**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

**FORM** **10-KSB**

 

**x****ANNUAL REPORT PURSUANT TO SECTION** **13 or 15(d)** **OF THE SECURITIES AND EXCHANGE ACT OF 1934**

**For the fiscal year ended December 31, 2007**

**o****TRANSITION REPORT PURSUANT TO SECTION** **13 or 15(d)** **OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from**                  **to**                 ****

**Commission file Number 333128060**

**DATAMEG CORPORATION**

(Name of Small Business Issuer in Its Charter) 

 

| **Delaware**                                            |   | **13-3134389**         |   |
|---------------------------------------------------------|--------|------------------------|--------|
| (State or other jurisdiction of                         |   | (I.R.S. Employer       |   |
| Incorporation or organization)                          |   | Identification Number) |   |
| **2150 South 1300 East, Suite 500, Salt Lake City, UT** |   | **84106**              |   |
| (Address of principal executive offices)                |   | (Zip Code)             |   |

 

Issuers telephone number: **(866) 739-3945**

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Shares, Par Value $.0001

(Title of class)

1

Check whether issuer (1) filed all reports 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

Check if disclosure of delinquent filers in response to Item 405 of Regulation SB is not contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-KSB or any amendment to this form 10-KSB.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b2 of the Exchange Act).  Yes o No x

State the issuer’s revenues for the most recent fiscal year: $817,477

State the aggregate market value of the voting and nonvoting common equity held by nonaffiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b2 of the Exchange Act.) $.034 as of March 31, 2007. 

Note: If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by nonaffiliates on the basis of reasonable assumptions, if the assumptions are stated. 

(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes oNo o

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. There were 391,950,062 shares of common stock outstanding as of December 31, 2007 and 395,073,246 shares of common stock outstanding as of March 31, 2007. 

DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g. Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933 (Securities Act). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal years ended December 24, 1990). 

Transitional Small Business Disclosure Format (Check one): Yes oNo x

 

2

PART I 

| ITEM 1.    | DESCRIPTION OF BUSINESS |
|----------------------|-------------------------|

Overview 

Datameg Corporation (“the Company” “Datameg”) is a holding company and Delaware corporation that is a successor by merger as of April 27, 2005 to Datameg Corporation, which was a New York corporation incorporated in October 1982 as The Viola Group, Inc. In August 2000 the Company exchanged 90% of its common stock for 100% of the stock of Datameg Corporation, a Virginia corporation that was incorporated in January 1999. The Viola Group subsequently changed its name to Datameg Corporation and is the successor in business operations of the New York Datameg. Virginia Datameg was terminated on May 31, 2001.

On April 27, 2005, we entered into an Agreement and Plan of Merger with New York Datameg setting forth the terms of our re-incorporation from New York to Delaware. As part of the re-incorporation, the Company increased its authorized number of shares to 503,000,000, of which 10,000,000 are preferred shares and 493,000,000 are common stock. The Company also changed its par value from $0.01 to $0.0001 per share.

Datameg Corporation has four subsidiaries: American Marketing and Sales, Inc., a Massachusetts corporation that the Company wholly owns; NetSymphony Corporation and QoVox Corporation, North Carolina corporations that the Company wholly owns; and CASCommunications, Inc., a Florida corporation, of which the Company owns 40%. The primary business of American Marketing and Sales, Inc., doing business as Innovative Designs, is marketing and selling food service products and caterware. NetSymphony Corporation was incorporated on March 29, 2007 to take advantage of additional, software-driven network assurance products and services, and its planning and staffing are in the formative stage.  QoVox was known as North Electric Company, Inc. until July 1, 2005, when North Electric Company filed an Amendment to its Articles of Incorporation with the North Carolina Secretary of State to change its corporate name.Datameg and its subsidiaries individually and collectively have been considered development stage enterprises in prior years.  With the acquisition of American Marketing and Sales, Inc., the Company is no longer considered to be in the development stage as defined in SFAS No. 7, *“Accounting for Development Stage Enterprises.”* CASCommunications, Inc. is an inactive company.  CASCommunications, Inc. did not generate any revenue in 2007 and is not expected to generate any revenue in 2008.

Datameg Corporation is in the process of acquiring an additional Massachusetts corporations, Computer Ctr.Com, Inc. Computer Ctr.Com Inc.’s primary business is IT solutions, custom manufactured computer equipment, computer network engineering and management, PC support and repair services, digital video surveillance, data recovery, and hard drive forensics services, and on an unaudited basis reported $1,300,000 in gross revenue in 2006 and $1,015,000 in gross revenue in 2007.  The acquisition is expected to close in the second quarter of 2008.

