424B3 1 v050112_424b3.htm

File No. 333-133747

DATED December 20, 2006

PROSPECTUS SUPPLEMENT NO. 1

VIRTUALSCOPICS, INC.

4,480,000 Shares

Common Stock

This prospectus supplement (“Prospectus Supplement”) amends and supplements the prospectus dated July 14, 2006 (the “Prospectus”) relating to the sale by the selling security holders named in the Prospectus of 4,480,000 shares of common stock of VirtualScopics, Inc. which they own, or which they may at a later date acquire upon the conversion of shares of our series A convertible preferred stock or the exercise of outstanding warrants. VirtualScopics, Inc. is not selling any shares of common stock in this offering and therefore will not receive any proceeds therefrom. We may receive proceeds from the exercise price of the warrants if they are exercised by the selling security holders. All costs associated with this registration will be borne by VirtualScopics, Inc.

On September 25, 2006, we filed with the Securities and Exchange Commission our Quarterly Report on Form 10-QSB/A for the quarter ended June 30, 2006, a copy of which is attached hereto as Attachment A. This Prospectus Supplement should be read in conjunction with the Prospectus. This Prospectus Supplement is qualified by reference to the Prospectus, except to the extent that the information in this Prospectus Supplement supersedes the information contained in the Prospectus. Capitalized terms used in this Prospectus Supplement and not otherwise defined herein have the meanings specified in the Prospectus.

You should rely only on the information contained in or incorporated by reference in this Prospectus Supplement and the Prospectus. We have not authorized anyone to provide you with information different from the information contained in or incorporated by reference in this Prospectus Supplement and the Prospectus. This document may be used only in jurisdictions where offers and sales of these securities are permitted. You should not assume that information contained in this Prospectus Supplement or the Prospectus or in any document incorporated by reference is accurate as of any date other than the date of the document that contains the information, regardless of when this Prospectus Supplement and the Prospectus is delivered or when any sale of our securities occurs.

This Prospectus Supplement also supplements the selling security holder table in the Prospectus which identifies one or more additional selling security holders in accordance with the rules of the Securities and Exchange Commission.

Our common stock is traded on the Nasdaq Capital Market under the symbol “VSCP.” On December 19, 2006, the last reported sale price for the shares of our common stock was $2.00 per share.

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS,” BEGINNING ON PAGE 3 OF THE PROSPECTUS, FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN OUR COMMON STOCK.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the Prospectus or this Prospectus Supplement is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this Prospectus Supplement is December 20, 2006

RECENT DEVELOPMENTS

On August 10, 2006, Bob Klimasewski resigned as our Chief Executive Officer. On the same day, our Board of Directors promoted Jeffrey Markin from the position of Chief Operating Officer to the position of Chief Executive Officer. As Chief Executive Officer, Mr. Markin will be responsible for the overall management of the Company. Mr. Klimasewski is a member of our Board of Directors and will continue to serve on the Board as the Vice Chairman.

SELLING SECURITY HOLDERS

The information set forth in the following table hereby supersedes the table appearing under the heading “Selling Security Holders” in the Prospectus and the footnotes accompanying such table. The information regarding the selling security holders listed below was furnished to us by such selling security holders on or before August 10, 2006.

	Beneficial Ownership Before Offering ⁽¹⁾⁽²⁾							Beneficial Ownership After Offering

Selling Security Holder	Number		Percent			Shares being Offered		Number		Percent

1328772 Ontario Limited		158,000		*			158,000		0		*
1998 Hempleman Family Trust		300,000		1.35	%		300,000		0		*
Ballinger, Arthur J.		7,500		*			7,500		0		*
Balzer, Kirk		60,000		*			60,000		0		*
Becker, Robert J. & June G. JTWROS		15,000		*			15,000		0		*
Brown, Stephen		30,000		*			30,000		0		*
Bux, Rashid ⁽³⁾		5,600		*			5,600		0		*
Calico Capital LLC		45,000		*			45,000		0		*
Cane, Rudolph C., Jr.		6,000		*			6,000		0		*
Chase Mortgage, Inc.		30,000		*			30,000		0		*
Chung, Peter S. ⁽⁴⁾		43,598		*			43,598		0		*
CJE International S.A.		60,000		*			60,000		0		*
Dareen Investment Group Limited		450,000		2.01	%		450,000		0		*
Degma Investing LLC		120,000		*			120,000		0		*
Donald Fleischer TTEE U/A 03/29/2002 FBO
Alec Fleischer William R. Fleischer		15,000		*			15,000		0		*
Donald Fleischer TTEE U/A 03/29/2002 FBO
Zachary Fleischer William R. Fleischer		15,000		*			15,000		0		*
Edmund S. Spivack and Mary Kathleen Ernst,
as Tenants by the Entireties		60,000		*			60,000		0		*
Ellis International LLC		30,000		*			30,000		0		*
Ellis, Lorraine D.		3,000		*			3,000		0		*
Enzo A. Faga, Aldo V. Faga and John Pierleoni,
as Tenants in Common ⁽⁵⁾		16,000		*			15,000		1,000		*
Eskra, Michael D.		15,000		*			15,000		0		*
Fleischer, Donald R.		30,000		*			30,000		0		*
Flom, Jason		30,000		*			30,000		0		*
Frame Family, LLC		66,963		*			30,000		36,963		*
Freer, Timothy		6,000		*			6,000		0		*
Gaur, Jai		15,000		*			15,000		0		*
Gil, Keith		30,000		*			30,000		0		*
Gostomski, Michael		57,433		*			45,000		12,433		*
GrandLuc Corporation		60,000		*			60,000		0		*
Grebb, Gerald H.		15,000		*			15,000		0		*
Green Crescent Corporation ⁽⁶⁾		32,000		*			32,000		0		*
Hargrave, Herbert Taylor		15,000		*			15,000		0		*
Hempleman, Philip J.		600,000		2.67	%		600,000		0		*
Jaffe, Robert H.		9,000		*			9,000		0		*
Khan, Imtiaz		2,000		*			2,000		0		*
Klein, Martin		15,000		*			15,000		0		*
Koppekin, Stephen		10,500		*			10,500		0		*
Dr. Sui Sang Lam, Inc.		30,000		*			30,000		0		*
Lapciuc, Yair		60,000		*			60,000		0		*
Lazard, Joseph and Erna Lazard Jt. Tenants		19,460		*			12,000		7,460		*
Legge, Martin Joseph		15,000		*			15,000		0		*

