** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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**FORM 10-K/A**

**Amendment No. 1**

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**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

**For the fiscal year endedDecember 31, 2006**

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**Commission file number0-21421**

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**VCAMPUS CORPORATION**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                              |   | **54-1290319**       |
|-------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of          |   | (I.R.S. Employer     |
| incorporation or  organization)           |   | Identification  No.) |
|                                      |   |                 |
| **1850  Centennial Park Drive**           |   | ** **           |
| **Suite 200**                        |   |                 |
| **Reston,  Virginia**                     |   | **20191**            |
| (Address of  principal executive offices) |   | (Zip Code)           |

 

Registrant’s telephone number, including area code: **703-893-7800**

 

Securities registered pursuant toSection 12(b) of the Act:

**None**

** **

Securities registered pursuant toSection 12(g) of the Act:

**Common Stock ($0.01 parvalue per share)**

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes o   No x.

Indicate by check mark if the Registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes o   No x

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.   Yes x   No o

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o   No x

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  o         AcceleratedFiler  o         Non-AcceleratedFile  x

The aggregate market value of the common stock held bynon-affiliates of the registrant based upon the closing price of the commonstock of $0.16 per share on March 22, 2007 on the Nasdaq OTC Bulletin Board wasapproximately $1,456,060 as of such date (and approximately $2,394,789, basedon $0.30 closing price, as of June 30, 2006, the last business day of theregistrant’s most recently completed second quarter). Shares of common stockheld by each executive officer and director and by each person known by theregistrant who owns 10% or more of the outstanding common stock have beenexcluded in that such persons may be deemed to be affiliates.  This determination of affiliate status maynot be conclusive for other purposes.

Asof April 25, 2007, the registrant had outstanding 10,925,423 shares of commonstock.

 

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**NOTEREGARDING FORWARD-LOOKING STATEMENTS**

*Statements in this AmendmentNo. 1 to Annual Report on Form 10-K that are not descriptions ofhistorical facts are forward-looking statements that are subject to risks anduncertainties.  Actual events or results coulddiffer materially from those currently anticipated due to a number of factors,including those set forth herein and in VCampus’ other SEC filings, andincluding, in particular: uncertainties relating to our ability to continue asa going concern; our history of losses and negative operating cash flows;future capital needs and uncertainty of additional funding; limited liquidityfor our shares on the OTC Bulletin Board; dependence on significant customers;substantial dependence on courseware and third party courseware providers;substantial dependence on third party technology; risks associated withacquisitions (including the integration of Prosoft), dependence on onlinedistribution; potential internet regulation; our dependence on key personnel; intenseand increasing competition; a developing market; and  rapid technological changes and new products.*

**PARTS III and IV**

Certain information required by Part III was omitted from theCompany’s report on Form 10-K filed on April 12, 2007 because at the time theCompany intended to file either:  (a) anamendment to the Form 10-K within 120 days after the end of its fiscalyear; or (b) a definitive proxy statement for its 2007 Annual Meeting ofStockholders (the “Proxy Statement”) within 120 days after the end of itsfiscal year pursuant to Regulation 14A promulgated under the SecuritiesExchange Act of 1934, as amended. Because the Company no longer intends to file the definitive proxystatement within such 120-day period, the omitted information is filed herewithand provided below as required.  Inaddition, in connection with the filing of this amendment and pursuant to therules of the SEC, we are including in this amendment certain currently datedcertifications.  Accordingly, Item 15 ofPart IV has also been amended to reflect the filing of these currently datedcertifications.

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**Item 10.  Directors and ExecutiveOfficers of the Registrant**

Our executive officers and directors and their ages as of March 1, 2007are as follows: 
| **Name**              | ** ** | ** ** | ** ** | **Age**                                                     | ** ** | **Positions** |
|-----------------------|------------|------------|------------|-------------------------------------------------------------|------------|---------------|
| Nat Kannan            |       | 58         |       | Chief Executive Officer  and Chairman                       |
| Christopher L. Nelson |       | 44         |       | Chief Financial Officer  and Secretary                      |
| Ronald E. Freedman    |       | 58         |       | Senior Vice President,  e-learning solutions                |
| Laura B. Friedman     |       | 44         |       | Vice-President,  Publishing                                 |
| Lindsay H. Miller     |       | 59         |       | Senior Vice-President  and General Manager Prosoft Learning |
| James A. Stanger      |       | 42         |       | Vice-President of  Certification and Product Development    |
| John Birdsong         |       | 67         |       | Director                                                    |
| Edson D. deCastro     |       | 68         |       | Director                                                    |
| Martin E. Maleska     |       | 62         |       | Director                                                    |

 

*Narasimhan “Nat” Kannan *has served asVCampus’ Chairman of the Board of Directors since he founded VCampus in1984.  He resumed the Chief Executive Officer position inDecember 2002, a position he formerly held from 1984 to 2000.  Prior to founding VCampus, he co-founded GanesaGroup, Inc., a developer of interactive graphics and modeling software, in1981. He also served as a consultant to Booz Allen and Hamilton, Inc., theMITRE Corporation, The Ministry of Industry of the French Government, theBrookhaven and Lawrence Livermore National Laboratories, the White HouseDomestic Policy Committee on Energy and Control Data Corporation.  He holds a B.S. in Engineering from theIndian Institute of Technology in Madras, India, and he performed advancedgraduate work in business and engineering at Dartmouth College.

*Christopher L. Nelson* joined VCampusas Chief Financial Officer and Chief Information Officer in June of2002.  Through September 2006, Mr. Nelson oversaw the operations andcustomer service areas of the business in addition to his finance andaccounting department responsibilities.  In October 2006, the role ofChief Financial Officer was changed to a part-time position.  Mr. Nelsonhas agreed to continue as the part-time Chief Financial Officer through June 2007. He currently also serves as Chief Financial Officer of Qmobile Inc., a privatemobile content company.  Prior to his appointment as our CFO,Mr. Nelson was a Principal of Monticello Capital LLC since 1998, where headvised high-growth technology businesses and their corporate boards oncorporate finance, capitalization transactions, and mergers and acquisitions.Mr. Nelson held executive positions in several early-stage high techcompanies in the Internet space prior to joining VCampus. Mr. Nelson alsoheld executive positions at NTT/Verio, as well as sales and marketing andmanufacturing positions at IBM Corporation. Mr. Nelson holds a Master ofBusiness Administration from The Wharton School at the University ofPennsylvania and a Bachelor of Science degree in Chemical Engineering from theUniversity of Delaware. Mr. Nelson also previously served as a GeorgeMason Fellow, acting as an advisor to start-up and early stage technologycompanies on a volunteer basis through the TechVenture Partnership at GeorgeMason University.

*Ronald E. Freedman *is responsiblefor e-Learning Solution sales with a particular emphasis on the governmentmarket.  Mr. Freedman has more than 20 years of hands-onexperience in sales management, strategic planning, business development, andexecution of profit and loss responsibility.  Mr. Freedman joinedVCampus in 2001 from USinternetworking, Inc. (USi) where he was VicePresident of Information Assurance and Chief Security Officer from 1999 through2001.  While at USi, he was responsible for the design, implementation andmanagement of the USi Total Security Architecture, a best-of-breed securityportfolio.  Prior to joining USi, Freedman was Vice President of one ofthe business divisions at The Netplex Group, Inc. for four years. There, he was responsible for sales, marketing and fulfillment of a wide rangeof technology-based products and services.  Previously, Mr. Freedmanwas Vice President, Systems and Services for COMSIS Corporation, where hemanaged the division of the professional services company providing contingencyplanning and information security services to commercial and governmentcustomers.  He also 

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served as Executive VicePresident of Advanced Information Management, Inc., where he wasresponsible for marketing and delivering information security and contingencyplanning services to Fortune 500 customers.  Mr. Freedman worked forGeneral Electric Company for fifteen years, most recently as General Manager,Disaster Recovery Services and Manager, Strategic Planning and BusinessDevelopment.  He also served as a Presidential appointee, on loan to TheWhite House from General Electric, responsible for developing contingency plansas part of the Continuity of Government Program. Mr. Freedman holds a BAin Economics from Northeastern University in Boston and an MBA in Managementfrom Babson College in Wellesley, MA.  He currently serves as Chairman ofITAA’s e-Learning Committee.

*Laura B. Friedman *is responsiblefor developing and managing partnerships under the Select Partner program andfor our courseware production group, or Custom Design Studio.  Ms.Friedman is an experienced professional publishing executive, having served formore than 17 years in a variety of marketing, editorial and content developmentpositions in both traditional and electronic publishing.  Prior to joiningVCampus, she served as Vice President of Learning Services at Zoologic, Inc.from November 2002 to August 2004.  A long time supporter of e-Learning,she founded the e-Learning program at The New York Institute of Finance (NYIF),Pearson’s financial training division, where she was Vice President ofe-Learning from May 1996 to November 2002.  In addition to creating NYIF’sportfolio of online courses in financial training, Laura oversaw custom developmentprojects for clients such as Accenture, Arthur Andersen and the FinancialTimes.  She served as Director, International Marketing for Business,Professional and Reference products at Simon & Schuster.  AtMcGraw-Hill and Time Warner’s Book-of-the-Month Club, Ms. Friedman held avariety of editorial and marketing positions in professional publishing. She holds a B.A. from the State University at Albany and a MBA from FordhamUniversity.

*Lindsay H. Miller*.  As the Senior VicePresident and General Manager of Prosoft, Mr. Miller is responsible formanaging all aspects of day-to-day business and operations at Prosoft. Mr.Miller began his career with ComputerPREP in 1998 as an IT Manager and soonthereafter took over the position of CIO.  After Prosoft’s acquisition ofComputerPREP in 2000, Mr. Miller was promoted first to Vice President ofInformation Technology, and thereafter to CIO, and in March of 2003 he becameVice President of Operations.  Prior to joining ComputerPREP, Mr. Millerowned and operated the largest independent electronics-servicing firm in thePhoenix metropolitan area for 10 years. Mr. Miller’s experience also includesvarious sales and marketing positions, including Vice President of Marketingfor companies such as Gould, General Instrument, AMCable and Xerox. Mr. Millerearned a B.S. in Mathematics from Bradley University and an MBA from theUniversity of Chicago.  He is past Chairperson of the Phoenix CIO Council.Mr. Miller was an executive officer at Prosoft prior to and at the time of itsvoluntary filing in April 2006 for bankruptcy protection in connection withProsoft’s acquisition by VCampus in June 2006.