During the years ended December 31, 2007 and 2006, American Marketing and Sales, Inc. recorded revenue of approximately $12M and $9.5M , respectively.  American Marketing has successfully developed and introduced an extensive line of environment-friendly, injection-molded Green Line food-packaging/caterware products and has received orders or commitments to purchase the new Green Line products from Whole Foods, the U.S. House of Representatives purchasing office in Washington, D.C., and several schools and colleges, including the University of Massachusetts. The new Green Line products consist of 25 items including various sizes of trays, party platters, and serving bowls with lids.  These non-toxic products qualify for the Green label inasmuch as they are manufactured from FDA-approved polypropylene and polystyrene resins that contain up to 40 percent recycled plastic content. American Marketing and Sales,Inc. is one of the first manufacturers in the industry to introduce injection-molded caterware and food service products worthy of the prestigious ‘recycled’ logo mark.

NetSymphony is focusing on becoming a provider of network assurance products and services. NetSymphony’s network assurance products are designed to enable communications network operators and service providers to quickly and automatically determine if their network is meeting its quality and service expectations, while lowering network operating costs. NetSymphony has developed its Maestro System that covers the existing traditional telephone networks, networks that use the same communication technology as the Internet, and converged networks comprised of both of these network types. NetSymphony announced its first product sales in the first quarter of 2008.

 

3

During the years ended December 31, 2007 and 2006, QoVox recorded revenue of approximately $0 and $43,000, respectively. QoVox plans to provide consulting service to NetSymphony on a work-for-hire basis.  Any revenues generated by QoVox or expenses incurred by NetSymphony as a result of this arrangement will be eliminated in consolidation.

CASCommunications, Inc. had no recorded assets as of December 31, 2007 and had a loss before minority interest of zero for the years ended December 31, 2007 and 2006 due to the lack of activity during those periods. No consolidated assets are collateral for liabilities of CASCommunications, Inc. Datameg has provided $270,000 of the total capital of $388,000 provided to CASCommunications, Inc. as of December 31, 2007. 

These consolidated financial statements reflect those of Datameg Corporation, American Marketing & Sales, Inc., Netsymphony Corporation, QoVox Corporation, and CASCommunications, Inc. In accordance with the Financial Accounting Standards Board (FASB) interpretation (FIN) 46R, *“Consolidation of Variable Interest Entities,* an interpretation of ARB No. 51,” the Company continues to consolidate CASCommunications, Inc. as it expects to continue to absorb a majority of CASCommunications, Inc.’s losses.

The Company operates under the name of Datameg Corporation and trades under the symbol DTMG on the OTCBB. The Company’s active subsidiaries are American Marketing & Sales, Inc., NetSymphony Corporation and QoVox Corporation, each of which the Company wholly owns.

As of March 31, 2008, we had a total of nine fulltime employees and four part time independent contractors or consultants. Of these, three individuals serve in administrative and senior management capacities at our subsidiaries. The balance is comprised of one fulltime employee, our Datameg CEO. 

Recent Developments 

In December 2007, Datameg Corporation closed its acquisition of American Marketing and Sales, Inc. 

Products in Development 

Our products and products in development are:

The Green Line

The primary business of American Marketing and Sales, Inc, doing business as Innovative Designs, is marketing and selling food service products and caterware,  American Marketing has successfully developed and introduced of an extensive line of environment-friendly, injection-molded Green Line food-packaging/caterware products and has received orders or commitments to purchase the new Green Line of products from Whole Foods, the U.S. House of Representatives purchasing office in Washington, D.C., and several schools and colleges, including the University of Massachusetts. The new Green Line products consist of 25 items including various sizes of trays, party platters, and serving bowls with lids.  These non-toxic products qualify for the Green label inasmuch as they are manufactured from FDA-approved polypropylene and polystyrene resins that contain up to 40 percent recycled plastic content. American Marketingis one of the first manufacturers in the industry to introduce injection-molded caterware and food service products worthy of the prestigious ‘recycled’ logo mark.

Maestro System 

NetSymphony has developed the Maestro System that sets new standards for size, simplicity and value. The Maestro system provides integrated management of IP services by assessing, monitoring and troubleshooting IP systems.  Maestro leverages measurement points, servers and reporting to allow network operators to manage a customer’s experience from initial deployment through to problem resolution years later.  The M10P probe has the smallest form factor in the industry (1 inch by 1 inch by 4.375 inches).  Its zero-configuration startup feature lets users plug it in and begin immediately performing tests and measurements without any complicated configuration required.  Maestro provides valuable functions in three major areas: system assessment; assurance and service level agreement monitoring; and fault isolation and troubleshooting.

 

4

Description of Primary Industry 

American Marketing and Sales, Inc.

Plastics play an indispensable role in a wide variety of markets, ranging from packaging and building/construction to transportation; consumer and institutional products; furniture and furnishings; electronics and more.

Plastic product manufacturing is third among the top manufacturing industry groups in the United States. The plastics industry as a whole, including resin (raw material) suppliers, plastic product manufacturers and machinery and mold makers, contributes 1.1 million jobs and $379 billion in shipments to the U.S. economy. 

In 2006, the U.S. Plastics Industry employed 1.1 million people and U.S. plastics shipments totaled $379 billion.  From 1980 to 2006, employment in the plastics manufacturing industry grew 1.1 percent per year.  Real value added in the plastics manufacturing industry grew 184 percent, from $42.1 billion to $119.4 billion. The real value of shipments by this industry grew 140 percent, from $114.5 billion to $275 billion.