Liebeskind, Arie & Doreen	18,000	*		18,000	0	*
Longview Special Finance, Inc	63,306.8	*		63,306.8	0	*
Lorinsky, Clay	30,000	*		30,000	0	*
Lucian Gilbert Revocable Trust	18,000	*		18,000	0	*
Mangali, Fereed	30,000	*		30,000	0	*
Matrix USA, LLC# ⁽⁷⁾	77,700	*		77,700	0	*
Michael Winer 1983 Revocable Trust	30,000	*		30,000	0	*
Mitchell, Dennis	30,000	*		30,000	0	*
Moore, William Stacey III	30,000	*		30,000	0	*
Mortimer, Shane Robert	75,000	*		75,000	0	*
The Myrna E. Rubenstein Revocable Trust dated 10/1/98	9,000	*		9,000	0	*
Oake, Chris	3,000	*		3,000	0	*
Octagon Capital Partners	22,500	*		22,500	0	*
Padway, Foster Harold	15,000	*		15,000	0	*
Patton, Robert M.	60,000	*		60,000	0	*
Perelmuth, Joel	27,433	*		15,000	12,433	*
Peter M. Farrand Revocable Trust	49,892	*		30,000	19,892	*
Puig, Dora	60,000	*		60,000	0	*
Rahal, Carlo	15,000	*		15,000	0	*
Ralston, Paula	15,000	*		15,000	0	*
Rosenfeld, David J.	7,500	*		7,500	0	*
Rosin, Uri and Aviva	60,000	*		60,000	0	*
Ross, Richard M.	60,000	*		60,000	0	*
Rousseau, Yaron Daniel	60,000	*		60,000	0	*
Russell, Douglas	103,000	*		103,000	0	*
Sabrin, Murray	9,000	*		9,000	0	*
Slattery, Paul F. and Jean B. JTWROS	30,000	*		30,000	0	*
Sovereign Bancorp, Ltd. ⁽⁸⁾	9,284	*		9,284	0	*
Spackeen, Scott	15,000	*		15,000	0	*
Sparta Road, Ltd. ⁽⁹⁾	50,598	*		50,598	0	*
Sussman Sales Co., Inc. Profit Sharing Plan	75,866	*		51,000	24,866	*
Sykes Associates, LLC	90,000	*		90,000	0	*
Tabak, Tanya	15,000	*		15,000	0	*
Title, Herb	66,000	*		66,000	0	*
Torresy, Maria Serena	18,000	*		18,000	0	*
Totterman, Mikael and Alexandra Latypova ⁽¹⁰⁾	9,000	*		9,000	0	*
Vision Capital Advisors, LLC	30,000	*		30,000	0	*
Vision Opportunities Master Fund Ltd.	300,000	1.35	%	300,000	0	*
Vitug, Philip	30,000	*		30,000	0	*
Von Bucher, Erik P.	15,000	*		15,000	0	*
Walts, Terence A. ⁽¹¹⁾	30,000	*		30,000	0	*
Webster, Alexandra	90,000	*		90,000	0	*
West End Special Opportunity Fund LP	60,000	*		60,000	0	*
Weston, Harris K.	15,000	*		15,000	0	*
Wyndham Hall Investments Ltd.	64,917.2	*		64,917.2	0	*

TOTAL	4,595,047			4,480,000	115,047

*	Less than 1%

#	Each of these selling stockholders is also a registered broker-dealer.

(1)	All share ownership information was provided to us by the selling security holders.

(2)	Assumes that all of the shares held by the selling security holders and being offered hereby are sold, and that the selling security holders acquire no additional shares of common stock prior to completion of this offering.

(3)	Mr. Bux provided advisory and consulting services to Sovereign Bancorp Ltd., which acted as our financial advisor in connection with the November 2005 reverse acquisition.

(4)	Mr. Chung is a Managing Director of Brookshire Securities which has acted as a placement agent for the Company in the past.

(5)	Includes 1,000 shares of common stock owned individually by Enzo A. Faga.

(6)

Mr. Arshad Hasan Khan, the Managing Director of Green Crescent Corporation, has voting and investment control over the securities beneficially owned by Green Crescent Corporation. Mr. Khan is Managing Director of Sovereign Bancorp., Ltd., which acted as our financial adviser in connection with the November 2005 reverse acquisition.

(7)

Mr. Bagatelle, the Chairman of the Company, and his spouse currently hold non-controlling interests in Matrix USA, LLC, a registered broker-dealer. Matrix USA acted as sub-agent to our placement agent in the private placement we completed concurrent with the exchange transaction. As a result of these services, during the year ended December 31, 2005, Matrix USA received commissions of $155,400 and four-year warrants to purchase 77,700 shares of our Common Stock.

(8)	Pursuant to the securities exchange agreement in connection with our reverse acquisition in November 2005, we agreed to nominate up to two nominees of our financial advisor, Sovereign Bank Ltd., to our Board of Directors. Presently Mr. Walts is serving under this arrangement.

(9)	Mr. Timothy Ruggeiro, Managing Director of Sparta Road, Ltd., also acts as President of Brookshire Securities which has acted as a placement agent for the Company in the past.