*Dr. James Stanger* leads Prosoft’s broadactivities in certification as well as the company’s well-respected productdevelopment capabilities. Dr. Stanger joined the company in 1997. Followingmany years as a key leader in the company’s product development area, he wasnamed Director of the group in May 2003. He was promoted to Vice President,Certification and Product Development in December 2003. Dr. Stanger is veryactive in the certification community. He has helped develop certifications forSymantec, the Linux Professional Institute (LPI), CompTIA, and theTelecommunications Industry Association (TIA). He is currently Chair of the LPIAdvisory Council and sits on the CompTIA Network+ and Linux+ cornerstonecommittees. Dr. Stanger is a prolific author. A sample of the titles he haseither written or contributed to include The Windows to Linux Migration Toolkit(Syngress), Security+ (ComputerPREP), Hack Proofing Linux (Syngress), TheE-mail Virus Protection Handbook (Syngress), and The CIW Security ProfessionalStudy Guide (Sybex). An accomplished networking consultant, Dr. Stanger hasadvised customers such as Symantec, the TIA, Security, Fuelzone.com, and IBMconcerning Internet security, convergence technology, and Windows to Linuxmigration. Prior to joining Prosoft, Dr. Stanger was an educator andconsultant, holding teaching positions at the University of California atRiverside, the University of Redlands, and Crafton Hills College. Dr. Stangerearned a B.A. and a Masters degree in English from Brigham Young University anda Ph.D. in English from the University of California at Riverside. He is a CIWMaster Administrator, and also holds the Linux+, Security+, A+, and ConvergenceTechnologies Professional (CTP) certifications.

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*John G. Birdsong* has been a director sinceJune 2006. Mr. Birdsong spent ten years in the aerospace industry as a flighttest engineer, space systems engineer, and project manager. He ****was a founder andManaging Partner of Centaur Associates, Inc., a business economics andmanagement consulting firm in Washington, DC. His tenure with Centaur was 15 years and concluded with the firm’sacquisition by A.T. Kearney, Inc. He was a founder of VCampus Corporation****andserved as its first Chief Financial Officer.  He is also a founder of HighStakes Writing, LLC, a training and publishing company, where he serves asManaging Director. ****Mr.Birdsong has an MBA from the Harvard Business School and a BAE (aeronauticalengineering) from The Georgia Institute of Technology.****

*Edson D. deCastro* has been a director since1994.  From June 1995 toJanuary 1997 Mr. deCastro served as Chief Executive Officer ofXenometrix, Inc. and served as its Chairman from 1992 untilNovember 1997.  Mr. deCastrowas the founder of Data General Corporation and served as its Chief ExecutiveOfficer from 1968 to 1990.  FromJanuary 1990 to June 1995, Mr. deCastro was an independentcontractor.  Mr. deCastro now worksas a consultant.  Mr. deCastro alsoserves on the boards of directors of Avax Technologies, Inc. andHealthgate Data Corp., both public companies, and of several privateearly-stage technology companies.  Heholds a B.S. in Electrical Engineering from the University of Lowell.

*Martin E. Maleska* has been a director sinceFebruary 2001.  Since August 2004,he has been a partner in a firm (Riverside Partners) focused on advisingprivate equity firms on investment strategies. Prior to August 2004, he was the President and Chief Executive Officerof the Business Information Group at Primedia Inc. and before that he served asManaging Director of Veronis Suhler Stevenson, a media-oriented merchant bank,beginning in January 1999.  Priorthereto, Mr. Maleska served as President of Simon & Schuster’sInternational and Professional Group. Mr. Maleska holds a B.S. in Chemistry from Fordham University andan M.B.A. in Finance from New York University.

**Section 16(a)Beneficial Ownership Reporting Compliance**

Pursuant to Section 16(a) of theExchange Act, our directors and executive officers and persons who beneficiallyown 10% or more of our common stock (collectively, “Insiders”) are required tofile reports with the SEC indicating their holdings of and transactions in ourequity securities.  Insiders are requiredby SEC regulations to furnish us with copies of all Section 16(a) forms theyfile.  To our knowledge, based solely ona review of the copies of such reports furnished to us and writtenrepresentations that no other reports were required, there were no reportsrequired under Section 16(a) of the Exchange Act which were not timely filedduring the fiscal year ended December 31, 2006, except for the following:

1.                  David Holzer, one of our largest beneficialshareholders, filed a late Form 3 on December 5, 2006 to report him becoming anew Section 16 reporting person.

2.                  David Holzer filed a late Form 4 on December 5,2006 to report (i) that the conversion price of his Series A-1 Preferred Stockautomatically adjusted pursuant to its terms upon the closing of our September2006 financing on September 25, 2006, which for Section 16 reporting purposesis deemed cancellation of the original shares of preferred stock and issuanceof replacement shares of preferred stock in exchange thereof; and (ii) that theexercise price of a warrant to purchase shares automatically adjusted pursuantto its terms upon the closing of our September 2006 financing on September 25,2006, which for Section 16 reporting purposes is deemed cancellation of theoriginal warrant and issuance of a replacement warrant in exchange thereof.

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3.                  Director and Chief Executive Officer NarasimhanP. Kannan filed a late Form 4 on November 13, 2006 to report (i) that theconversion price of his Series A-1 Preferred Stock automatically adjustedpursuant to its terms upon the closing of our September 2006 financing onSeptember 25, 2006; and (ii) that the exercise price of a warrant topurchase shares automatically adjusted pursuant to its terms upon the closingof our September 2006 financing on September 25, 2006.

4.                  Narasimhan P. Kannan filed a late Form 4 on May30, 2006 to report (i) that the conversion price of his Series A-1 PreferredStock automatically adjusted pursuant to its terms upon shareholder approval ofthe Series A-1 financing on May 25, 2006; and (ii) that the exercise price of awarrant to purchase shares automatically adjusted pursuant to its terms uponshareholder approval of the Series A-1 financing on May 25, 2006.

5.                  Director Edson D. deCastro filed a late Form 4 onMay 30, 2006 to report the grant of stock options for the purchase of 10,000shares granted to him under our 2006 Equity Incentive Plan on May 25, 2006.

6.                  Director Martin E. Maleska filed a late Form 4 onMay 30, 2006 to report the grant of stock options for the purchase of 10,000shares granted to him under our 2006 Equity Incentive Plan on May 25, 2006.

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**Item 11.  Executive Compensation.**

***Compensation Discussion and Analysis***

***What are the objectives of the compensation program?***

Our executivecompensation program has three objectives: (1) to align the interests ofthe executive officers with the interest of our stockholders by basing asignificant portion of an executive’s compensation on our performance;(2) to attract and retain highly talented and productive executives; and(3) to provide incentives for superior performance by our executives.  To achieve these objectives, the CompensationCommittee has crafted a program that consists of base salary, short-termincentive compensation in the form of discretionary and performance-based cashbonuses and long-term incentive compensation in the form of stock options.  These compensation elements are in additionto the general benefits programs that we offer to all of our employees.

Each year, theCompensation Committee reviews our executive compensation program.  In its review, the Compensation Committeestudies the compensation packages for executives of companies at a comparablestage of development and in our geographical area, assesses the competitivenessof our executive compensation program and reviews our financial and operationalperformance for the previous fiscal year. The Compensation Committee also gauges the success of the compensationprogram in achieving its objectives in the previous year, and considers ouroverall performance objectives.

Each element ofour executive compensation program is discussed below.

***What is the compensation program designed to reward?***

Our compensationprogram is designed to recognize and reward effective leadership, individualperformance and business performance that contribute to the achievement of ourshort and long term goals in a manner consistent with our vision andvalues.  In 2006, we placed significantemphasis on our need to grow revenues and pursue acquisition opportunities.

***What are the elements of the compensation program?***

Our compensationprogram consists of base salary, short-term incentive compensation in the formof discretionary and performance-based cash bonuses, and long-term incentivecompensation in the form of stock options.

*BaseSalary. *Base salariesare paid to our executive officers to compensate them for the performance oftheir respective job duties and responsibilities.  The Compensation Committee annually reviewsthe base salaries of our executive officers. The base salaries for our executive officers for 2006 were establishedat the beginning of that fiscal year, or when the executive joined us, as thecase may be.  In addition to consideringthe factors listed in the foregoing section that support our executivecompensation program generally, the Compensation Committee reviews theresponsibilities of the specific executive position and the experience andknowledge of the individual in that position, as well as market and competitivesalary information and changes in the scope of an executive officer’s jobresponsibilities.  The CompensationCommittee also measures individual performance based upon a number of factors,including measurement of our historic and recent financial and operationalperformance and the individual’s contribution to that performance, theindividual performance on non-financial goals and other contributions of theindividual to our success, and 

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gives each of these factors relatively equal weightwithout confining our analysis to a rigorous formula.  The Compensation Committee recognizes that inorder to attract and retain qualified senior executives to work for a publiclytraded micro-cap company, like VCampus, particularly one that is addressinggoing concern issues, it needs to offer a base salary that may represent apremium to what other comparably sized companies offer.  As is typical of most corporations, theactual payment of base salary is not conditioned upon the achievement of anypredetermined performance targets.  InOctober 2006, Mr. Nelson’s annual base salary of $220,000 was reduced toone-third of that amount to reflect his new role as part-time Chief FinancialOfficer.  Because Mr. Nelson effectivelyworked full time for much of the first quarter of 2006 to complete our auditfor the year-ended December 31, 2006 and to complete and file our Annual Reporton Form 10-K and related tasks, the Compensation Committee restored Mr. Nelson’ssalary to his full-time rate for the period from February 15, 2007 throughApril 2007.  In addition, Mr. Nelson hasagreed to stay on as our part-time CFO at least through the end of June 2007.

*Short-TermIncentive Compensation. *Cash bonuses established for executiveofficers are intended to motivate the individual to work hard to achieve ourfinancial and operational performance goals or to otherwise incentivize theindividual to aim for a high level of achievement on our behalf in the comingyear.  Prior to 2006, the CompensationCommittee generally has not applied an exact formula for determining bonuspayments, but has established general target bonus levels up to a maximum of50% of base salary for executive officers based in relatively equal measuresupon the Compensation Committee’s subjective assessment of our projectedrevenues and net income, progress of the Select Partner Program and otheroperational and individual performance factors. The Committee may adjust these targets during the year.  For 2006, the Compensation Committee followeda more objective system for determining bonus payments due to Mr. Kannan.  Given the historical lack of performance ofthe company’s stock price, the Compensation Committee recognizes that it hasrelied, and will likely continue to rely for the foreseeable future, moreheavily on cash bonuses than equity grants to provide appropriate incentives toemployees for superior performance.