NetSymphony Corporation

Public and private telephone networks are evolving from traditional telephone networks to an Internet-based network infrastructure that makes more efficient use of network resources. Various new technologies are enhancing Internet-based networks to provide new carrier class services while lowering capital and operating costs. These rapidly changing technological developments, coupled with increased bandwidth availability, have enabled the launch of a new generation of network services, such as Internet-based telephony that permits the transfer of voice data over the Internet and secure private networks for the exchange of sensitive data. 

Communication service providers, such as telecom operators and cable operators, are challenged to deliver high quality voice services, at the lowest cost, over managed IP infrastructures inter-working with traditional circuit switched networks. To do this effectively, service providers must monitor and measure their voice service offering, proactively detect problems and resolve them quickly and cost effectively, ideally before their customers experience any problem or service degradation. Additionally, when customers do report service problems, operators must be able to effectively identify the cause and fix the problem. NetSymphony provides the systems (products) and services to address these challenges. 

The next generation of networks, such as Internet-based telephony, is introducing new capabilities and opportunities for the sale of new products and services. However, for network operators and service providers, the implementation of new network technologies introduces a new set of operational challenges. Many of these challenges arise from the integration of innovative communications systems technologies with existing operational infrastructure. Service providers and enterprise network operators must verify that the new technologies have been installed and are working properly within the framework of their existing network. This verification process and actions to correct detected errors can be very labor intensive and may negatively affect customers by lowering the level of quality below the service level guaranteed to customers. This network assurance market segment is the focus and target of our currentand future technologies that will assist our customers in satisfying their obligations to customers with respect to agreed upon levels of service quality. 

Integrated and automated network monitoring, testing and automatic detection and location of errors are essential to reliable communications on which enterprise customers depend for mission critical business communications. Our research and development is dedicated towards products and services which will solve the challenging aspects of deploying new technologies into the advanced networks and network services of the future, and monitoring and testing those technologies. 

Competition 

Competition in the current communications industry is very robust, with many companies from many different backgrounds wrestling for their piece of the business. 

Investors can best understand our competitive environment by considering several axes that characterize the operational support system and service assurance market: 

 

5

ENTERPRISE VS. CARRIER 

Different companies dominate either the market for services to enterprise or large business customers or the market for services to the public network operators or carriers. We target the carrier market segment, but focus on new technologies and service types which are typically first implemented and proven in the enterprise arena. Therefore, we anticipate that competitive threats will come both from carrier service assurance companies seeking to expand their established business and from enterprise service assurance companies seeking to take their expertise from the enterprise into the carrier domain. 

DATACOM VS. TELECOM

Different companies dominate the telecom, or telephone networking sector of the communications networking business, and the datacom, or data/computer networking sector. Our target market is at the convergence of telecom and datacom in the networking world. Therefore, we expect firms specializing in the data/computer networking sector will seek to expand their market by adding telephone communications functionality to their products in the carrier network infrastructure areas. Similarly, we expect telecom infrastructure service assurance companies will try to expand into the data communications areas. 

TEST EQUIPMENT VS. NETWORK MANAGEMENT SYSTEMS

The market for operational support systems is generally divided between the test equipment vendors, who make specialized equipment designed to test particular functions in a piece of networking equipment, and the network management system vendors, who make systems that provide integrative overviews of the network status. We are developing a system that will enable automation of test equipment deployed around a network. With this system in place, a network operator in a single location will have the ability to assess the networks quality of service and to identify and locate errors. This puts us in the path of potential expansion from both the established test equipment vendors seeking to expand their product line into systems level products, and the network management system vendors seeking to broaden their integrated control of the network to include the network test functions previously provided by testequipment vendors. 

Our current strategy for competing in this complex environment is to: 

|   | **•** | remain focused on the network assurance market by ramping up our sales marketing efforts; |
|--------|------------|-------------------------------------------------------------------------------------------|

|   | **•** | continue onsite product testing at strategic telecommunication service providers; |
|--------|------------|-----------------------------------------------------------------------------------|

|   | **•** | launch product development to maintain a competitive lead; and |
|--------|------------|----------------------------------------------------------------|

|   | **•** | continue to establish alliances with selected manufacturers and service providers and implement international distribution agreements to help us gain rapid market acceptance on an international scale. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Intellectual Property 

Our intellectual property is in our software products and hardware configurations, which are principally protected by copyright and trade secret law. We are exploring additional protections through potential patents.

Research and Development 

For the year ended December 31, 2007, NetSymphony Corporation and QoVox Corporation incurred research and development expense of approximately $45,000 and $114,000, respectively.  In prior years, our research and development expenses were generated by QoVox and for the years ended December 31, 2006 and 2005 these expenses were approximately $250,000 and $900,000, respectively.   We anticipate NetSymphony Corporation, rather than QoVox Corporation or American Marketing and Sales, Inc., will incur the majority of the Company’s research and development costs during the next twelve months.