(10)	Mr. Totterman is the son of director Dr. Saara Totterman, and a former Executive Vice President and Chief Operating Officer of the Company. Ms. Latypova is a former employee of the Company.

(11)	Mr. Walts is director of the Company.

INDEX OF ATTACHMENTS

Form 10-QSB/A for the quarter ended June 30, 2006 A-1

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-QSB/A

(Amendment No. 1)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

EXCHANGE ACT

For the transition period from __________________ to ____________________

Commission file number: 000-52018

VIRTUALSCOPICS, INC.

(Name of Small Business Issuer in its charter)

DELAWARE		04- 3007151
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

350 Linden Oaks, Rochester, New York		14625
(Address of principal executive offices)		(Zip Code)

(585) 249-6231

(Issuer's Telephone Number, Including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:

None.

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:

TITLE OF EACH CLASS: Common Stock, $0.001 par value

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x.

As of July 31, 2006, there were 22,401,075 shares of the issuer’s common stock, $0.001 par value, outstanding.

Transitional Small Business disclosure format. Yes o No x

Preliminary Note Regarding Amendment: This Amendment on Form 10-QSB/A amends the Registrant’s Quarterly Report on Form 10-QSB for the period ended June 30, 2006, as filed by the Registrant on August 10, 2006 (the “Original Filing”), and is being filed to report a correction of the shares of the Registrant’s common stock, $0.001 par value, outstanding as of July 31, 2006 as reported on the cover page. This Form 10-Q/A amends only the cover page to reflect this correction and Item 1 of Part 1 to add Note 8 "Subsequent Event" to the "Notes to Condensed Consolidated Financial Statements (unaudited)" to reflect this correction. The remaining portions of this Form 10-QSB/A consist of all other Items contained in the Original Filing. These Items are not amended hereby, but are included for the convenience of the reader. Except for the foregoing amended information, this Form 10-QSB/A continues to describe conditions as of the date of the Original Filing, and we have not updated the disclosure contained herein to reflect events that occurred at a later date.

TABLE OF CONTENTS

		Page Numbers
PART I	FINANCIAL INFORMATION

	ITEM 1: Financial Statements (unaudited)
	Condensed Consolidated Balance Sheet as of June 30, 2006 (unaudited)	2
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5-9
	ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations	10-16
	ITEM 3: Controls and Procedures	16

PART II	OTHER INFORMATION

	ITEM 1: Legal Proceedings	17
	ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds	17
	ITEM 3: Defaults Upon Senior Securities	17
	ITEM 4: Submission of Matters to a Vote of Security Holders	17
	ITEM 5: Other Information	17
	ITEM 6: Exhibits	17-19

PART 1: FINANCIAL INFORMATION

ITEM 1. Financial Statements (unaudited)

VirtualScopics, Inc. and Subsidiary

Condensed Consolidated Balance Sheet

(unaudited)

June 30, 2006

Assets

Current assets
Cash and cash equivalents	$	4,656,164
Accounts receivable		659,781
Prepaid expenses and other assets		325,784
Total current assets		5,641,729
Patents, net		1,877,115
Property and equipment, net		577,376
Other assets		473,925
Total assets	$	8,570,145

Liabilities and Stockholders' Equity

Current liabilities
Notes payable, current portion	$	72,000
Accounts payable and accrued expenses		401,638
Accrued payroll		488,713
Unearned revenue		256,434
Total current liabilities		1,218,785
Notes payable, net of current portion		46,980
Total liabilities		1,265,765

Commitments and Contingencies

Stockholders' Equity
Preferred stock, $0.001 par value; 15,000,000 shares authorized;
8,400 shares designated Series A; 7,000 issued and outstanding;
liquidation preference $1,000 per share		7
Common stock, $0.001 par value; 85,000,000 shares authorized; 21,889,075		21,889
shares issued and outstanding
Additional paid-in capital		10,074,983
Accumulated deficit		(2,792,499	)
Total stockholders' equity		7,304,380
Total liabilities and stockholders' equity	$	8,570,145

See notes to condensed consolidated financial statements.

VirtualScopics, Inc. and Subsidiary

Condensed Consolidated Statements of Operations

(unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2006			2005			2006			2005

Revenues	$	1,261,911		$	990,920		$	2,286,264		$	1,689,983
Cost of services		686,548			574,715			1,327,296			1,107,486
Gross profit		575,363			416,205			958,968			582,497

Operating expenses
Research and development		304,290			256,164			543,589			486,934
Sales and marketing		202,140			92,953			388,722			270,228
General and administrative (1)		1,230,178			367,328			2,106,933			694,342
Depreciation and amortization		118,703			99,798			223,200			197,317
Total operating expenses		1,855,311			816,243			3,262,444			1,648,821

Operating loss		(1,279,948	)		(400,038	)		(2,303,476	)		(1,066,324	)

Other income (expense)
Interest income		44,542			6,239			81,114			14,013
Other expense		(3,202	)		(3,166	)		(10,379	)		(12,369	)
Total other income (expense)		41,340			3,073			70,735			1,644

Net loss	$	(1,238,608	)	$	(396,965	)	$	(2,232,741	)	$	(1,064,680	)


Basic and diluted net loss per common share	$	(0.06	)	$	(0.02	)	$	(0.10	)	$	(0.06	)

Weighted average number of common shares outstanding		21,889,075			17,326,571			21,889,075			17,326,571

(1)	Includes stock option compensation expense of $564,733 and $989,617 for the three and six months ended June 30, 2006, respectively

See notes to condensed consolidated financial statements.