For 2006 performance, Mr. Kannan was eligible for abase performance bonus equal to approximately 45% of his annual base salary (or$127,272) based on the company’s achievement of 100% of revenue milestonesdetermined by the Compensation Committee. In addition, he was eligible for 50% of such performance bonus (or$63,636) for achieving 90% of the revenue milestone and up to 150% of suchbonus for achieving 120% or more of the revenue milestone.  He would be entitled to no performance bonusfor achieving less than 90% of the revenue milestone.  Based on the company’s achievement ofapproximately 95% of the revenue milestone in 2006, which assumes the inclusionof revenue from Prosoft operations following its acquisition in June 2006, wehave accrued, but have not yet paid, a bonus of $92,746 to Mr. Kannan under hisagreement.

Effectivein October 2006, we amended the employment agreement with Mr. Nelson to providethe terms of his potential performance bonus for 2006.  Mr. Nelson’s compensation package wasapproved by the Compensation Committee, comprised entirely of independentdirectors.  Mr. Nelson’s prior bonusarrangement was structured substantially the same as the formulaperformance-based arrangement in place for Mr. Kannan, as described above.  In order to resolve how Mr. Nelson’s bonuswould be calculated as a result of his new part-time role beginning in October2006, the Compensation Committee and Mr. Nelson agreed that he would be paid abonus of between $30,000 and $50,000, based on the Compensation Committee’ssubjective assessment, in its sole discretion, of his overall performance inhis capacity as the VCampus’ Chief Financial Officer in 2006.  In the first quarter of 2007, theCompensation Committee authorized and paid a bonus of $50,000 to Mr. Nelsonbased on its assessment of his performance in 2006, including his role incompleting two financings and the successful acquisition of Prosoft.

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Each of our otherNamed Executive Officers is eligible for a performance bonus to be determinedin the sole discretion of the Compensation Committee.  We do not have employment agreements with anyof our Named Executive Officers, except for Messrs. Kannan and Nelson.

The CompensationCommittee believes this discretionary approach to cash incentive awards, whereappropriate, properly motivates and rewards our executive officers and providesthe Committee with the flexibility to set awards that reflect each executiveofficer’s contributions for the given year. The cash incentive awards paid under our employee incentive compensationplan for 2006 as set forth above are shown in the Summary Compensation Tablebelow.

*Long-Term Incentive Compensation.*  Ourlong-term incentive compensation plan for our executive officers is based uponour stock plans.  We believe that placinga portion of our executives’ total compensation in the form of stock optionsachieves three objectives.  It aligns theinterest of our executives directly with those of our stockholders, givesexecutives a significant long-term interest in our success and helps us retainkey executives.  Given the historicallack of performance of our stock price, the company has yet to recognize thefull potential for stock options to provide the intended long-term incentivefor employee performance.  Optionsgenerally have a ten-year term and vest over a four-year period based uponcontinued employment.  In the past fiveyears, we granted performance-based options to the Chief Executive Officer andvarious other executive officers.  InJanuary 2003, we granted a performance option to Mr. Kannan topurchase 35,000 shares of common stock that vests ratably over four years,subject to acceleration in the event certain revenue, profitability and EBITDAmilestones are achieved.  In June 2004,we granted a performance option to Mr. Kannan to purchase 250,000 shares ofcommon stock that vests ratably over four years, subject to acceleration in theevent revenue and profitability milestones are achieved.  Mr. Nelson and Mr. Freedman were grantedperformance options on the same terms in June 2004 for the purchase of 130,000and 72,000 shares, respectively.  None ofthe performance milestones have been achieved as of the date of this report;hence there has been no acceleration of vesting.  Options granted to executives in 2006 vestover four years based on continued employment.

In determining thenumber of options to grant an executive, the Board primarily considered theexecutive’s past performance and the degree to which an incentive for long-termperformance would benefit us, as well as the number of shares and optionsalready held by the executive officer. It is the Compensation Committee’s policy to grant options at fairmarket value unless particular circumstances warrant otherwise.

The CompensationCommittee believes its stock option award program is consistent with its statedobjective of establishing a performance-based executive compensation system toreward and incentivize its executive officers because the value of theexecutive’s stock options generally will be tied to our overall futureperformance.  In addition, theCompensation Committee believes the four-year vesting schedule for stock optionawards helps us retain executive officers because unvested stock options areautomatically forfeited upon the termination of an executive officer’semployment.

The CompensationCommittee typically approves annual stock option awards to our executiveofficers at the first Committee meeting held after our annual stockholdermeeting.  The dates for the meetings ofthe Board of Directors and its committees, including the Compensation Committee,for each year are typically set several weeks prior to the start of eachyear.  In 2006, the CompensationCommittee deferred approving annual grants to the executives until December2006 to allow for additional time to include Prosoft employees as part of thegrant.  On December 12, 2006, theCompensation Committee held a meeting and approved the annual stock optionsgrants set forth below to the Named Executive Officers to incentivize futureperformance.

| Name                      | ** ** | ** ** | ** ** | **Number of Options** | ** ** |
|---------------------------|------------|------------|------------|---------------------------------|------------|
| Narasimhan P.  Kannan     |       | 120,000    |       |
| Ronald E.  Freedman       |       | 30,000     |       |
| Laura B.  Friedman        |       | 30,000     |       |
| Stavros G.  Hadjinicolaou |       | 50,000     |       |
| Christopher L. Nelson     |       | 0          |       |

 

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All the foregoingoptions have an exercise price of $0.30, which represents a premium to theclosing price of the Company’s common stock on the date of grant (in order toavoid triggering an antidilution adjustment to the price of various outstandingsecurities), are exercisable over a period of 10 years from the grant date andare subject to our standard four-year linear vesting schedule as describedabove.

*Benefits.*  We believe that we must offer acompetitive benefit program to attract and retain key executives.  During 2006, we provided the same medical andother benefits to our executive officers that are generally available to our otheremployees.

***Why do we choose to pay each element of compensation?***

We believe thecombination of elements that make up our compensation program provides acompetitive and reasonable pay package that attracts the talent we need,motivates that talent to achieve our short- and long-term goals, reinforcesexpectations of leadership, personal vision and values and aligns executives’interests with our stockholders’ interests.

We believe ourbase salaries attract and retain executives with the qualifications we need forleading and growing our business.  Thepurpose of our annual incentive awards is to encourage superior performancefrom our executives by establishing demanding goals for our executives that areconsistent with the achievement of our short-term goals.  Our long-term incentive awards are designedto retain executives who demonstrate the qualifications we need and to providecontinued motivation and incentive to achieve our long-term goals.  We believe that awarding long-term incentivecompensation aligns our executives’ interests with those of ourstockholders.  We encourage stockownership by executive management through the use of equity awards.

***How do we determine the amount for each element ofcompensation paid?***

*BasePay. *In considering and determining the base pay for ourexecutive officers, the Compensation Committee considers various factors,including individual performance, historical compensation information andmarket data.  The Compensation Committeemeasures individual performance based upon a number of factors, includingmanagement of our historic and recent financial and operational goals and othercontributions of the individual to our success. The Compensation Committeegenerally gives all factors relatively equal weight without confining itsanalysis to a rigorous formula.

Short-*Term Incentive Compensation. *In considering and determining theshort-term incentive compensation for our executive officers, the CompensationCommittee sets such amounts so as to motivate the individual to work hard toachieve our financial and operational goals and to otherwise incentivize theindividual to aim for a high level of achievement on our behalf. As describedabove, Mr. Kannan’s short-term incentive compensation in 2006 was based uponthe achievement of certain revenue milestones while Mr. Nelson’s short-termincentive compensation in 2006 was, within a certain range, based upon thesubjective assessment of the Compensation Committee.

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*Long-TermIncentive Compensation. *In determining the number of options togrant an executive, the Board primarily considers the executive’s pastperformance and the degree to which an incentive for long-term performancewould benefit us, as well as the number of shares and options already held bythe executive officer.  It is theCompensation Committee’s policy to grant options at fair market value unlessparticular circumstances warrant otherwise.

*Compensationof the Chief Executive Officer.* The Chief Executive Officer’s compensation isgenerally based upon the same elements and measures of performance as is thecompensation for our other executive officers. The Compensation Committee approved a base salary for Mr. Kannan of$23,333 per month that extends through December 2007.  In structuring the compensation ofMr. Kannan, the Compensation Committee considered the alignment of hiscompensation package with our financial performance to be essential.  Accordingly, the Compensation Committeedecided to tie 100% of Mr. Kannan’s potential bonus for 2006 to thecompany’s achievement of financial milestones established by thecommittee.  The Compensation Committeehas not yet established any 2007 performance milestones for determining Mr.Kannan’s bonus for 2007.

***How does each compensation element, and our decisionregarding that element, fit into our overall compensation objectives and affectdecisions regarding other elements?***

As stated above,****ourexecutive compensation program has three objectives: (1) to align theinterests of the executive officers with the interest of our stockholders bybasing a significant portion of an executive’s compensation on our performance;(2) to attract and retain highly talented and productive executives; and(3) to provide incentives for superior performance by our executives.  Our decisions regarding base salary aredesigned to make our executive compensation competitive with the compensationpackages for executives of companies at a comparable stage of development andin our geographical area, and as such fit into the above objective ofattracting and retaining highly talented and productive executives.  Our decisions regarding short-term incentivecompensation are based upon individual as well as company performance, and assuch fit within the overall objectives of providing incentives for superiorperformance by our executives and aligning the interests of the executiveofficers with the interest of our stockholders. Our decisions regarding long-term incentive compensation are designed tobenefit our executive officers upon appreciation of our stock price, and assuch fit within our objectives of aligning the interests of the executiveofficers with the interest of our stockholders and providing incentives forsuperior performance by our executives.

We account forequity awards in accordance with Statement of Financial Accounting StandardsNo. 123R and the accounting treatment of the various types of compensationawarded to executive officers and other employees is one factor considered bythe Compensation Committee in making compensation decisions.

***Does the accounting and tax treatment of a particular formof compensation impact the form and design of awards?***

The CompensationCommittee considers tax and accounting treatment of various compensationalternatives, including the potential tax deductibility of proposedcompensation arrangements.  However,these are not typically driving factors. The Compensation Committee may determine to approve non-deductiblecompensation arrangements if it believes that such arrangements are in the bestinterests of the company and its shareholders. As part of its analysis, the Compensation Committee may take intoaccount a variety of factors, including our ability to utilize the deductionbased on projected taxable income.

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***What is the role of our executive officers in thecompensation process?***

Our ChiefExecutive Officer has access to the compensation information describedabove.  Using that information, our ChiefExecutive Officer makes recommendations to the Compensation Committee regardingthe compensation of our other named executive officers.  Taking these recommendations into account,the Compensation Committee independently reviews the data and makes its owndeterminations.  Our management team alsomay make recommendations to the Compensation Committee regarding annualincentive compensation and long-term incentive compensation, such as theforms, weighting and vesting of awards and performance metrics, whereapplicable.  In each case, the CompensationCommittee considers management’s proposals and makes its owndeterminations.  Our executive officersdo not have any role in establishing the timing of grants or vesting of stockoptions.