Business Overview of CASCommunications, Inc. 

 

6

CASCommunications, Inc., a Florida corporation in which we hold a 40% equity interest, halted development of its devices related to high speed broadband access in 2004 due to a lack of sufficient capital. CASCommunications is inactive and we do not expect that CASCommunications will generate any revenue in 2008. The Company is currently exploring options.

| ITEM 2.    | DESCRIPTION OF PROPERTY |
|----------------------|-------------------------|

American Marketing and Sales, Inc. rents a 3600-square-foot showroom and warehouse at 20 Mohawk Drive, Leominster, MA 01453.  The arrangement is month-to-month and cancellable at any time.  Monthly payments are $1,200 and include taxes and utilities.

NetSymphony leases approximately 2,600 square feet of space at 7200 Falls of the Neuse Road, Suite 101, Raleigh, North Carolina 27615. The term of the lease is for 26 months beginning December 1, 2007 and expiring January 31, 2010. The monthly rent is approximately $1,950. The property is being used to market and develop NetSymphony’s products. 

QoVox and Datameg currently are not in need of office space.  Our management believes that our insurance coverage our existing office spaces is adequate. 

| ITEM 3.    | LEGAL PROCEEDINGS |
|----------------------|-------------------|

Miami Associates Investors, LLC filed a lawsuit in 2003 against the Company and the Company’s Chairman in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida for damages in the amount of $54,850 together with the awarding of treble damages, attorneys fees and interest. On April 24, 2003, the court determined that the Company and our Chairman defaulted. A final judgment was ordered and finalized on December 3, 2003. The Company recorded a liability for the judgment and accrued interest at December 31, 2003 in the amount of $118,350. In March 2005, the Company entered into an agreement to pay $55,000 to Miami Associates Investors, LLC by April 15, 2005 in full satisfaction of all outstanding, current and pending claims regarding this litigation. The reduced settlement was not paid in full when due, so additional fees and interest were charged. As of December 31, 2007, thebalance remaining was approximately $34,000. The company is seeking legal advice from Florida counsel regarding the validity of the original default judgment.

On July 31, 2006, the Company received a letter from counsel for Joshua E. Davidson, giving Mr. Davidson’s notice of termination as the Company Comptroller and Acting Chief Financial Officer. The letter further demands $17,500 to satisfy Mr. Davidson’s claims against the Company, with the potential for multiple damages for willful deceptive and unfair acts and practices if the matter proceeds to suit. On September 22, 2006, Mr. Davidson filed suit against the Company and the Company’s CEO, individually, in Boston municipal court for $14,900 and multiple damages. The Company obtained litigation counsel and on October 16, 2006, defendants filed their answers denying all Mr. Davidson’s claims with the Company, filing counter claims against Mr. Davidson, and asking for removal of the action to a court of increased jurisdiction.  Trial is set for June 2008.

On February 9, 2007, QoVox filed suit in the United States District Court, East District of North Carolina, Western Division, No. 5:07CV00046BO against Omni Solutions, Inc. and a team of Ohio software consultants and business entities, alleging as to some or all of them, among other things, breach of contract, conspiracy, fraud, conversion, and violation of the North Carolina Trade Secrets Act.  Defendants retained counsel, answered the QoVox complaint and filed a counter claim against QoVox and Datameg for amounts defendants claim are due them. The entire action was dismissed in January 2008 after the parties entered into a confidential settlement agreement. Defendants released QoVox and Datameg from all amounts owed them and granted QoVox joint use of the products that were the subject of the litigation. 

On February 15, 2007, Datameg received a letter from collection counsel for Merrill Communications LLC for electronic and paper printing work allegedly incurred in 2004 by past outside corporate counsel.  Datameg has paid $41,490 and Merrill claims an additional $21,929.  Datameg contends Merrill has been paid in full and that Datameg is further entitled to reimbursement of $10,179 for over billing. On or about August 31, 2007, Merrill filed suit in Boston Municipal Court and the Company has filed its answer and counter claims. Settlement negotiations are ongoing.

 

7

On March 14, 2007, Datameg received a letter from collection counsel for RR Donnelley for electronic and paper printing work allegedly incurred in 2005 by past outside corporate counsel.  Donnelley claims it is owed $29,695.   In October 2007, we settled with Donnelly for $10,000, which we paid on October 31, 2007, resulting in no remaining indebtedness.

On March 14, 2007, QoVox was sued in the General District Court of Justice for $7,200 by Joseph L. Turgeon, a past consultant, concerning consulting fees alleged to be owed from March 2004. We have presented a settlement offer and are awaiting a response.

On June 25, 2007, a former consultant to whom alleged past-due fees are owed, filed suit in Case No. 07-80550, United States District Court, Southern District of Florida, seeking to have a judgment rendered against the Company as maker and Andrew Benson as guarantor for all amounts claimed due on the promissory note.  The Company and Benson answered the consultant’s complaint. The Company has filed a counter claim against the holder, claiming among other things that amounts underlying the alleged debts have been paid in full and no principal or interest is due on the debt.  The action is set for trial on April 14, 2008.

| ITEM 4.    | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE |
|----------------------|------------------------------------------------------------|

PART II 

ITEM 5.                              MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES 

Market Information 

Our common stock has been listed on the Over-the-Counter Bulletin Board sponsored by the National Association of Securities Dealers, Inc. under the symbol DTMG.OB since September 19, 2000. 