VirtualScopics, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(unaudited)

	For the Six Months Ended June 30,
	2006			2005

Cash flows from operating activities
Net loss	$	(2,232,741	)	$	(1,064,680	)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization		223,200			197,317
Stock option compensation expense		989,617			-
Issuance of equity instruments to non-employees for services					15,300
Changes in operating assets and liabilities
Accounts receivable		(162,008	)		(22,111	)
Prepaid expenses and other assets		71,483			-
Accounts payable and accrued expenses		(76,038	)		76,772
Accrued payroll		179,574			27,185
Unearned revenue		(310,834	)		(1,331,348	)
Total adjustments		914,994			(1,036,885	)
Net cash used in operating activities		(1,317,747	)		(2,101,565	)

Cash flows from investing activities
Purchase of equipment		(333,054	)		(60,161	)
Acquisition of patents		(63,197	)		(54,932	)
Net cash used in investing activities		(396,251	)		(115,093	)

Cash flows from financing activities
Principal payments of notes payable - related parties		(37,448	)		(13,512	)
Cost of equity raise		-			(5,152	)
Net cash used in financing activities		(37,448	)		(18,664	)

Net decrease in cash and cash equivalents		(1,751,446	)		(2,235,322	)

Cash and cash equivalents
Beginning of period		6,407,610			3,538,446
End of period	$	4,656,164		$	1,303,124

Supplemental disclosure of cash flow information
Cash paid during the periods for:
Interest	$	4,230		$	3,280

See notes to condensed consolidated financial statements.

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

NOTE 1 - Organization and Basis of Presentation

Organization

On November 4, 2005, VirtualScopics, LLC (“VS”), a New York limited liability company, entered into a merger agreement with ConsultAmerica, Inc. (“CA”), a Delaware corporation. CA issued 17,326,571 of its unregistered shares of common stock for 100% of the outstanding membership units of VS. As a result of the exchange, the members of VS became the controlling stockholders of CA. CA did not have any meaningful operations prior to the merger. The transaction was treated as a recapitalization of VS, and accounted for on a historical cost basis for all periods presented. Moreover, the financial statements set forth in this report for all periods, prior to the recapitalization, are the financial statements of VS and the common stock of VS has been retroactively restated to give the effect to the exchange for CA common stock. Immediately following the merger, CA changed its name to VirtualScopics, Inc. (the “Company” or “New VS”) and its fiscal year end from August 31 to December 31. The Company also changed its trading symbol from “CSAA.OB” to “VSCP.OB.” On May 31, 2006, the Company began trading on NASDAQ Capital Market under the symbol “VSCP.”

Nature of Business

The Company’s headquarters are located in Rochester, New York. The Company’s business evolved from research first carried out at the University of Rochester, a related party. As a result of this research, the Company has created a suite of image analysis software tools and applications which are used in detecting and analyzing specific structures in medical images. The Company’s developed software provides measurement and visualization capabilities designed to improve clinical research and development.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been condensed in certain respects and should, therefore, be read in conjunction with the audited consolidated financial statements and notes related thereto contained in the Company’s Annual Report on Form 10-KSB as of and for the year ended December 31, 2005. In the opinion of the management, these financial statements contain all adjustments necessary for a fair presentation for the interim period, all of which were normal recurring adjustments. The results of operations for the six months ended June 30, 2006 are not necessarily indicative of the results to be expected for the full year ending December 31, 2006.

NOTE 2 - Summary of Certain Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of New VS and its wholly-owned subsidiary, VS. All significant intercompany balances and transactions have been eliminated in consolidation.

Concentration of Credit Risk

The Company derived 42% and 79% of its revenue from its largest customer for the six months ended June 30, 2006 and 2005, respectively.

Revenue Recognition

The Company provides advanced medical image analysis which is charged to its customers on a per image basis in addition to various consulting and project/data management services. Revenue is recognized after the services are rendered or when the image analysis is delivered.

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

NOTE 2 - Summary of Certain Significant Accounting Policies, continued

The Company also offers software development to its customers. Software development revenue includes software integration, customization and development fees. Software development revenue is billed on a fixed price basis.

Research and Development

Research and development expense relates to the development of new products and processes including significant improvements to existing products. These costs are expensed as incurred.

NOTE 3 - Notes Payable

Notes payable to related parties as of June 30, 2006 amounted to $118,980.

During 2002, the Company entered into note agreements with two of the Company’s founders, along with three additional employees, for total cash proceeds of $360,000. The notes are payable in quarterly installments of principal and interest. The notes bear interest at the rate of 5.75% per annum and mature on March 31, 2008.

Interest expense amounted to $4,230 and $7,480 for the six months ended June 30, 2006 and 2005, respectively.

NOTE 4 - Employee Stock Options

On January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment,” using the modified prospective method. Consequently, for the three and six months ended June 30, 2006, the Company’s results of operations reflected compensation expense for new stock options granted under its stock incentive plans during the three and six months ended June 30, 2006 and compensation expense related to the unamortized portion of stock options granted prior to January 1, 2006. The amount included in the general and administrative expenses in the condensed consolidated statements of operation related to stock-based compensation was $564,733 and $989,617 for the three and six months ended June 30, 2006, respectively.

Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to the market price of the Company’s stock at the date of grant and expire ten years from the date of grant. These options generally vest over a three- or four-year period.