***Do we have any program, plan or practice to time optiongrants to our executives in coordination with the release of materialnon-public information?***

We do not have anyprogram, plan or practice to time grants of stock options to our executives incoordination with the release of material non-public information and we do notset grant dates of stock options to new executives in coordination with therelease of such information.  We have nottimed, and do not intend to time, our release of material non-publicinformation for the purpose of affecting the value of executive compensation.

***Employment Agreements***

Following Mr. Kannan’s reappointment as our ChiefExecutive Officer in December 2002, Mr. Kannan and VCampus enteredinto a new employment agreement, effective on January 1, 2003, providingfor an annual base salary of $280,000. We granted Mr. Kannan a performance-based option to purchase 35,000shares of common stock at market price on the date of grant ($3.72 pershare).  The term of the agreementexpired in June 2003, at which time VCampus and Mr. Kannan entered into anAmended and Restated Employment Agreement extending his employment for anadditional 2 years at the same base salary as provided under the prioragreement.  Effective on December 30,2005, we entered into a new employment agreement with Mr. Kannan extending hisemployment term through December 31, 2006 at the same base salary.  Mr. Kannan’s employment was automaticallyrenewed in December 2006 for another year pursuant to terms of his existingagreement.

Mr. Kannan’s compensation package was approved by ourCompensation Committee, comprised entirely of independent directors.  For 2006 performance, Mr. Kannan was eligiblefor a base performance bonus equal to approximately 45% of his annual basesalary (or $127,272) based on the company’s achievement of 100% of the revenuemilestone determined by the Compensation Committee.  In addition, he was eligible for 50% of suchperformance bonus (or $63,636) for achieving 90% of the revenue milestone andup to 150% of such bonus for achieving 120% or more of the revenuemilestone.  He would be entitled to noperformance bonus in 2006 for achieving less than 90% of the revenuemilestone.  Based on the Company’sachievement of approximately 95% of the revenue milestone in 2006, whichassumes inclusion of revenue from Prosoft operations following its acquisitionin June 2006, we have accrued, but have not yet paid, a bonus of $92,746 to Mr.Kannan under his agreement.  In the eventMr. Kannan is terminated without cause or resigns for good reason (including a changeof control), we are obligated under his employment agreement to continue payinghim his base salary for six months as severance.

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Mr. Nelson’semployment agreement, as amended in October 2006 to reflect his new part-timerole, provides for an annualized base salary of $73,333.33.  The term of the agreement, as renewed,expires in May 2007, although Mr. Nelson has agreed to stay on in hiscurrent position with us under the same terms at least through June 2007.  The agreement is not subject to automaticrenewal terms, but it may be renewed by written consent of both parties givenprior to the termination date.  Hereceived a performance bonus of $30,000 for services rendered in 2005.  Effective in October 2006, we amended theemployment agreement with Mr. Nelson to provide the terms of his potentialperformance bonus for 2006.  Mr. Nelson’scompensation package was approved by the Compensation Committee, comprisedentirely of independent directors.  Mr.Nelson’s prior bonus arrangement was structured substantially the same as theformula performance-based arrangement in place for Mr. Kannan.  In order to resolve how Mr. Nelson’s bonuswould be calculated as a result of his new part-time role beginning in October2006, the Compensation Committee and Mr. Nelson agreed that he would be paid abonus of between $30,000 and $50,000, based on the Compensation Committee’ssubjective assessment, in its sole discretion, of his overall performance inhis capacity as the VCampus’ Chief Financial Officer in 2006.  In the first quarter of 2007, theCompensation Committee authorized and paid a bonus of $50,000 to Mr. Nelsonbased on its assessment of his performance in 2006, including his role incompleting two financings and the successful acquisition of Prosoft.  In the event Mr. Nelson is terminatedwithout cause or resigns for good reason (including a change of control), weare required under his employment agreement to continue paying him his basesalary through the end of the term of the agreement as severance.

**TheCompensation Committee**

The CompensationCommittee of the Board of Directors is responsible for establishingcompensation policy and administering the compensation programs of ourexecutive officers.  The CompensationCommittee of the Board of Directors, consisting entirely of non-employeedirectors, approves all policies under which compensation is paid or awarded toour executive officers.  The CompensationCommittee is currently composed of Messrs. deCastro, Maleska andBirdsong.  The members of the CompensationCommittee also administer our stock plans.

*Section 162(m)of the Code.*    Itis the responsibility of the Compensation Committee to address the issuesraised by Section 162(m) of the Code. This Section makes certain non-performance based compensation in excessof $1,000,000 to executives of public companies non-deductible to suchcompanies.  The Compensation Committeehas reviewed these issues and has determined that it is not necessary for us totake any action at this time with regard to these issues.

**Compensationof Directors**

We pay ournon-employee directors $5,000 for each in-person Board meeting attended and$3,000 for each in-person committee meeting attended, up to a maximum of onecommittee meeting per day.  In addition,we pay non-employee directors $1,000 for participating in each telephonic Boardmeeting and up to one additional committee meeting per day.  Directors can elect to be paid these fees incash or common stock valued at fair market value on the date of grant.  We reimburse directors for expenses incurredin connection with each board or committee meeting attended.

Our 2006 EquityIncentive Plan (the “2006 Plan”) provides for the grant of nonstatutory optionsto our non-employee directors.  The 2006Plan provides automatic grants on the date of the first Board meeting followingour annual meeting of stockholders of each year to non-employee directors of anoption to purchase 10,000 shares.  Inaddition, in the case of a new director, automatic grants shall be effectiveupon such director’s initial election or appointment to the Board with thenumber of underlying shares equal to the 

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product of 2,500 multiplied by the number of regularlyscheduled meetings remaining before the next annual meeting ofstockholders.  Subject to continuedstatus as a director, options granted pursuant to this program vest 25% peryear on each of the fifth, sixth, seventh and eighth anniversaries of the dateof grant; provided, however, that 2,500 shares vest on each date the directorattends a Board meeting in person before the next annual meeting ofstockholders.  In addition, such directorwill automatically be granted a fully-vested option to purchase an additional2,500 shares on each date the director attends an in-person meeting of acommittee of the Board other than on the same day or within one day of a fullBoard meeting.  Under the 2006 Plan’sautomatic grant program, during 2006 the non-employee directors receivedoptions as follows: Mr. Birdsong—10,000; Mr. deCastro—10,000; andMr. Maleska—10,000.

The followingtable summarizes the compensation earned by each of our non-employee directorsfor the fiscal year ended December 31, 2006.
| **Name**           | ** ** | ** ** | ** ** | **Fees Earned or  Paid in Cash (1)  ($)** | ** ** | **Stock  Awards (2)   ($)** | ** ** | **Option  Awards (3)  ($)** | ** ** | **Total  ($)** | ** ** |
|--------------------|------------|------------|------------|--------------------------------------------------------------------|------------|---------------------------------------|------------|----------------------------------|------------|----------------|------------|
| Edson D. deCastro  |       | $          | 32,000     |                                                               | $          | 0                                     |       | $                                | 8,905      |           | $          | 40,905 |   |
| Martin E.  Maleska |       | $          | 32,000     |                                                               | $          | 0                                     |       | $                                | 8,905      |           | $          | 40,905 |   |
| John Birdsong      |       | $          | 18,000     |                                                               | $          | 6,000                                 |       | $                                | 2,090      |           | $          | 26,090 |   |

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(1)             Consistsof board and committee fees earned during 2006 for which the directors electedto be paid in cash.

(2)             Consistsof board and committee fees paid in shares of stock having a grant date fairvalue computed in accordance with FAS 123R.

(3)             OnJune 20, 2006, each non-employee director was granted options to purchase10,000 shares of our common stock having a grant date fair value of $3,933computed in accordance with FAS 123R. The dollar value represents the expense amount we recognized in 2006 foroption awards granted to non-employee directors in 2006 and prior years forfinancial statement reporting purposes in accordance with FAS 123R, applyingthe Black-Scholes valuation model and the same assumptions used in ourfinancial statements and accompanying notes; except that for purposes of thistable and in accordance with SEC disclosure rules, we have disregarded theestimate of forfeitures related to service-based vesting conditions.  There were no forfeitures of options in 2006among our directors.  As of December 31,2006, the number of shares underlying options held by each non-employee directorwas as follows: 37,700 shares for Mr. deCastro; 39,500 shares for Mr. Maleska;and 10,000 shares for Mr. Birdsong.

**ExecutiveCompensation Tables**

The followingtable sets forth all compensation we paid to or recognized as expense withrespect to our principal executive officer and principal financial officer andour three other highest-paid executive officers who earned at least $100,000 in2006 (collectively, the “Named Executive Officers”).

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**SummaryCompensation Table**
| **Name and Principal Position**            | ** ** | ** ** | ** ** | **Fiscal Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** | **Option  Awards  ($) (1)** | ** ** | **All Other  Comp  ($) (2)** | ** ** | **Total  ($)** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|----------------------|------------|-----------------|------------|----------------|------------|----------------------------------|------------|----------------------------------------|------------|----------------|------------|
| Narasimhan P.  Kannan,  Chief Executive Officer           | ** ** | 2006       |       | 280,000              |       | 92,746          | (3)        | 206,689        |       | 4,072                            |       | 583,507                                |       |
| Christopher L.  Nelson (4)  Chief Financial Officer       | ** ** | 2006       |       | 183,333              |       | 50,000          |       | 133,396        |       | 16,099                           |       | 382,828                                |       |
| Ronald E.  Freeman   Senior VP, e-learning Solutions      | ** ** | 2006       |       | 160,000              |       | 37,544          |       | 65,464         |       | 2,738                            |       | 265,746                                |       |
| Laura B.  Friedman   VP, Publishing                       | ** ** | 2006       |       | 145,000              |       | 10,000          |       | 28,422         |       | 1,581                            |       | 185,003                                |       |
| Stavros G.  Hadjinicolaou   VP of Finance, Controller (5) | ** ** | 2006       |       | 128,000              |       | 26,750          |       | 63,175         |       | 1,279                            |       | 219,204                                |       |

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(1)             Thedollar value represents the amount we recognized for option awards granted in2006 and in prior years for financial statement purposes in accordance with FAS123R, applying the Black-Scholes valuation model and the same assumptions usedin our financial statements and accompanying notes as filed in our AnnualReport on Form 10-K for the year ended December 31, 2006; except that forpurposes of this table and in accordance with SEC disclosure rules, we havedisregarded the estimates of forfeitures related to service-based vestingconditions.  There were no optionsforfeited by our executive officers in 2006.