The following table sets forth the range of high and low bid prices for the our common stock as reported on the Over the Counter Bulletin Board for each quarter since January 2004 for the periods indicated, as reported by the Over the Counter Bulletin Board for the each period mentioned below. Such information reflects inter dealer prices without retail markup, mark down or commissions and may not represent actual transactions. 

|                          |   | **Low** |   | **High** |   |   |
|-------------------------------|--------|---------|--------|----------|--------|--------|
| Year Ended December 31, 2004: |   |    |   |     |   |   |  
Quarter 1 

 

$ 

0.14

 

$ 

0.29

 
Quarter 2

 

$ 

0.06

 

$ 

0.19

 
Quarter 3

 

$ 

0.09

 

$ 

0.20

 
Quarter 4

 

$ 

0.07

 

$ 

0.11

 
 

 

 

 

 

 

 

 
Year Ended December 31, 2005

 

 

 

 

 

 

 
Quarter 1

 

$

0.05

 

$

0.15

 
Quarter 2

 

$

0.06

 

$

0.13

 
Quarter 3

 

$

0.06

 

$

0.14

 
Quarter 4

 

$ 

0.04

 

$ 

0.08

 
 

 

 

 

 

 

 

 
Year Ended December 31, 2006

 

 

 

 

 

 

 
Quarter 1

 

$

0.03

 

$

0.08

 
Quarter 2

 

$

0.02

 

$

0.07

 
Quarter 3

 

$

0.01

 

$

0.03

 
Quarter 4

 

$ 

0.04

 

$ 

0.08

 
 

8

 

 

 

**Low**

 

**High**

 

 

Year Ended December 31, 2007

 

 

 

 

 

 

 
Quarter 1

 

$

0.04

 

$

0.07

 
Quarter 2

 

$

0.03

 

$

0.04

 
Quarter 3

 

$

0.03

 

$

0.05

 
Quarter 4

 

$ 

0.03

 

$ 

0.04

 
Dividend Policy 

It is our present policy not to pay cash dividends and to retain future earnings for use in the operations of the business and to fund future growth. Any payment of cash dividends in the future will depend on the amount of funds legally available, our earnings, financial condition, capital requirements and other factors that the board of directors may think are relevant.  We do not contemplate or anticipate paying any dividends in cash on the common stock in the foreseeable future. 

Holders of Record of Common Stock 

As of March 31, 2008, we had outstanding 395,073,246 shares of our common stock and approximately 552 holders of record. 

Equity Compensation Plan Information 

In addition, we have granted options and warrants to employees and consultants to purchase up to 161,435,430 shares of our common stock at prices ranging from $0.01 to $5 per share from inception (January 13, 1999) through December 31, 2007. As of December 31, 2007, options and warrants which would permit the purchase of 10,267,738 shares were exercised and options and warrants for which would permit the purchase of 84,443,988 shares expired or were terminated. The remaining options and warrants to purchase up to 66,723,704 shares expire between January 2008 and January 2013. 

The following table shows the aggregate amount of securities related to equity compensation plans as of December 31, 2007: 

Plan Category 

 

 

Number of Securities to be issued upon exercise of oustanding options, warrants and rights

 

Weighted average exercise price of outstanding options, warrants and rights

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

Equity compensation plans approved by security holders 

 

None

 

 

NA

 

NA

Equity compensation plans not approved by security holders 

 

66,723,704

 

$ 

0.14

 

None

Securities that were not registered under the Securities Act but were issued under equity compensation plans:  

Date of Issuance

Purchaser

Number of Securities

Type of Securities

Non Cash Consideration

Non Cash Consideration Description

Fair Value Per Share (1)

01/04/06

William Mortimer

1,200,000

Common Stock

$60,000

In Lieu of Compensation

0.050

01/04/06

Mark McGrath

2,000,000

Common Stock

$100,000

In Lieu of Compensation

0.050

 

9

 

Date of Issuance

Purchaser

Number of Securities

Type of Securities

Non Cash Consideration

Non Cash Consideration Description

Fair Value Per Share (1)

01/04/06

Constantine Theodoropulos

600,000

Common Stock

$30,000

In Lieu of Compensation

0.050

05/09/06

Michael West

500,000

Common Stock

$25,500

In Lieu of Compensation

0.051

05/22/06

Joshua Davidson

500,000

Common Stock

$20,000

In Lieu of Compensation

0.040

 

TOTAL

4,800,000

 

$235,500

 

 

 (1)  The Fair Value Price may not equate with share closing price on the date of share issuance.