Prior to January 1, 2006, the Company accounted for its stock-based employee compensation arrangements in accordance with the provisions and related interpretations of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Had compensation cost for stock-based compensation been determined consistent with SFAS No. 123R, the net loss and net loss per share for the three and six months ended June 30, 2005 would have been adjusted to the following pro forma amounts:

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

NOTE 4 - Employee Stock Options, continued

	Three Months Ended June 30, 2005			Six Months Ended June 30, 2005
Net loss, as reported	$	(396,965	)	$	(1,064,680	)
Deduct: Total stock-based employee compensation expense determined under the fair value method		(152,963	)		(449,640	)

Net loss, pro forma	$	(549,928	)	$	(1,514,320	)

Basic and diluted net loss per common share:
As reported	$	(0.02	)	$	(0.06	)
Pro forma	$	(0.03	)	$	(0.09	)

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing method. The Company uses historical data to estimate the expected price volatility, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. The following assumptions were used to estimate the fair value of options granted for the three and six months ended June 30, 2006 and 2005 using the Black-Scholes option-pricing model:

	June 30,
	2006			2005
Risk free interest rate		4.72	%		4.15	%
Expected term (years)		8.8			8.6
Expected volatility		80.6	%		80.6	%
Expected dividend yield		-			-

A summary of the option activity for the six months ended June 30, 2006 is as follows:

	Number of Shares		Weighted Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value

Options outstanding at January 1, 2006		2,892,166	$	1.89
Granted		541,750	$	4.12
Options outstanding at June 30, 2006		3,433,916	$	2.24		8.03	$	12,634,337
Options exercisable at June 30, 2006		1,199,701	$	1.23		6.02	$	5,930,730

The weighted-average grant-date fair value of options granted during the six months ended June 30, 2006 and 2005 was $2,232,010 and $0, respectively. There have been no options exercised as of June 30, 2006.

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

A summary of the status of the nonvested shares as of June 30, 2006 and changes during the six month period ended June 30, 2006, is presented below:

Nonvested Shares	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2006		1,699,757			2.35
Granted		541,750			4.12
Vested		(7,292	)		1.23
Nonvested at June 30, 2006		2,234,215			2.78

As of June 30, 2006, there was $4,513,893 of total unrecognized compensation cost related to nonvested share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 9.12 years. The total fair value of shares vested during the six months period ended June 30, 2006 amounted to $8,969.

NOTE 5 - Net Loss Per Share

Basic net loss per share is computed by dividing the net loss applicable to common shares by the weighted average number of common shares outstanding during the period. The weighted average number of shares has been given retroactive effect to the recapitalization. Diluted net loss attributable to common shares adjusts basic net loss per share for the effects of convertible securities, warrants, stock options, and other potentially dilutive financial instruments, only in the periods in which such effect is dilutive. The shares issuable upon the conversion of preferred stock, the exercise of stock options and warrants are excluded from the calculation of net loss per share as their effect would be antidilutive.

Securities that could potentially dilute earnings per share in the future that were not included in the computation of diluted loss per share consist of the following:

	June 30,
	2006		2005
Series A convertible preferred stock		2,800,000		-
Warrants to purchase common stock		2,212,490		532,490
Options to purchase common stock		3,570,262		2,261,185

Total		8,582,752		2,793,675

NOTE 6 - Severance Payment Demand

In the summer of 2005, the former President and Chief Executive Officer of VS, Dr. Stuart Shapiro, made a demand for severance payments under an employment agreement with VS alleged by him to be due in connection with his termination in the approximate amount of $230,000 and certain options. On May 3, 2006, Dr. Shapiro filed a demand for arbitration with the American Arbitration Association seeking $325,000, plus the value of his option to purchase approximately 174,570 shares of common stock at $2.25 per share. VirtualScopics filed a response on May 24, 2006, denying the allegations and asserting several defenses. VS believes the demand is without merit and intends to vigorously defend against the demand. As of June 30, 2006, the Company did not accrue any liability related to the demand.

VirtualScopics, Inc. and Subsidiary

Notes to Condensed Consolidated Financial Statements

(unaudited)

NOTE 7 - Employment Agreement

Effective May 11, 2006, the Company’s board of directors confirmed the appointment of a new Chief Operating Officer, and entered into an employment agreement which provides for an annual base salary of $220,000, a bonus of $30,000 in 2006 upon the achievement of certain Company performance targets and restrictive covenants against competition. In addition, the Company also provides for the officer to receive 500,000 stock options exercisable at $4.00 per share vesting over a four-year period. The aforementioned agreement may be terminated at any time by either party.

NOTE 8 - Subsequent Event

From July 18, 2006 through July 31, 2006, the Company issued an additional 512,000 shares of its common stock upon the conversion of its series A convertible preferred stock by holders of such shares pursuant to the terms thereof. As a result of these conversions, the Company had 22,401,075 shares of its common stock outstanding as of July 31, 2006.

ITEM 2: Management's Discussion and Analysis of Financial Condition and Result of Operations

Overview

We are a provider of image-based biomarker solutions to the pharmaceutical, biotechnology and medical device industries. We focus on applying our imaging technology in two areas:

·	improving the efficiency and effectiveness of the pharmaceutical and medical device research and development processes; and

·	providing unique products to improve treatment planning and diagnosis of patients in a clinical setting.

We were originally formed in 1988 under the name ConsultAmerica, Inc. On November 4, 2005, we acquired all of the outstanding membership units of VirtualScopics, LLC (“VS”), in exchange for 17,326,571 shares of our common stock, and changed our name to VirtualScopics, Inc. These newly issued shares constitute approximately 70% of our outstanding shares of common stock and shares of common stock initially issuable upon the conversion of our outstanding series A convertible preferred stock. Prior to the exchange transaction, we provided strategic business planning to small companies. As a result of the exchange transaction, we have succeeded to the business of VS and plan to continue this business.

VS was formed in July 2000 after being spun out of the University of Rochester. In June 2002, VS purchased the underlying technology and patents created by the founders of VS from the University of Rochester. VS owns all rights to the patents underlying its technology. Since its inception, VS’ principal activities consisted of:

·	research and development;

·	hiring technical, sales and other personnel;

·	business development of customer and strategic relationships; and

·	raising capital.