(2)             Representsmatching and discretionary contributions to the VCampus 401(k) Plan of: $1,750,$1,920, $2,738, $1,581 and $1,279 for Messrs. Kannan, Nelson, Freeman, Friedmanand Hadjinicolaou, respectively.  Theamount for Mr. Kannan also includes imputed income of $2,322 for the economic benefitof executive life insurance coverage.  Noexecutive officer received perquisites in excess of $10,000 in 2006. The  amount for Mr. Nelson also includes $14,179of vacation payout upon Mr. Nelson’s change of employment status to part-timein October 2006.

(3)             Earnedin and accrued for 2006, but not yet paid.

(4)             Transitionedto a part-time CFO role in October 2006.

(5)             Transitionedto part-time accounting associate role in December 2006.

**Grantsof Plan-Based Awards in 2006**

The followingtable provides information on stock options and grants under the 2006 EquityIncentive Plan in 2006 to each of our Named Executive Officers.
| **Name**                  | ** ** | ** ** | ** ** | **Grant  Date** | ** ** | **All Other  Option Awards:  Number of  Securities Underlying  Options (#)** | ** ** | **Exercise or Base  Price of Option  Awards  ($/Sh)** | ** ** | **Grant Date  Fair Value  of Option  Awards** | ** ** |
|---------------------------|------------|------------|------------|-----------------|------------|-------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| Narasimhan P.  Kannan     |       | 12/12/06   |       | 120,000         |       | $                                                                                                     | 0.30       |                                                                      | $          | 20,412                                                       |       |
| Christopher L.  Nelson    |       | —     |       | —          |       | —                                                                                                |       | —                                                                    |       |
| Ronald E.  Freeman        |       | 12/12/06   |       | 30,000          |       | $                                                                                                     | 0.30       |                                                                      | $          | 5,103                                                        |       |
| Laura B.  Friedman        |       | 12/12/06   |       | 30,000          |       | $                                                                                                     | 0.30       |                                                                      | $          | 5,103                                                        |       |
| Stavros G.  Hadjinicolaou |       | 12/12/06   |       | 50,000          |       | $                                                                                                     | 0.30       |                                                                      | $          | 8,505                                                        |       |

**OutstandingEquity Awards at Fiscal Year-End 2006**

The followingtable shows the number and value of shares covered by exercisable andunexercisable options held by our Named Executive Officers on December 31,2006.  There are no restricted sharesheld by our Named Executive Officers.

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| ** **                    | ** ** | **Number of Securities Underlying  Unexercised Options** | ** ** | **Option  Exercise  Price** | ** ** | **Option  Expiration** | ** ** |
|-------------------------------|------------|------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------|------------|
| **Name**                      | ** ** | ** **                                                                   | ** ** | **Exercisable**             | ** ** | **Unexercisable**      | ** ** | **($)** | ** ** | **Date** | ** ** |
|                          |       |                                                                         |       |                        |       |                   |       |   |   |
| **Narasimhan  P. Kannan**     |       | —                                                                       |       | 120,000                     |       | $                      | 0.30       |   | 12/12/16 |   |
|                          |       | 93,750                                                                       |       | 156,250                     |       | $                      | 0.98       |   | 06/21/15 |   |
|                          |       | 156,250                                                                      |       | 93,750                      |       | $                      | 2.00       |   | 06/15/14 |   |
|                          |       | 18,750                                                                       |       | 6,250                       |       | $                      | 1.40       |   | 12/16/13 |   |
|                          |       | 32,812                                                                       |       | 2,88                        |       | $                      | 3.72       |   | 01/22/13 |   |
|                          |       | 15,000                                                                       |       | —                      |       | $                      | 2.70       |   | 08/10/11 |   |
|                          |       | 7,500                                                                        |       | —                      |       | $                      | 2.70       |   | 03/08/11 |   |
|                          |       | 2,750                                                                        |       | —                      |       | $                      | 2.70       |   | 12/09/11 |   |
|                          |       | 16,000                                                                       |       | —                      |       | $                      | 2.70       |   | 05/26/11 |   |
|                          |       | 152                                                                          |       | —                      |       | $                      | 12.50      |   | 12/04/10 |   |
|                          |       | 200                                                                          |       | —                      |       | $                      | 37.50      |   | 09/09/09 |   |
|                          |       | 10,000                                                                       |       | —                      |       | $                      | 37.50      |   | 09/09/09 |   |
|                          |       |                                                                         |       |                        |       |                   |       |   |   |
| **Christopher  L. Nelson**    |       | 48,750                                                                       |       | 81,250                      |       | $                      | 0.98       |   | 06/21/15 |   |
|                          |       | 81,250                                                                       |       | 48,750                      |       | $                      | 2.00       |   | 06/15/14 |   |
|                          |       | 15,000                                                                       |       | 5,000                       |       | $                      | 1.40       |   | 12/16/13 |   |
|                          |       | 28,500                                                                       |       | 1,500                       |       | $                      | 3.72       |   | 01/22/13 |   |
|                          |       | 250                                                                          |       | —                      |       | $                      | 4.10       |   | 01/01/12 |   |
|                          |       | 37,500                                                                       |       | —                      |       | $                      | 3.90       |   | 06/10/12 |   |
|                          |       |                                                                         |       |                        |       |                   |       |   |   |
| **Ronald  E. Freeman**        |       | —                                                                       |       | 30,000                      |       | $                      | 0.30       |   | 12/12/16 |   |
|                          |       | 30,000                                                                       |       | 50,000                      |       | $                      | 0.98       |   | 06/21/15 |   |
|                          |       | 45,000                                                                       |       | 27,000                      |       | $                      | 2.00       |   | 06/15/14 |   |
|                          |       | 11,250                                                                       |       | 3,750                       |       | $                      | 1.40       |   | 12/16/13 |   |
|                          |       | 9,375                                                                        |       | 625                         |       | $                      | 3.72       |   | 1/22/2013 |   |
|                          |       | 5,000                                                                        |       | —                      |       | $                      | 3.90       |   | 6/10/2012 |   |
|                          |       | 1,500                                                                        |       | —                      |       | $                      | 2.70       |   | 12/18/2011 |   |
|                          |       | 500                                                                          |       | —                      |       | $                      | 10.625     |   | 02/20/2011 |   |
|                          |       | 6,000                                                                        |       | —                      |       | $                      | 10.625     |   | 02/20/2011 |   |
|                          |       |                                                                         |       |                        |       |                   |       |   |   |
| **Laura  B. Friedman**        |       | —                                                                       |       | 30,000                      |       | $                      | 0.30       |   | 12/12/16 |   |
|                          |       | 30,000                                                                       |       | 50,000                      |       | $                      | 0.98       |   | 06/21/15 |   |
|                          |       | 22,500                                                                       |       | 17,500                      |       | $                      | 1.17       |   | 09/29/14 |   |
|                          |       |                                                                         |       |                        |       |                   |       |   |   |
|                          |       |                                                                         |       |                        |       |                   |       |   |   |
|                          |       |                                                                         |       |                        |       |                   |       |   |   |
| **Stavros  G. Hadjinicolaou** |       | —                                                                       |       | 50,000                      |       | $                      | 0.30       |   | 12/12/16 |   |
|                          |       | 30,000                                                                       |       | 50,000                      |       | $                      | 0.98       |   | 06/21/15 |   |
|                          |       | 40,625                                                                       |       | 24,375                      |       | $                      | 2.00       |   | 06/15/14 |   |
|                          |       | 4,500                                                                        |       | 1,500                       |       | $                      | 1.40       |   | 12/15/13 |   |
|                          |       | 2,000                                                                        |       | —                      |       | $                      | 2.71       |   | 06/16/13 |   |
|                          |       | 14,250                                                                       |       | 750                         |       | $                      | 3.72       |   | 01/21/13 |   |
|                          |       | 1,000                                                                        |       | —                      |       | $                      | 2.20       |   | 09/16/12 |   |
|                          |       | 1,000                                                                        |       | —                      |       | $                      | 2.70       |   | 12/18/11 |   |
|                          |       | 500                                                                          |       | —                      |       | $                      | 4.70       |   | 11/12/11 |   |
|                          |       | 425                                                                          |       | —                      |       | $                      | 12.50      |   | 12/04/10 |   |
|                          |       | 1,000                                                                        |       | —                      |       | $                      | 73.75      |   | 08/10/10 |   |
|                          |       | 1,000                                                                        |       | —                      |       | $                      | 83.75      |   | 05/03/10 |   |
|                          |       | 1,001                                                                        |       | —                      |       | $                      | 146.90     |   | 03/08/10 |   |
|                          |       | 2,000                                                                        |       | —                      |       | $                      | 37.50      |   | 09/08/09 |   |
|                          |       | 200                                                                          |       | —                      |       | $                      | 37.50      |   | 09/08/09 |   |
|                          |       | 200                                                                          |       | —                      |       | $                      | 70.00      |   | 12/08/08 |   |
|                          |       | 1,000                                                                        |       | —                      |       | $                      | 46.30      |   | 09/15/08 |   |
|                          |       | 500                                                                          |       | —                      |       | $                      | 96.25      |   | 05/25/08 |   |
|                          |       | 250                                                                          |       | —                      |       | $                      | 176.20     |   | 09/02/07 |   |
|                          |       | 250                                                                          |       | —                      |       | $                      | 142.50     |   | 02/19/07 |   |
|                               |            |                                                                              |            |                             |            |                        |            |  |  |  |  |  |

 

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**OptionExercises and Stock Vested**

None of our NamedExecutive Officers exercised any options to purchase our common stock in2006.  Also, there was no vesting ofrestricted stock for Named Executive Officers in 2006.

**PensionBenefits**

We do not offerany tax qualified defined benefit plans, supplemental executive retirementplans or similar plans to our Named Executive Officers or other employees.

**NonqualifiedDeferred Compensation Table**

We do not maintainany nonqualified deferred compensation plans for our Named Executive Officersor other employees.

**PotentialPayments on Termination or Change in Control**

The employment agreements with both Mr. Kannan and Mr.Nelson contain severance provisions.  Weprovide severance benefits in order to attract and retain qualified executivesand because it may be difficult for senior executives to find comparableemployment within a short period.  In theevent Mr. Kannan is terminated without cause or resigns for good reason(which includes a change of control), we are obligated under his employmentagreement to continue paying him his base salary for six months as severance(or a total of approximately $140,000). In the event Mr. Nelson is terminated without cause, we arerequired under his employment agreement to continue paying him his base salarythrough the end of the term of the agreement (May 2007) as severance.  The Company believes change in controlpayments reward the executive officers for their efforts in building theCompany while reducing the reluctance of the executive officers to pursuepotential transactions that might benefit the long-term interests ofstockholders but involve a change in control of the company.

