, as well as termination by the government for convenience at any time |
| The government may choose to use contractors with competing technologies or it may decide to discontinue any of our programs altogether |
| In addition, the contracts that we do obtain require ongoing compliance with applicable government regulations |
| Termination of our contracts, a shift in government spending to other programs in which we are not involved, a reduction in government spending generally, or our failure to meet applicable government regulations could have a material adverse impact on our operations |
| System failures and capacity constraints could interfere with our efforts to attract customers and attain market acceptance of our products and services |
| A key element of our strategy is to generate a high volume of online traffic to our products and services |
| Accordingly, the performance of our products and services is critical to our reputation, our ability to attract customers and attain market acceptance of our products and services |
| Any system failure that causes interruptions in the availability or increases response time of our products and services would result in less usage of our products and services and, especially if sustained or repeated, would reduce the attractiveness of our products and services |
| For example, in 2005 we experienced a number of “downtimes” with our data center provider that we consider unacceptable |
| Although we have taken actions to remedy these failures, they might recur |
| In addition, our system has single points of failure and requires a weekly maintenance window, both of which increase the time the system is unavailable to our users |
| An increase in the volume of use of our products and services could strain the capacity of the software or hardware we use or the capacity of our network infrastructure, which could lead to slower response time |
| Any failure to expand the capacity of our hardware or network infrastructure on a timely basis or on commercially reasonably terms would reduce the attractiveness of our products and services |
| We also depend on web browsers and Internet service providers for access to their products and services, and users may experience difficulties due to system failures unrelated to our systems, products and services |
| If the security of information stored in and transmitted through computer systems of VCampus and its end-users is not adequately secured, we could incur significant liability and potential customers might be deterred from using our products and services |
| We include in our products certain security protocols that operate in conjunction with encryption and authentication technology |
| In addition, we monitor our system with intrusion detection devices |
| Despite these technologies, our products may be vulnerable to break-ins and similar disruptive problems caused by online users |
| Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and the computer systems of end-users, which may result in significant liability for us and may also deter potential customers |
| For example, computer “hackers” could steal, remove or alter portions of our online courseware or customer payment and identification information |
| Persistent security problems continue to plague the Internet, the Web and other public and private 15 ______________________________________________________________________ data networks |
| Alleviating problems caused by third parties may require us to make significant expenditures of capital and other resources and may cause interruptions, delays or cessation of service to our customers and to us |
| Moreover, our security and privacy concerns and those of existing and potential customers, as well as concerns related to computer viruses, may inhibit the growth of the online marketplace generally, and our customer base and revenues in particular |
| We attempt to limit our liability to customers, including liability arising from a failure of the security features contained in our products, through contractual provisions limiting warranties and disallowing damages in excess of the price paid for the products and services purchased |
| However, these limitations might not be enforceable |
| We maintain liability insurance to protect against these risks |
| However, this insurance may be inadequate or may not apply in some situations |
| The market for our products and services is evolving in response to recent developments relating to online technology |
| The market is characterized by evolving industry standards and customer demands and an increasing number of market entrants who have introduced or developed online products and services |
| It is difficult to predict the size and growth rate, if any, of this market |
| As is typical in the case of a rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty |
| Our future success will depend in significant part on our ability to continue to improve the performance, features and reliability of our products and services in response to both evolving demands of the marketplace and competitive product offerings, and we cannot assure that we will be successful in developing, integrating or marketing such products or services |
| In addition, our new product and courseware releases may contain undetected errors that require significant design modifications, resulting in a loss of customer confidence |
| We might not be able to adequately protect our intellectual property rights |
| We regard our copyrights, trademarks, trade secrets and similar intellectual property as critical to our success, and we rely upon trademark and copyright law, trade secret protection and confidentiality and/or license agreements with our employees, customers, partners and others to protect our proprietary rights |
| We have had certain trademark applications denied and may have more denied in the future |
| We will continue to evaluate the need for registration of additional marks as appropriate |
| Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or services or to obtain and use information that we regard as proprietary |
| In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States |
| Litigation may be necessary to protect our proprietary technology |
| Any such litigation may be time-consuming and costly, cause product release delays, require us to redesign our products or services or require us to enter into royalty or licensing agreements, any of which could have a material adverse effect upon us |
| For example, we were forced to pursue legal action during 2004 to prevent unauthorized use of the web address www |
| us and we are currently pursuing efforts to eliminate the unauthorized use of the domain name www |
| ch by a third party |
| These royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all |
| Our means of protecting our proprietary rights might not be adequate and our competitors might independently develop similar technology, duplicate our products or services or design around patents or other intellectual property rights we have |
| In addition, distributing our products through online networks makes our software more susceptible than other software to unauthorized copying and use |
| For example, online delivery of our courseware makes it difficult to ensure that others comply with contractual restrictions, if any, as to the parties who may access such courseware |