During the first three years, we have expanded our customer base. In 2003, we performed our services for eight customers. Since that time, we have added 21 new customers, for a total of 29 as of the date of this report. Revenue over this time has been derived primarily from image processing services in connection with pharmaceutical drug trials and contract research studies. For these services, we have been concentrating in the areas of oncology and osteoarthritis. We have also derived a portion of revenue from software development and consulting services, as well as research studies in the neurology and sexual dysfunction areas. We expect that the concentration of our revenue will continue in these services and therapeutic areas throughout 2006. Revenues are recognized as the images that we process are quantified and delivered to our customers.

We have found that our customers value the ability to better understand the efficacy profile of their compounds. To date, nearly all of our customers have expressed interest in expanding their service agreements with us. We have also submitted proposals and bids for a number of other contracts. However, there can be no assurance that we will secure contracts from these efforts or that any such contracts or any of its existing contracts will not be cancelled on 30 days’ advance notice by a customer.

Additionally, once we enter into a new contract for participation in a drug trial, there are several factors that can affect whether we will realize the full benefits under the contract, and the time over which we will realize revenue. Customers may not continue our services due to the performance of their compound. Furthermore, the contracts may contemplate performance over multiple years. Therefore, revenue may not be realized in the fiscal year in which the contract is signed. Recognition of revenue under the contract may also be affected by timing, reduction in patient recruitment or image site identification and training.

Results of Operations

Results of Operations for the Three Months Ended June 30, 2006 Compared to the Three Months Ended June 30, 2005

Revenues

Our revenues for the three months ended June 30, 2006 were $1,262,000, an increase of $271,000 or 27% over the comparable quarter of 2005. The strong sales were a direct reflection of the increase in our customer base. In 2006, 33% of the revenues for the second quarter were generated from Pfizer, as compared to 72% in the same period of 2005. We anticipate that our revenues from Pfizer will continue to grow; however, we expect the relative percentage of the Pfizer business to decline throughout 2006 as we continue to broaden our customer base. We performed services for a total of 42 projects in the second quarter of 2006, as compared to 24 in the second quarter of 2005. During the second quarter of 2006, we derived 60% of our revenues from musculoskeletal projects, 24% from oncology projects, and 16% from consulting and other smaller projects. The majority of the pharmaceutical trial projects for which we have performed work to date are in pre-clinical, Phase I or Phase II studies.

Gross Profit

We had a gross profit of $575,000 for the three months ended June 30, 2006 compared to $416,000 for the comparable period in 2005. Our gross profit margin also increased from 42% in the second quarter 2005 to 46% in the second quarter 2006. This improvement in gross margin is largely attributed to the increase in sales, operational process improvements, and the product mix of the services that were delivered on during the quarter.

Research and Development

Total research and development expenditures were $304,000 in the second quarter of 2006 compared to $256,000 for the comparable period in 2005, an increase of 19%. The increase in research and development costs for the period was due to the additional headcount in our algorithm and software development group. These costs were composed mostly of salaries for our technical, scientific and software development staff. All costs associated with the development of a new product or enhancement of an existing product or software platform are expensed as incurred.

Sales and Marketing

Sales and marketing costs for the three months ended June 30, 2006 was $202,000, an increase of $109,000 or 117% over the second quarter of 2005. The increase is attributable to the broadening of our efforts in sales and marketing, including new marketing brochures, greater exposure at targeted trade shows and the hiring of a new business development person at the end of 2005. All costs associated with our selling efforts, including trade shows, seminars, customer presentations and proposal related travel are included in sales and marketing.

General and Administrative

General and administrative expenses for the three months ended June 30, 2006 costs were $665,000 (excluding the costs of FAS 123R as discussed below), an increase of $298,000 or 81%, over the second quarter of 2005. The increase is mainly due to the additional costs of being a public company which was a result of the exchange transaction between ConsultAmerica, Inc. and VirtualScopics, LLC on November 4, 2005. These additional costs included legal fees, filing fees, as well as audit and tax-related services amounting to approximately $235,000 for the second quarter of 2006. The increase was also a result of the hiring of administrative functions, including IT, human resources and finance in order to support the Company’s growth. We expect that our general and administrative costs will be higher in 2006 as a result of being a publicly traded company.

Stock Option Compensation Expense

On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R, “Share-Based Payment,” using the modified prospective method. Consequently, for the three months ended June 30, 2006, the Company’s results of operations reflected compensation expense for new stock options granted and vested under its stock incentive plans during the second three months of fiscal year 2006 and the unvested portion of previous stock option grants which vested during the second three months of fiscal year 2006. The amount recognized in the financial statements related to stock-based compensation was $565,000 for the three months ended June 30, 2006. SFAS No. 123R does not require retroactive adjustments; therefore, there was no comparable amount in the June 30, 2005 statement of operations. Prior to January 1, 2006, the effects of stock options are disclosed in the notes to the unaudited condensed consolidated financial statements.

Depreciation and Amortization

Depreciation and amortization charges increased in the three months ended June 30, 2006 by $19,000 or 19%, to $119,000, when compared to the same period in 2005. This increase is attributed mostly to the rise in depreciation charges for the period resulting from the purchase of new hardware and software to support the Company’s delivery of services to its customers. We intend to continue to invest in our IT infrastructure in order to meet the demands of our customers.

Interest Income (Expense)

Interest income for the three months ended June 30, 2006 was $45,000 and composed of interest derived on the Company’s operating and savings accounts, compared to interest income of $6,000 in the same period in 2005. The increase in interest income was a reflection of the higher cash balances on hand during the fiscal year 2006 as well as higher average rates of return on our savings accounts in 2006 compared to 2005. Interest expense for the quarters ended June 30, 2006 and 2005 was $3,000 representing interest due to loans from certain stockholders of the Company.