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**CompensationCommittee Report**

The CompensationCommittee has reviewed and discussed the “Compensation Discussion and Analysis”contained in this report with management. Based on such review and discussions, the Compensation Committeerecommended to the board of directors that the “Compensation Discussion andAnalysis” be included in this Form 10-K/A and our upcoming proxy statement.

 
| Dated: April 2007 |   | Submitted by: |   | THE COMPENSATION COMMITTEE

John Birdsong

Edson D. deCastro

Martin E. Maleska |
|-------------------|--------|---------------|--------|---------------------------------------------------------------------------------|

 

**CompensationCommittee Interlocks and Insider Participation**

As ofDecember 31, 2006, the Compensation Committee of the Board of Directorsconsisted of Messrs. Birdsong,  deCastro and Maleska, none of whom was atany time during the fiscal year ended December 31, 2006, or at any othertime in the past five years, an officer or employee of VCampus.  None of our executive officers serves as amember of the Board of Directors or compensation committee of any entity thathas one or more executive officers serving as a member of our Board ofDirectors or the Compensation Committee.

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*** ***

**Item 12. Security Ownershipof Certain Beneficial Owners and Management and Related Stockholder Matters.**

**PrincipalStockholders**

The followingtable sets forth certain information regarding the ownership of shares of ourcommon stock and preferred stock as of March 31, 2007 (the “MeasurementDate”):

·                     eachperson known by us to beneficially own more than 5% of the outstanding sharesof any class of our capital stock;

·                     eachof our directors and director nominees;

·                     eachof the five Named Executive Officers, as listed in the Summary CompensationTable in this report; and

·                     allof our directors and executive officers as a group.

As of theMeasurement Date, we had:

·                     10,925,423shares of common stock outstanding;

·                     2,089.375shares of Series A-1 Preferred Stock outstanding;

·                     2,484shares of Series B-1 Preferred Stock outstanding; and

·                     10,546,421shares of common stock issuable upon conversion of convertible debt.

For purposes ofthe table below, share ownership in the case of common stock includes sharesissuable upon conversion of preferred stock (at the current conversion price of$0.30 for shares of Series A-1 Preferred Stock and $0.37 for shares of SeriesB-1 Preferred Stock) and convertible notes and upon the exercise of warrantsand options that may be converted or exercised in each case within 60 daysafter the record date for purposes of computing the percentage of common stockowned by such person but not for purposes of computing the percentage owned byany other person.  Percentage votingpower is calculated assuming the common stock and the preferred stock votetogether as one class with each share of common stock entitled to one vote andeach share of Series A-1 Preferred Stock entitled to 3,333 votes.  The shares of Series B-1 Preferred Stock arenon-voting.  Except as indicated in thefootnotes to this table, the persons named in this table have sole voting andinvestment power with respect to all shares of common stock and preferred stockindicated below. 

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** **
| ** **                                                                                                              | ** ** | **Common Stock**      | ** ** | **Series A-1  Preferred Stock** | ** ** | **Series B-1  Preferred Stock** | ** ** | **% Total**     | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                              | ** ** | **Number of  Shares** | ** ** | **% of  Class**                      | ** ** | **Number of  Shares**                | ** ** | **% of  Class** | ** ** | **Number of  Shares** | ** ** | **% of  Class** | ** ** | **Voting  Power** | ** ** |
| Barry K.  Fingerhut (1)  80 Cuttermill Road  Suite 311, Great Neck, NY 11021                                            |       | 6,356,315                  |       | 54.1                                      | %          | —                                    |       | —               |       | 1,242 |   | 50 | % | 9.6 | % |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| Sherleigh  Associates Profit

Sharing Plan (2)  c/o Jack Silver  60 Madison Avenue  New York, NY 10021                  |       | 882,633                    |       | 7.5                                       | %          | —                                    |       | —               |       | — |   | — | % | — | % |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| Dolphin Offshore  Partners, L.P. (3)  c/o Dolphin Asset Management Corp.  129 East 17th Street  New York, NY 10003 |       | 1,881,667                  |       | 15.1                                      | %          | 300                                       |       | 14.4                 | %          | — |   | — | % | 7.4 | % |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| St. Cloud Capital  Partners, LP (4)   10866 Wilshire Blvd., Suite 1450  Los Angeles, CA 90024                           |       | 2,983,606                  |       | 21.5                                      | %          | 600                                       |       | 28.7                 | %          | — |   | — | % | 11.2 | % |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| Alpha Capital  A.G. (5)  pradafant 7  Furstentums 9490  Voduz, Liechstenstein                                           |       | 2,754,371                  |       | 20.1                                      | %          | 605                                       |       | 30.0                 | %          | — |   | — | % | 11.3 | % |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| David Holzer (6)  10 Sky Drive  New York, NY 10956                                                                      |       | 6,013,400                  |       | 35.8                                      | %          | 384.375                                   |       | 18.                  | %          | 1,242 |   | 50 | % | 8 | % |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| Chestnut Ridge  Partners, LP (7)  50 Tice Blvd.  Woodcliff Lake, NJ 07677                                               |       | 829,234                    |       | 7.1                                       | %          | 175                                       |       | 8.4                  | %          | — |   | — | % | 3.3 | % |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| Nat P. Kannan (8)                                                                                                       |       | 538,989                    |       | 4.7                                       | %          | 25                                        |       | 1.2                  | %          | — |   | — | % | — | %* |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| Christopher L.  Nelson (9)                                                                                              |       | 246,050                    |       | *                                         |       | —                                    |       | —               |       | — |   | — | % | — | %* |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| Ronald E.  Freedman (10)                                                                                                |       | 120,187                    |       | *                                         |       | —                                    |       | —               |       | — |   | — | % | — | %* |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| Martin E. Maleska  (11)                                                                                                 |       | 63,712                     |       | *                                         |       | —                                    |       | —               |       | — |   | — | % | — | %* |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| Stavros G.  Hadjinicolaou (12)                                                                                          |       | 111,638                    |       | *                                         |       | —                                    |       | —               |       | — |   | — | % | — | %* |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| Edson D. deCastro  (12)                                                                                                 |       | 34,200                     |       | *                                         |       | —                                    |       | —               |       | — |   | — | % | — | %* |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| Laura B. Friedman  (12)                                                                                                 |       | 60,000                     |       | *                                         |       | —                                    |       | —               |       | — |   | — | % | — | %* |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| John Birdsong  (12)                                                                                                     |       | 30,841                     |       | *                                         |       | —                                    |       | —               |       | — |   | — | % | — | %— |
|                                                                                                                    |       |                       |       |                                      |       |                                      |       |                 |       |   |   |   |   |   |   |
| All directors and  executive officers  as a group (8 persons)(13)                                                       |       | 1,205,617                  |       | 10.9                                      | %          | 25                                        |       | 1.2                  | %          | — |   | — | % |   | %* |

----

*                    Lessthan one percent

(1)             Consistsof: (i) 1,520,927 shares of common stock and 4,611,079 shares of commonstock issuable upon exercise or conversion of warrants, options, preferredstock and convertible notes, all held by Mr. Fingerhut directly;(ii) 135,374 and 10,921 shares of common stock and 10,928 and 929 sharesof common stock issuable upon exercise of warrants, all held by WheatleyPartners, L.P. and Wheatley Foreign Partners, L.P., respectively, two investmentpartnerships of which Mr. Fingerhut serves as an officer of the GeneralPartner; (iii) 42,226 shares of common stock and 17,591 shares of commonstock issuable upon exercise of warrants, all held in a joint account withrespect to which Mr. Fingerhut has investment and voting power; and(iv) 6,340 shares of common stock held by Mr. Fingerhut’sspouse.  Mr. Fingerhut disclaimsbeneficial ownership of the shares held by Wheatley Partners, L.P. and WheatleyForeign Partners, L.P., except to the extent of his pecuniary interest therein.

19

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(2)             Pursuantto the terms of the convertible notes and warrants held by Sherleigh AssociatesProfit Sharing Plan, Sherleigh Associates can hold no more than 9.9% of theoutstanding common stock of VCampus at any given time.  Subject to the 9.9% cap, holdings consist of733,132 shares of common stock issuable upon the exercise of warrants and149,531 shares of common stock issuable upon the conversion of convertiblenotes.  Sherleigh Associates LLC, anaffiliate of this shareholder, holds a portion of the warrants included inthese holdings, which were received as compensation for consultingservices.  Jack Silver is the trustee forthis shareholder, and as such he exercises control over the shares held by theshareholder.

(3)             Consistsof 549,451 shares of common stock issuable upon the exercise of warrants,1,000,000 shares of common stock issuable upon conversion of Series A-1Preferred Stock and 332,216 shares of common stock.

(4)             Consistsof 2,000,000 shares of common stock issuable upon conversion of Series A-1Preferred Stock and 983,606 shares of common stock issuable upon the exerciseof warrants.

(5)             Consistsof 2,016,667 shares of common stock issuable upon conversion of Series A-1Preferred Stock and 737,704 shares of common stock issuable upon the exerciseof warrants.

(6)             Consistsof 153,900 shares of common stock, 1,025,000 shares of common stock issuableupon conversion of Series A-1 Preferred Stock, 1,129,282 shares issuableupon exercise of warrants and 3,356,756 shares of common stock issuable uponconversion of Series B-1 Preferred Stock, all held by Mr. Holzer, and256,250 shares of common stock issuable upon conversion of Series A-1Preferred Stock and 92,212 shares issuable upon exercise of warrants, both heldby Mr. Holzer’s IRA.

(7)             Consistsof 583,333 shares of common stock issuable upon conversion of Series A-1Preferred Stock and 245,901 shares of common stock issuable upon the exerciseof warrants.

(8)             Includes418,903 shares of common stock issuable upon the exercise of warrants andoptions and 83,333 shares of common stock issuable upon conversion of preferredstock.

(9)             Includes231,600 shares of common stock issuable upon the exercise of warrants andoptions.

(10)       Includes119,687 shares of common stock issuable upon exercise of options.

(11)       Includes33,250 shares of common stock issuable upon the exercise of options.

(12)       Consistsof shares of common stock issuable upon the exercise of options.

(13)       Includesthe shares (including the shares underlying options and warrants) discussed infootnotes (8)-(12).