Recent Sales of Unregistered Securities: 

**Purchase**

 

**Consideration**

**Share**

**Number**

**Strike**

**Number of**

**Expiration**

**Date**

**Investor                     **

**Received**

**Price**

**of Shares**

**Price**

**Warrants**

**Date**

01/22/07

John O'Connell 

 

$       200,000

$    0.050 

4,000,000

 

 

 

03/14/07

Jim Currie   

$         85,000 

$    0.050 

1,700,000

 

 

 

03/14/07

Wanda Bond 

$         15,000 

$    0.050 

300,000

 

 

 

04/17/07

John F Dexter

$         50,000 

$    0.035 

1,428,571

 

 

 

5/8/2007

John Boniface 

$         30,000 

$    0.030 

1,000,000 

0.06

250,000 

5/7/2009

05/29/07

Christl Just 

$           4,420 

$    0.030 

147,345

 

 

 

06/01/07

Hansjong Just 

 

$           30,000

$    0.030 

1,000,000 

0.06

250,000 

5/31/2009

07/06/07

John O’Connell 

$         25,000 

$    0.030 

833,333 

 

 

 

07/12/07

Thomas Perkins

$         30,000 

$    0.030 

1,000,000 

0.06

250,000 

7/11/2009

08/06/07

John O’Connell 

$         10,000 

$    0.040 

250,000 

 

 

 

10/11/07

John Boniface

$         30,000 

$    0.030 

1,000,000 

 

 

 

10/15/07

John Boniface

 

$         30,000

$    0.030 

1,000,000 

 

 

 

 

 

$        539,420 

 

13,659,249 

 

 

750,000

 

ITEM 6.   

PLAN OF OPERATION

THE GREEN LINE

American Marketing and Sales, Inc., located in Leominster, Massachusetts, has successfully developed and introduced an extensive line of environment-friendly, injection-molded Green Line food-packaging/caterware products and has received orders or commitments to purchase the new Green Line of products from Whole Foods, the U.S. House of Representatives purchasing office in Washington, D.C., and several schools and colleges, including the University of Massachusetts. The new Green Line products consist of 25 items including various sizes of trays, party platters, and serving bowls with lids.  These non-toxic products qualify for the Green label inasmuch as they are manufactured from FDA-approved polypropylene and polystyrene resins that contain up to 40 percent recycled plastic content. American Marketing and Sales, Inc. is one of the first manufacturers in the industry to introduce injection-molded caterwareand food service products worthy of the prestigious ‘recycled’ logo mark.  On March 11, 2008, American Marketing and Sales, Inc. entered into a binding term sheet to acquire one-third of the outstanding shares and 50% of the voting rights in one of American Marketing and Sales, Inc.’s primary manufacturers, JAM Plastics, also located in Leominster.

 

10

SERVICE ASSURANCE SYSTEMS PRODUCTS AND SERVICES FOR NETWORK OPERATORS IN THE TELECOMMUNICATIONS INDUSTRY

Datameg is a holding company, but through its subsidiary, NetSymphony is a technology company focused on providing service assurance systems products and services for network operators in the telecommunications industry. Our target customers are telecom operators and cable operators worldwide. We focus specifically on voice services over traditional circuit switched and managed IP networks. 

Through our wholly owned subsidiary, NetSymphony Corporation subcontracting with QoVox Corporation and 3rd party consultants, we design, develop and sell an active voice quality test system, capable of monitoring and providing analytical/statistical data that characterizes the connectivity and measurement of voice quality across communications networks. QoVox will continue its focus on PSTN testing interfaces and NetSymphony will be developing Internet Protocol (IP) based testing interfaces that are software based. We are working on tools and techniques for network wide fault identification, isolation and troubleshooting. 

Communication service providers, such as telecom operators and cable operators, are challenged to deliver high quality voice services, at the lowest cost, over managed IP infrastructures and inter-working with traditional circuit switched networks. To do this effectively, service providers must monitor and measure their voice service offering, proactively detect problems and resolve them quickly and cost effectively, ideally before their customers experience any problem or service degradation. Additionally, if customers do report service problems, operators must be able to effectively identify the cause and fix the problem. QoVox provides the systems (products) and services to address these challenges. 

***VoIP Market***

VoIP is one of the fastest growing segments in the telecommunications sector. Yankee Group and IDC, leading market research firms, estimate the growth of VoIP subscribers. Yankee Group estimated VoIP subscribers would grow from one million at the end of 2004 to 18 million by 2008. IDC reported the number of VoIP subscribers in the U.S. will jump from three million in 2005 to 27 million in 2009. 

VoIP service providers include local and long distance telephone companies, such as, AT&T, Verizon,  Qwest, Sprint,  MCI and others; cable multi service operators (MSO's) such as Cablevision, Comcast, Cox, Rogers, Time Warner Cable and others; and emerging service providers, such as Vonage and others. 

In November 2004, Frost & Sullivan reported the VoIP Monitoring market in 2004 was $50 million. By 2008, the VoIP Monitoring market is forecasted to reach $297 million, representing a 56% compounded annual growth rate from 2004 through 2008. 