Net Loss

Our net loss for the three months ended June 30, 2006 was $1,239,000 compared to a net loss of $397,000 for the same period in 2005. The increase in our net loss over the prior period was primarily related to the effects of implementing SFAS No. 123R in 2006 as well as greater general administrative costs associated with being a public company, as discussed above.

Results of Operations for the Six Months Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005

Revenues

Our revenues for the six months ended June 30, 2006 were $2,286,000, an increase of $596,000 or 35% over the first half of 2005. The strong sales were a direct reflection of the increase in our customer base. In 2006, 42% of the revenues for the first half were generated from Pfizer, as compared to 79% in the same period of 2005. We anticipate that our revenues from Pfizer will continue to grow; however, we expect the relative percentage of the Pfizer business to decline in 2006 as we continue to broaden our customer base. We performed services for a total of 49 projects in the first half of 2006, as compared to 26 in the first half of 2005. During the first half of 2006, we derived 57% of our revenues from musculoskeletal projects, 25% from oncology projects, and 18% from consulting and other smaller projects. The majority of the pharmaceutical trial projects for which we have performed work to date are in pre-clinical, Phase I or Phase II studies.

Gross Profit

We had a gross profit of $959,000 for the six months ended June 30, 2006 compared to $582,000 for the comparable period in 2005. Our gross profit margin also increased from 34% in the first two quarters of 2005 to 42% in the first two quarters of 2006. This improvement in gross margin is largely attributed to the increase in sales, operational process improvements, and the product mix of the services that were delivered on during the period.

Research and Development

Total research and development expenditures were $544,000 in the first half of 2006 compared to $487,000 for the comparable period in 2005, an increase of 12%. The increase was attributable to the additional algorithm and software development staff hired in the first half of 2006. These costs were composed mostly of salaries for our technical, scientific and software development staff. All costs associated with the development of a new product or enhancement of an existing product or software platform are expensed as incurred.

Sales and Marketing

Sales and marketing costs for the six months ended June 30, 2006 increased to $389,000, an increase of $119,000 or 44% over the first half of 2005. The increase is attributable to the broadening of our efforts in sales and marketing, including new marketing brochures, greater exposure at targeted trade shows and the hiring of a new business development person at the end of 2005. All costs associated with our selling efforts, including trade shows, seminars, customer presentations and proposal related travel are included in sales and marketing.

General and Administrative

General and administrative expenses for the six months ended June 30, 2006 were $1,117,000 (excluding the impact of FAS 123R, as discussed below), an increase of $422,000, over the first half of 2005. The increase is mainly due to the effects of implementing FAS 123R, as discussed below, as well as the additional costs of being a public company which was a result of the exchange transaction between ConsultAmerica and VirtualScopics, LLC on November 4, 2005. These additional costs included legal fees, filing fees, as well as audit and tax-related services amounting to approximately $350,000 for the first half of 2006. The increase was also a result of the hiring of administrative functions, including IT, human resources and finance in order to support the Company’s growth. We expect that our general and administrative costs will increase throughout 2006 as a result of being a publicly traded company.

Stock Option Compensation Expense

On January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R, “Share-Based Payment,” using the modified prospective method. Consequently, for the six months ended June 30, 2006, the Company’s results of operations reflected compensation expense for new stock options granted and vested under its stock incentive plans during the first three months of fiscal year 2006 and the unvested portion of previous stock option grants which vested during the first six months of fiscal year 2006. The amount recognized in the financial statements related to stock-based compensation was $990,000 for the six months ended June 30, 2006. SFAS No. 123R does not require retroactive adjustments; therefore, there was no comparable amount in the June 30, 2005 statement of operations. Prior to January 1, 2006, the effects of stock options are disclosed in the notes to the unaudited condensed consolidated financial statements.

Depreciation and Amortization

Depreciation and amortization charges increased in the six months ended June 30, 2006 by $26,000 or 13%, to $223,000, when compared to the same period in 2005. This increase is attributed mostly to the rise in depreciation charges for the period resulting from the purchase of new hardware and software to support the Company’s delivery of services to its customers. We intend to continue to invest in our IT infrastructure in order to meet the demands of our customers.

Interest Income (Expense)

Interest income for the six months ended June 30, 2006 was $81,000 and composed of interest derived on the Company’s operating and savings accounts, compared to interest income of $14,000 in the same period in 2005. The increase in interest income was a reflection of the higher cash balances on hand during the fiscal year 2006 as well as higher average rates of return on our savings accounts in 2006 compared to 2005. Interest expense for the six month period ended June 30, 2006 and 2005 were $10,000 and $12,000, respectively, representing interest due to loans from certain stockholders of the Company.

Net Loss

Our net loss for the six months ended June 30, 2006 was $2,233,000 compared to a net loss of $1,065,000 for the same period in 2005. The increase in our net loss over the prior period was primarily related to the effects of implementing SFAS No. 123R in 2006, as well as higher general and administrative costs associated with being a public company.

Liquidity and Capital Resources

Our working capital as of June 30, 2006 was $4,423,000 compared to our working capital of $800,000 as of June 30, 2005. The increase was a direct result of our recently completed private placement in the fourth quarter of 2005, as described below.

On November 4, 2005 and in two subsequent closings on November 23, 2005 and December 2, 2005, we closed on our private placement for the sale of 7,000 shares of our newly issued series A convertible preferred stock. We received net cash proceeds of approximately $5.7 million from the private placement. The net proceeds from our 2005 private placement have been invested in money market funds that invest primarily in short-term, highly-rated investments, including U.S. Government securities, commercial paper and certificates of deposit guaranteed by banks. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to interest rate changes. Because of the short-term maturities of our investments, we do not believe that a decrease in market rates would have a significant negative impact on the value of our investment portfolio. As of July 31, 2006, we had approximately 4.2 million in cash and cash equivalents.