20

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**EquityCompensation Plan Information**

The following table provides information as ofDecember 31, 2006 on all our equity compensation plans currently ineffect.

 
| ** **                                                                                      | ** ** | **(a)**       | ** ** | **(b)**                                                                                                                    | ** ** | **(c)**                                                                                   | ** **  |
|-------------------------------------------------------------------------------------------------|------------|---------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|-------------|
| **Plan Category**                                                                          | ** ** | ** **    | ** ** | **Number of  securities  to be issued  upon exercise of  outstanding  options or  warrants** | ** ** | **Weighted-average  exercise price  of outstanding  options or  warrants** | ** **  | **Number of  securities  remaining  available for  future issuance  under equity  compensation  plans (excluding  securities reflected  in column (a))** | ** ** |
| Equity  compensation plans approved by shareholders:                                            |       |          |       |                                                                                                                       |       |                                                                                      |        |
| Amended and Restated Stock Option Plan, the 1996  Stock Plan and the 2006 Equity Incentive Plan |       | 3,032,939     |       | $                                                                                                                          | 1.13       |                                                                                      | 280,730     |   |
| Equity  compensation plans not approved by shareholders:                                        |       |          |       |                                                                                                                       |       |                                                                                      |        |
| Compensatory warrants issued to service providers                                               |       | 1,502,848     |       | $                                                                                                                          | 0.95       |                                                                                      | 0           |   |
|                                                                                            |       |          |       |                                                                                                                       |       |                                                                                      |        |
| **Total**                                                                                       | ** ** | **4,535,787** | ** ** | **$**                                                                                                                      | **1.11**   | ** **                                                                                | **280,730** | ** ** |
|                                                                                                 |            |               |            |                                                                                                                            |            |                                                                                           |             |  |  |  |

 

The compensatory warrants identified in the abovetable consists of approximately nine grants made to placement agents andfinancial advisors in exchange for their services in connection with a varietyof financings completed since 1998. These warrants expire on various dates ending in September 2011 and haveexercise prices ranging from $0.30 to $27.40 per share.  The forms of warrants granted under thesearrangements are consistent with the forms of warrants granted to investors inthe corresponding financings and generally include a net exercise provision.

**Item 13. CertainRelationships and Related Transactions.**

InDecember 1996, we loaned Nat Kannan, our founder, Chief Executive Officerand Chairman, $100,000 to help satisfy Mr. Kannan’s income tax withholdingobligations relating to back wages paid to Mr. Kannan by us in 1996.  Mr. Kannan paid off the remaining balance ofthis loan of approximately $15,000 in February 2006.

21

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In March 2006, wecompleted a $2.3 million private equity placement through an offering of anewly-created class of Series B-1 Preferred Stock, together with warrants,to two accredited investors consisting of Barry Fingerhut, one of our largestbeneficial stockholders, and David Holzer, a beneficial owner of more than 5%of our outstanding common stock.  We solda total of 2,300 shares of our Series B-1 Preferred Stock at $1,000 pershare for total gross proceeds of $2.3 million.  Under the terms of thisfinancing, we also issued warrants to purchase 1.0 million shares of commonstock at an exercise price per share equal to the then applicable conversionprice of the Series B-1 Preferred Stock.  The warrants were firstexercisable commencing four years from their issuance date.   The shares of Series B-1 Preferred Stockwere originally convertible, at the option of their holders after three years,into common stock based on a formula that yielded a discount of between10% and 37.5% to the last closing bid price of the common stock priorto the date of conversion, subject to a conversion price floor of $1.64per share.  In October 2006, we enteredinto agreements with the two accredited investors whereby, in exchange for theinvestors’ agreement to accept a stock dividend for the quarters ended December31, 2006, March 31, 2007 and June 30, 2007 in lieu of a cash dividend, weagreed to modify the terms of the Series B-1 Preferred Stock, amend the termsof the original Series B-1 Warrants to reduce the exercise price to equal thenew Series B-1 Conversion Price, and to issue new warrants for the purchase of450,000 shares of common stock.  Asmodified, the shares of the Series B-1 Preferred Stock are immediatelyconvertible into shares of common stock at a conversion price equal to the sumof $0.37 per share plus 2% of the amount, if any, by which the closing saleprice of the common stock on the date of conversion exceeds $0.37.  Theshares of Series B-1 Preferred Stock are entitled toreceive dividends paid quarterly equal to the greater of: (a) 16% of the Series B-1 Purchase Price per share, or (b) 6.48% ofthe net sales proceeds derived from two courses mutually agreed upon bythe parties.  The shares of Series B-1 Preferred Stock arenon-voting and carry a liquidation preference equal to 150% of the originalpurchase price.  We agreed to registerand have registered the resale of shares of our common stock issuable to theinvestors upon conversion of the preferred stock and exercise of the warrantsissued in the private placement.

In February 2007, weissued $380,000 in short term working capital notes to accredited investorsincluding $50,000 to our CEO and Chairman, Nat Kannan.  The notes carried an interest rate at anannual rate of 10% plus a 5% origination fee due and payable, along withprincipal, upon receipt of a large payment on a governmental customer contractbut, in any event, no later than June 30, 2007. We received the contract payment in April 2007 and thereafter repaid theshort term notes in full.

We have adopted apolicy that all transactions between us and our executive officers, directorsand other affiliates must be approved by a majority of the members of our Boardof Directors and by a majority of the disinterested members of our Board ofDirectors, and must be on terms no less favorable to us than could be obtainedfrom unaffiliated third parties.  All past and ongoing transactions involving insiderswere approved by at least a majority of our independent and disinteresteddirectors at the time of the transactions.

**DirectorIndependence**

Our Board iscurrently composed of four directors, three of whom our Board has determined tobe independent within the meaning of Nasdaq Marketplace Rules.  These three directors are Messrs. deCastro,Birdsong and Maleska.  As part of suchdetermination of independence, our Board has affirmatively determined that noneof these three directors has a relationship with VCampus that would interferewith the exercise of independent judgment in carrying out his responsibilitiesas a director.  Mr. Kannan, ourPresident and Chief Executive Officer, is the only member of management servingas a director.

22

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**Item 14.  Principal Accounting Fees and Services**

**Reportof the Audit Committee**

The AuditCommittee is composed of three directors who are “independent” as defined inRule 4200(a)(14) of the National Association of Securities Dealers’Marketplace Rules.  The members also meetthe independence requirements under SEC rules regarding audit committees.  The Audit Committee operates under a writtencharter previously approved by the Board of Directors and performs thefunctions described therein.  A copy ofthat charter is attached as an appendix to our proxy statement for the 2004annual meeting.  The Board has designatedand determined the qualification of Mr. Maleska as the “audit committeefinancial expert,” as that term is defined in the SEC rules adopted pursuant tothe Sarbanes-Oxley Act.

The AuditCommittee reviews our company’s financial reporting process on behalf of ourboard. Management has the primary responsibility for the financial statementsand the reporting process, including the system of internal controls andprocedures for financial reporting.  Inthis context, the Audit Committee met four times during 2006 and helddiscussions with management and our independent registered public accountingfirm regarding these matters.  Managementrepresented to the Audit Committee that our company’s audited consolidatedfinancial statements were prepared in accordance with accounting principlesgenerally accepted in the United States of America and fairly present, in allmaterial respects, the financial condition, results of operations and cash flowsof our company as of and for the periods presented in the financial statements.

During itsmeetings with management and our independent auditors, the Audit Committeereviewed and discussed, among other things:

·                  the appointmentof Reznick Group, P.C. as our independent registered public accounting firm;

·                  the impact ofthe Sarbanes-Oxley Act of 2002 and related corporate governance proposals;including the certifications required to be made by our Chief Executive Officerand Chief Financial Officer;

·                  managementevaluations of the internal controls and disclosure controls and proceduresthat we have adopted;

·                  the annualexternal audit plan including risk assessments; and

·                  oursignificant accounting policies.

The AuditCommittee confirmed that the independent auditors were satisfied with thepositions taken by management in the presentation of our financial results andour registered public accounting firm confirmed that there were no mattersregarding our internal controls requiring communication to the Audit Committeeunder generally accepted auditing standards. In March 2007, management and Reznick Group, P.C. reviewed anddiscussed the audited financial statements for the fiscal year endedDecember 31, 2006 with the Audit Committee, together with our disclosuresunder “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.” This discussion included among other things:

·                  criticalaccounting policies and practices used in the preparation of our financialstatements;

·                  any significantaudit adjustments proposed by the independent registered public accountingfirm;

·                  confirmationthat there were no matters of significant disagreement between management andthe independent registered public accounting firm during the audit; and

·                  othermatters required to be discussed by Statements of Auditing Standards.

Based on thereview and discussions described above, the Audit Committee recommended to theBoard of Directors that the audited financial statements be included in theCompany’s Annual Report on Form 10-K for fiscal 2006.

23

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The AuditCommittee has also discussed with Reznick Group, P.C. the matters required tobe discussed by Statement on Auditing Standards No. 90 (Audit CommitteeCommunications).  The Audit Committee hasreceived the written disclosures and confirmation from Reznick Group, P.C.required by Independence Standards Board Standard No. 1, as modified orsupplemented, and has discussed with Reznick Group, P.C. their independence.

**PrincipalAccountant Fees and Services**

Reznick Group, P.C., ourindependent registered public accounting firm since November 2003, performedprofessional services for us during 2005 and 2006.  The professional services provided by ReznickGroup, P.C. and the fees billed for those services are set forth below.

*Audit**Fees*. The fees billed to us by Reznick Group, P.C. for the audit and review ofour annual financial statements for the fiscal years ended December 31, 2005and 2006 were $104,500 and $226,341, respectively.

*Audit-RelatedFees*.  The aggregate fees billed to us by ReznickGroup, P.C. for assurance and related services that were reasonably related tothe audit or review of our financial statements for the fiscal years endedDecember 31, 2005 and 2006, and which are not included in the amounts disclosedabove under the caption “Audit Fees,” were $6,685 and $50,665,respectively.  These fees resultprimarily from services rendered for the review of our registration statementsfiled with the SEC and responses to SEC comments and accounting consultation onproposed transactions.

*TaxFees*.  The aggregate fees billed to us by ReznickGroup, P.C. for tax services for the fiscal years ended December 31, 2005 and2006 were $10,150 and $10,650, respectively. The fees were for tax services related to federal, state and local taxpreparation assistance, tax compliance and general tax consulting.

*AllOther Fees*.  No other fees were billed to us by ReznickGroup, P.C. for services other than those reported above under the captions “AuditFees,” “Audit-Related Fees” and “Tax Fees” for the fiscal years ended December31, 2005 and 2006.

The Audit Committeeconsidered whether the provision of all services unrelated to the auditservices are compatible with maintaining Reznick Group, P.C.’s independence inperforming its audit services.