***Business Challenge Driving Demand for New Tools and Services***

Enterprise and residential customers expect and demand that their voice services are high quality and are offered at the lowest possible cost. To meet these expectations, communication service providers must save significant capital costs and operating expenses through deploying and operating next generation networks. These next generation networks utilize packet switching technology that is different from the traditional circuit switched networks. Some service operators expect to save between 40% to 50% of their capital and operating expenditures. 

Service providers are deploying and operating these next generation networks today, often inter-working with traditional circuit switched networks. Service providers need tools and services, like those QoVox offers, to report statistically and analytically the performance of their service and to isolate, diagnose and fix problems. Many service providers who have limited experience in managing these emerging networking technologies are focused today on deployment and need help to report on the service performance and to identify and troubleshoot problems. To deploy and operate these networks and services, service providers must buy tools and develop new expertise to deploy, operate and manage these new networks and services. This is the business opportunity that NetSymphony targets. 

 

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We believe the NetSymphony systems and services enable service providers to proactively depict their voice services and to detect and pinpoint network problems. These problems may be repaired effectively; thus, minimizing the number and extent of incidences of customers experiencing loss of service or poor voice quality. 

***Business Objectives***

We strive to be among the global leaders in developing and selling systems and services for service assurance of next generation networks and services. 

Our goal is to be the leading supplier of active voice quality test systems within three years. Thus, we have an immediate business focus on expanding our relationships with our customer base through value-added services while developing a new platform to increase revenue through systems sales. There are three important elements to achieve this: 

 

**•**

Develop a new platform with extensive correlation and analytic capabilities to detect and isolate problems in our customer’s networks, 

 

**•**

Invest heavily in Internet Protocol (IP) measurement technology, and

 

**•**

Convert our current trials into service engagements.

We plan to leverage our existing Time-division multiplexing (TDM) and Analog solutions and combine them with new IP based solutions to provide the market with the most complete service assurance platform for converged / next-generation networks. TDM is a method of putting multiple data streams in a single signal by separating the signal into many segments, each having a very short duration.  While investing heavily in our new platform, we will continue to grow customer relationships and accelerate revenue generation through offering professional services. Services overcome the obstacles of lengthy sales cycles while more rapidly solving customer problems.  

***Current Situation  ***

NetSymphony’s *Maestro System*, consisting of hardware and software, actively makes calls between various points across communication networks and correlates and reports the results of these call campaigns on a centralized server. We can operate the system on behalf of our customers, or our customer can operate the system. 

We commenced sales of the *Maestro System*in the first quarter of 2008.

NetSymphony and QoVox have their offices in Raleigh, North Carolina.

***Business Strategy and Direction***

NetSymphony intends to:

 

**•**

Develop and sell systems products and services;

 

**•**

Continue to target telecom operators and cable operators;

 

**•**

Develop its business first in the U.S. and Canada. Africa, Mid-East and European markets will also be addressed in 2008. 

 

**•**

Continue providing solutions for the challenges related to deploying and operating voice services, especially in the areas of quality and security. NetSymphony plans to extend its capability into fault isolation and troubleshooting. Additionally, NetSymphony plans to make contributions for other emerging technologies, such as video over IP. 

NetSymphony will pursue the following strategy to achieve our business objectives: 

 

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**•**

Develop the industry’s premier service assurance system that enables customers to assess, monitor and troubleshoot IP based services;

 

**•**

Develop and offer the *services*to characterize network and service health and to isolate and diagnose performance and security problems;

 

**•**

Create a *consultative sales and support*organization in both our direct and channel sales initiatives; and

 

**•**

Partner with *selected system integrators*to facilitate the easy installation and customization of NetSymphony systems into the customers’ operating environment and workflow. In addition, system integrators are expected to be a source of leads, referrals and support for our sales efforts.

***Product Development***

NetSymphony has products and services that help service providers deploy and manage voice services. To date, the majority of product development activity has been centered on analog and TDM probe hardware. This investment was necessary to establish the company in the test and measurement market. 

NetSymphony will add the IP networking technology to the Datameg solution portfolio and become the premier service assurance provider. To achieve this goal, additional investment will be in the following areas:

 

**•**

Server Software: In complex networks the most pressing need is to be able to correlate and analyze measurement information along with network elements statistics to pinpoint where problems are occurring. We will be developing this capability in 2008.

 

**•**

IP Measurement Technology: NetSymphony now has as employees IP measurement experts that have developed products that should be very successful commercially. This team will introduce IP measurement solutions in 2008 that will be the most advanced in the industry.

 

**•**

Leverage Existing Products: The value of the current NetSymphony system will be integrated into the new server platform and operate in conjunction with the new IP probes and software agents. This will greatly enhance the value of existing technology.

Our products are deployed throughout the service provider’s network. Our products check that calls can be connected properly across these networks and measure the voice quality between various points in the network. 

***Services Offering***

At present, NetSymphony operates a Network Operations Center in Raleigh, NC, for a small number of network operators. 