We have begun to utilize the net proceeds from the private placement to support the expansion of our business to serve larger scale clinical trials, further research and development of existing and new targeted therapeutic areas, we plan on also utilizing the funds available to develop and market diagnostic and treatment planning products. Additionally, we have begun the added investment in our sales and marketing efforts through hiring of sales support and broadening our marketing materials and participation in medical conferences.

Net cash used in operating activities totaled $1,318,000 in the first half of 2006 compared to $2,102,000 for the comparable period in 2005. This decrease in usage was primarily the result of the timing of collection of receivables as well as the earning of advance payments from customers.

We invested a total of $396,000 in the purchase of equipment and the acquisition of patents in the first half of 2006, compared to $115,000 in the same period in 2005. We anticipate further spending within our IT infrastructure to support the Company’s operations.

Net cash used in our financing activities for the six month period ended June 30, 2006 was $37,000, compared to $19,000 for the six month period ended June 30, 2005. The amounts included in cash used in financing activities represent amounts paid on loans from certain stockholders of the Company.

We currently expect that existing cash and cash equivalents will be sufficient to fund operations for at least the next 12 months. If in the next 12 months our plans or assumptions change or prove to be inaccurate, we may be required to seek additional capital through public or private debt or equity financings. If we need to raise additional funds, we may not be able to do so on terms favorable to us, or at all. If we cannot raise sufficient funds on acceptable terms, we may have to curtail our level of expenditures and our rate of expansion.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements, other than the consulting agreements and operating leases that have or are reasonably likely to have a current or future effect that is material to investors on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

Forward Looking Statements

Certain statements made in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements that address activities, events or developments that we expect, believe or anticipate may occur in the future, including:

·	adverse economic conditions;

·	inability to raise sufficient additional capital, if necessary, to operate our business;

·	unexpected costs, lower than expected sales and revenues, and operating defects;

·	adverse results of any legal proceedings;

·	the volatility of our operating results and financial condition;

·	inability to attract or retain qualified senior management personnel, including sales and marketing, and scientific personnel; and

·	other specific risks that may be referred to in this report.

All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans and objectives of management are forward-looking statements. When used in this report, the words “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “plan,” “could,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. We do not undertake any obligation to update any forward-looking statements or other information contained in this report. Existing stockholders and potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure our stockholders or potential investors that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under the section entitled “Risk Factors” in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005 filed with the Securities and Exchange Commission (the “SEC”) and in any subsequent reports filed with the SEC. These risk factors qualify all forward-looking statements attributable to us or persons acting on our behalf.

ITEM 3. Controls and Procedures

We maintain a set of disclosure controls and procedures, as defined in Section 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

There have been no changes in our internal control over financial reporting identified in connection with the evaluation discussed above that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For information on legal proceedings, see Note 6 to Condensed Consolidated Financial Statements, which is incorporated by reference in response to this Item 1.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

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

VirtualScopics, Inc. held its Annual Shareholders’ Meeting on May 11, 2006.

The shareholders voted for the election of seven nominees to serve as directors for a one-year term expiring in 2007 and until their successors are elected. The vote was as follows:

Name of Candidate	For		Withheld

Warren Bagatelle		15,458,829		1,970,910
Colby Chandler		15,458,829		1,970,910
Robert Klimasewski		15,458,829		1,970,910
Sidney Knafel		17,411,039		18,700
Charles Phelps		15,458,829		1,970,910
Saara Totterman		15,458,829		1,970,910
Terence Walts		15,458,829		1,970,910

There were no abstentions and no broker non-votes.

The shareholders voted to ratify the appointment of Marcum & Kliegman as the independent registered public accounting firm of VirtualScopics, Inc. for fiscal year 2006. The vote was 17,418,325 for, 4,200 against and 7,214 abstentions. There were no broker non-votes.

Item 5. Other Information

None

Item 6. Exhibits

Exhibit 10.1		Option Agreements with Robert Klimasewski dated November 5, 2005 (Incorporated herein by reference to the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on May 2, 2006 (File No.: 333-133747)).

Exhibit 10.2		Form of April 28, 2006 Indemnification Agreement by and among VirtualScopics, Inc., and the directors and officers of the Company (Incorporated herein by reference to the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on May 2, 2006 (File No.: 333-133747)).

Exhibit 10.3		Employment Agreement with Jeffrey Markin dated April 11, 2006 (Incorporated herein by reference to the Company’s Registration Statement on Form SB-2, Amendment No. 1 filed with the Securities and Exchange Commission on July 13, 2006 (File No.: 333-133747)).

Exhibit 31.1		Certification of Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2		Certification of Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002.

Exhibit 32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002.

SIGNATURES

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


Dated: September 25, 2006	VIRTUALSCOPICS, INC.

		/s/ Jeffrey Markin
		Jeffrey Markin
		President and Chief Executive Officer



		/s/ Molly Henderson
		Molly Henderson
		Chief Financial Officer and Vice President of Finance

Exhibit Index

Exhibit 10.1		Option Agreements with Robert Klimasewski dated November 5, 2005 (Incorporated herein by reference to the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on May 2, 2006 (File No.: 333-133747)).

Exhibit 10.2		Form of April 28, 2006 Indemnification Agreement by and among VirtualScopics, Inc., and the directors and officers of the Company (Incorporated herein by reference to the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on May 2, 2006 (File No.: 333-133747)).

Exhibit 10.3		Employment Agreement with Jeffrey Markin dated April 11, 2006 (Incorporated herein by reference to the Company’s Registration Statement on Form SB-2, Amendment No. 1 filed with the Securities and Exchange Commission on July 13, 2006 (File No.: 333-133747)).

Exhibit 31.1		Certification of Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2		Certification of Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002.

Exhibit 32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002.