The Audit Committeepre-approves the engagement of our independent registered public accountingfirm to render audit services to us.  TheAudit Committee also pre-approves the provision by our independent registered publicaccounting firm of specific permitted non-audit services on a case-by-casebasis.  The Audit Committee generallylimits its pre-approval of non-audit services to a specified period of timeand, for some services, to a maximum dollar amount. 
| Submitted by: |   | THE AUDIT COMMITTEE                                 |
|---------------|--------|-----------------------------------------------------|
|          |   |                                                |
|          |   | Edson D. deCastro

John Birdsong

Martin E. Maleska |

 

The material inthis report will not be deemed filed with the SEC or will be incorporated byreference in any of our filings under the Securities Act of 1933, as amended,or the Securities Exchange Act of 1934, whether made before or after the dateof this Form 10-K/A filing and irrespective of any general incorporationlanguage in such filings.

24

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**PART IV**

**Item 15. Exhibits and Financial Statement Schedules**

(a)

1. and 2.  No financialstatements or schedules are filed with this report on Form 10-K/A.

3.  Exhibits

The following exhibits arefiled or furnished as part of this report on Form 10-K/A (or incorporated byreference to exhibits previously filed of furnished):

| Exhibit No. | ** ** | **Description**                                                                                                                            | ** ** | ** ** |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| 3.1(p)      |       | Amended and Restated  Certificate of Incorporation, as currently in effect.                                                                |
| 3.2(a)      |       | Amended and Restated  Bylaws, as currently in effect.                                                                                      |
| 3.3(e)      |       | Certificate of  Amendment of Amended and Restated Certificate of Incorporation, as filed in  Delaware on September 13, 2006                |
| 4.1(a)      |       | Form of Common  Stock certificate.                                                                                                    |
| 4.2(b)**    |       | 2006 Equity Incentive  Plan                                                                                                                |
| 10.9(a)**   |       | 1996 Stock Plan                                                                                                                            |
| 10.90(c)    |       | Form of warrant  issued in connection with the conversion of VCampus preferred stock.                                                 |
| 10.91(k)    |       | Purchase Agreement  dated March 23, 2004 for the $5.3 million private placement                                                       |
| 10.92(k)    |       | Form of  Series A Senior Secured Convertible Note issued on March 23, 2004                                                  |
| 10.93(k)    |       | Form of  Series B Senior Secured Convertible Note issued on March 23, 2004                                                  |
| 10.94(k)    |       | Form of Warrant  issued on March 23, 2004 in connection with the $5.3 million private  placement                                 |
| 10.95(k)    |       | Registration Rights  Agreement dated March 23, 2004 entered into in connection with the $5.3  million private placement               |
| 10.96(k)    |       | Security Agreement  dated March 23, 2004 entered into in connection with the $5.3 million  private placement                          |
| 10.97(d)*   |       | Content Client License Agreement  between VCampus and Net Dimensions Limited dated February 24, 2004                                       |
| 10.98(d)    |       | Settlement Agreement  and Release between VCampus and Park University dated May 3, 2004                                                    |
| 10.99(g)    |       | VCampus’ standard form  of Online Content Conversion and Distribution Agreement (also known as the  form of Select Partner Agreement) |
| 10.100(g)   |       | Form of Subscription  Agreement, dated March 30, 2005, between VCampus and each of the Purchasers                                          |
| 10.101(g)   |       | Registration Rights  Agreement, dated March 30, 2005, among VCampus and the Purchasers.                                                    |
| 10.102(g)   |       | Form of Warrant issued  by VCampus to each of the Purchasers on March 30, 2005.                                                            |

 

25

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| 10.103(h)   |   | Form of  Subscription Agreement for December 2005 financing                                                                                    |
|-------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.104(h)   |   | Form of Warrant  for December 2005 financing                                                                                                   |
| 10.105(h)   |   | Registration Rights  Agreement for December 2005 financing                                                                                          |
| 10.106(h)   |   | Certificate of  Designations of the Series A-1 Convertible Preferred Stock                                                                          |
| 10.107(i)** |   | Employment Agreement  with Narasimhan P. Kannan dated December 30, 2005.                                                                            |
| 10.109(j)   |   | Amendment to  Certificate of Designations of the Series A-1 Convertible Preferred Stock                                                                  |
| 10.110(j)   |   | Certificate of  Designations of the Series B-1 Convertible Preferred Stock                                                                          |
| 10.111(j)   |   | Form of  Subscription Agreement for the Series B-1 Preferred Stock financing                                                                        |
| 10.112(j)   |   | Registration Rights  Agreement for the Series B-1 Preferred Stock financing                                                                              |
| 10.113(j)   |   | Form of Warrant issued  in the Series B-1 Preferred Stock financing                                                                                      |
| 10.114(j)*  |   | Agreements representing  the registrant’s renewal of its subcontract to continue performing services  for the Department of Veterans’ Affairs. |
| 10.115(l)   |   | Acquisition and  Reorganization Agreement dated April 11, 2006 between Prosoft Learning  Corporation, ComputerPREP, Inc., and VCampus Corporation        |
| 10.116(l)   |   | Letter Agreement dated  April 11, 2006 regarding Reorganization and Acquisition of Capital Stock of  Prosoft Learning Corporation                        |
| 10.117(l)   |   | Transition Services  Agreement dated April 10, 2006 between Prosoft Learning Corporation and  Benjamin M. Fink                                           |
| 10.118(m)   |   | Securities Purchase  Agreement for September 2006 Financing                                                                                              |
| 10.119(m)   |   | Registration Rights  Agreement for September 2006 Financing                                                                                              |
| 10.120(m)   |   | Form of Warrant issued  in the September 2006 Financing                                                                                                  |
| 10.121(m)   |   | Form of Senior Secured  Convertible Note issued in the September 2006 Financing                                                                          |
| 10.122(m)   |   | Security Agreement for  the September 2006 Financing                                                                                                     |
| 10.123(n)** |   | Amended and Restated  Employment Agreement with Christopher L. Nelson dated effective as of  October 1, 2006                                        |
| 10.124(o)   |   | Amended and Restated  Certificate of Designation of the Series B-1 Preferred Stock dated October  31, 2006                                               |
| 31.1***     |   | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a).                                                                               |
| 31.2***     |   | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a).                                                                               |
| 32.1***     |   | Chief Executive Officer  Certification pursuant to Section 906 of the Sarbanes/Oxley Act of 2002.                                                   |
| 32.2***     |   | Chief Financial Officer  Certification pursuant to Section 906 of the Sarbanes/Oxley Act of 2002.                                                   |
| 99.7(f)     |   | Audit Committee Charter.                                                                                                                                 |

----

*                    Theregistrant has requested and/or received confidential treatment with respect tocertain portions of this exhibit.  Suchportions have been omitted from this exhibit and have been filed separatelywith the SEC.

**             Managementcontract or compensatory plan or arrangement required to be filed as an exhibitto this Annual Report on Form 10-K.

***      Filedherewith.

26

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(a)             Incorporatedby reference to the similarly numbered Exhibit to the Registrant’sRegistration Statement on Form S-1 (File No. 333-12135).

(b)            Incorporatedby reference to the similarly numbered Exhibit to the Registrant’sQuarterly Report for the quarter ended June 30, 2006.

(c)             Incorporatedby reference to the similarly numbered Exhibit to the Registrant’sQuarterly Report on Form 10-Q for the quarter ended June 30, 2003.

(d)            Incorporatedby reference to the similarly numbered Exhibit to the Registrant’sQuarterly Report on Form 10-Q for the quarter ended March 31, 2004.

(e)             Incorporatedby reference to the similarly numbered Exhibit to the Registrant’s QuarterlyReport on Form 10-Q for the quarter ended September 30, 2006.

(f)               Incorporatedby reference to the similarly numbered Exhibit to the Registrant’s currentreport on Form 8-K filed on June 1, 2001.

(g)            Incorporatedby reference to the similarly numbered exhibit to the Registrant’s currentreport on Form 8-K filed on April 4, 2005.

(h)            Incorporatedby reference to the similarly numbered Exhibit to the Registrant’s currentreport on Form 8-K filed December 14, 2005.

(i)                Incorporatedby reference to the Exhibits to the Registrant’s current report Form 8-Kfiled January 6, 2006.

(j)                Incorporatedby reference to the similarly numbered Exhibit to the Registrant’s AnnualReport on Form 10-K for the year ended December 31, 2005.

(k)             Incorporatedby reference to the similarly numbered Exhibit to the Registrant’s AnnualReport on Form 10-K for the year ended December 31, 2003.

(l)                Incorporatedby reference to the similarly numbered Exhibit to the Registrant’s currentreport on Form 8-K filed April 18, 2006.

(m)          Incorporatedby reference to the similarly numbered Exhibit to the Registrant’s currentreport on Form 8-K filed September 26, 2006.

(n)            Incorporatedby reference to the similarly numbered Exhibit to the Registrant’s currentreport on Form 8-K filed October 27, 2006.

(o)            Incorporatedby reference to the Exhibits to the Registrant’s current report on Form 8-Kfiled October 31, 2006.

(p)            Incorporatedby reference to the similarly numbered Exhibit to the Registrant’sPost-Effective Amendment No. 1 to Registration Statement No. 333-108380 filedon July 19, 2004.

27

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**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of theSecurities and Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.
|        |   | VCAMPUS CORPORATION |
|--------|--------|---------------------|
|   |   |                |   |   |
|   |   | By:                 |   | /s/ Narasimhan P. Kannan |
|   |   |                |   | Narasimhan P. Kannan, Chief Executive Officer |

 

Date: April 26, 2007

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following person on behalf of the Registrant and in thecapacities and on the dates indicated.
|                                                    | **Signature** | ** **                                    | ** ** | ** **           | **Capacity** | ** ** | ** ** | ** ** | **Date** | ** ** |
|----------------------------------------------------|---------------|-----------------------------------------------|------------|----------------------|--------------|------------|------------|------------|----------|------------|
| ** **                                         | ** **    | ** **                                    | ** ** | ** **           |
|     /s/  Narasimhan P. Kannan  |          | Chairman and Chief  Executive Officer         |       | April  26, 2007      |
| Narasimhan P. Kannan                               |          | (Principal Executive  Officer)                |       |                 |
|                                               |          |                                          |       |                 |
|     /s/  Christopher L. Nelson |          | Chief Financial Officer                       |       | April 26,  2007 |
| Christopher L. Nelson                              |          | (Principal Financial  and Accounting Officer) |       |                 |
|                                               |          |                                          |       |                 |
|     /s/  Edson D. deCastro     |          | Director                                      |       | April 26,  2007 |
| Edson D. deCastro                                  |          |                                          |       |                 |
|                                               |          |                                          |       |                 |
|     /s/  Martin E. Maleska     |          | Director                                      |       | April 26,  2007 |
| Martin E. Maleska                                  |          |                                          |       |                 |
|                                               |          |                                          |       |                 |
|     /s/  John Birdsong         |          | Director                                      |       | April 26,  2007 |
| John Birdsong                                      |          |                                          |       |                 |
|                                               |          |                                          |       |                 |

** **

28

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