| If, as a result of changing legal interpretations of liability for unauthorized use of our software or otherwise, users were to become less sensitive to avoiding copyright infringement, we might not be able to realize the full value of our intellectual property rights |
| 16 ______________________________________________________________________ Government regulation of business conducted on the Internet could decrease the demand for our products and services or increase our cost of doing business |
| There are currently few laws or regulations that directly apply to activities on the Internet |
| We believe that we are not currently subject to direct regulation by any government agency in the United States, other than regulations that are generally applicable to all businesses |
| A number of legislative and regulatory proposals are under consideration by federal and state lawmakers and regulatory bodies and may be adopted with respect to the Internet and/or online delivery of course content |
| Some of the issues that these laws and regulations may cover include user privacy, pricing and characteristics and quality of products and services |
| The adoption of any such laws or regulations may decrease the growth of the Internet, which could in turn decrease the projected demand for our products and services or increase our cost of doing business |
| The applicability to the Internet of existing US and international laws governing issues such as property ownership, copyright, trade secret, libel, taxation and personal privacy is uncertain and developing |
| For example, we have an open matter before the Virginia Department of Taxation as to whether we owe use tax on third-party royalties paid by us to content providers for courses we delivered online |
| Any new legislation or regulation, or application or interpretation of existing laws, could decrease online demand for our products and services or increase our costs |
| We could issue additional preferred stock and take other actions that might discourage third parties from acquiring us |
| Our board of directors has the authority, without further action by the stockholders, to issue shares of preferred stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of such shares |
| In December 2005, we created and issued a new class of Series A-1 Preferred Stock |
| The rights of the holders of the common stock will be subject to, and may be adversely affected by, the rights of the holders of the Series A-1 Preferred Stock and any other preferred stock that we may issue in the future such as the new class of Series B-1 Preferred Stock we created and issued in March 2006 |
| Issuing preferred stock could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock, thereby delaying, deferring or preventing a change in control of our company |
| Furthermore, the preferred stock may have other rights, including economic rights, senior to our common stock, and as a result, the existing or future preferred stock could decrease the market value of our common stock |
| Certain provisions of our certificate of incorporation and our bylaws could make it more difficult for a third party to acquire, and could discourage a third party from attempting to acquire, control of VCampus |
| Some of them eliminate the right of stockholders to act by written consent and impose various procedural and other requirements which could make it more difficult for stockholders to undertake certain corporate actions |
| These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock and may have the effect of delaying or preventing a change in control of VCampus |
| We may in the future adopt other measures that may have the effect of delaying, deferring or preventing a change in control of VCampus |
| Certain of these measures may be adopted without any further vote or action by the stockholders, although we have no present plans to adopt any such measures |
| We are also afforded the protections of Section 203 of the Delaware General Corporation Law, which could delay or prevent a change in control of VCampus, impede a merger, consolidation or other business combination involving our company or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of VCampus |
| We might not be able to use net operating loss carryforwards |
| As of December 31, 2005, we had net operating loss carryforwards for federal income tax purposes of approximately dlra69dtta7 million, which will expire at various dates through 2025 |
| Our ability to use these net operating loss and credit carryforwards to offset future tax obligations, if any, may be limited by changes in ownership |
| Specifically, management believes that deemed changes in ownership resulting from our recent equity financings will likely prevent us from using part or all of the net operating losses and credit carryfowards under the IRS change in 17 ______________________________________________________________________ ownership rules |
| We have recognized a full valuation allowance against these deferred tax assets because we have determined that it is more likely than not that sufficient taxable income will not be generated during the carryforward period available under the tax law to utilize the deferred tax assets |
| Any limitation on the use of net operating loss carryforwards, to the extent it increases the amount of federal income tax that we must actually pay, may have an adverse impact on our financial condition |
| We do not presently anticipate paying cash dividends on our common stock |
| We intend to retain all earnings, if any, for the foreseeable future for funding our business operations |
| Consequently, we do not anticipate paying any cash dividends on our common stock for the foreseeable future, which could deter some investors from seeking to acquire our common stock |
| SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements contained in this report discuss our plans and strategies for our business and are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act |
| The words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends” and similar expressions are meant to identify these statements as forward-looking statements, but they are not the exclusive means of identifying them |
| The forward- looking statements in this report reflect the current views of our management; however, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed or implied by these statements, including: · our history of losses and negative operating cash flows; · the uncertainties and risks we face relating to our Nasdaq Capital Market listing; · the large number of our shares eligible for future sale could have an adverse impact on the market price of our common stock; · our future capital needs and the uncertainty of additional funding; · our potential inability to compete effectively; · a developing market, rapid technological changes and new products; · risks associated with acquisitions and expansion; · our dependence on significant clients; · our substantial dependence on courseware and third-party courseware providers; · our substantial dependence on third-party relationships; and · changes in accounting methods or estimates underlying these methods |
| We assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise |
| In light of the risks and uncertainties discussed in this section and elsewhere in this report, events referred to in forward-looking statements in this report might not occur |