NetSymphony plans to aggressively convert our existing sales opportunities to services offerings in 2008. Customers are still wary of large capital budget outlays causing an extended sales cycle that can extend over 18 months. Our customers have immediate problems and the current NetSymphony solutions can solve many of their issues. Therefore, we are working with our trial partners to move to a services engagement that is based on their expense budget and can be done quickly. We will offer Assessment Testing, Service Assurance Monitoring and Consulting as professional services.

***Marketing and Sales***

NetSymphony plans to develop a joint global sales and support channel, comprised of: 

 

**•**

Direct sales representatives, sales engineers and support specialists;

 

**•**

High end distributors that offer system integration in this market; and

 

**•**

A small number of operational support system vendors, equipment manufacturers and system integrators who will provide referrals or resell the NetSymphony products and services.

 

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In the next three years, NetSymphony expects to fully develop sales and support channels in:

 

**•**

The U.S. and Canada, covering Tier 1 and Tier 2 wireline and mobile telecom operators and the Top 25 cable operators; 

 

**•**

Western and eastern Europe; and

 

**•**

Japan, China, Korea and India. 

NetSymphony plans to actively participate in international and regional industry forums and standardization bodies to build and earn a reputation as an innovative industry leader. 

NetSymphony plans to organize and host regional Industry Leadership Forums, bringing together industry leaders 

***Competition***

There are a number of competitors in the VoIP Monitoring business. These companies can be segmented into Enterprise and Service Provider markets.

Enterprise focused competitors feature lower cost solutions that are not designed to scale to requirements of service providers. Vendors such as Attachmate (formerly NetIQ) and Viola fall into the Enterprise segment.

The Service Provider segment is comprised of traditional Service Assurance vendors such as Spirent, JDSU and Agilent. These companies come from a physical layer test background and are attempting to gain market share in the IP services market that involves significant investment. 

There are 3 key areas of competitive differentiation for QoVox:

 

1.

Software-Based Approach. Competitors are very hardware-based in their solutions, which limits the flexibility of instrumenting networks for service assurance and causes their price points to be very high. NetSymphony’s solutions will be software-based to overcome these challenges.

 

2.

Active & Passive Analysis. Most competitors rely on providing measurements through active testing (generating real calls on a network) or passive monitoring (analyzing customers’ calls as they occur). Customers realize there are merits to both methods and NetSymphony will provide passive analysis in addition to its existing active capabilities.

 

3.

Media & Signaling. Competitors such as Agilent rely on Signaling analysis to verify user status in VoIP. Other vendors such as JDSU and Sprint focus on analyzing the media streams (actual calls) to verify the quality. In reality, to measure the user experience and to isolate problems when they occur both media and signaling need to be measured. NetSymphony is currently adding signalingcapabilities to its media stream technology. 

CasCommunications 

We own 40% of CasCommunications, an inactive development stage entity. We do not expect CasCommunications to generate any revenue in 2008.  The Company is exploring options.

Liquidity and Capital Resources 

Due to our recent and future acquisitions, current cash on hand and projected cash on hand is now adequate to execute our plan of operation based on loans from the companies being acquired.  Since and after the closings, we expect to no longer continue to seek additional financing through the offering and sale of our securities in order to satisfy our immediate and short term cash needs. Given the losses incurred to date and the lack of substantial revenue generated, we have little or no access to conventional debt markets.  Now with the acquisition of American 

 

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Marketing and Sales, Inc. complete, we can begin to generate cash flows from operations and explore conventional lines of credit. Funding to support both short and midterm requirements for product development and launch may be done through additional sale of shares and potentially, to a lesser extent, from working capital that might be generated from customer revenue in the future. The Company expects significant revenue in the second half of 2008. However, until the Company’s products generate significant revenue from a customer, future cash flows cannot be meaningfully projected. 

Since December 31, 2007, we accepted the following subscription for restricted shares: 

Date

Purchased

Investor                      

Amount

Share Price

Number of Shares

3/22/2008

John Boniface

$50,000 

0.025

2,000,000

In addition, we issued stock fore services in lieu of cash as follows:

Date

Purchased

Investor                      

Amount

Share Price

Number of Shares

3/14/2008

Paul Vuksich for services

$41,625 

0.040

1,035,684

3/26/2008

Terry Clarke      in lieu of $2,000

$2,000 

0.040

50,000

3/26/2008

Lynn Kettleson  in lieu of $1500.

$1,500 

0.040

37,500

 

There can be no assurance that we will be able to raise additional capital on acceptable terms or at all. If we are unable to raise additional capital, we would need to curtail or reduce some or all of our operations, and some or all of QoVox's operations. 

Critical Accounting Policies 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and equity and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates have a material impact on our financial statements. 

Revenue Recognition

American Marketing & Sales, Inc.

American Marketing and Sales, Inc. recognizes revenue from product sales in accordance with Staff Accounting Bulletin No. 104, which requires recognition when persuasive evidence of an arrangement exists, the price is fixed or determinable, delivery has occurred, and payment is reasonably assured.  The Company has determined that these criteria have been met  upon shipment, and recognizes revenue at that point.  

 

Pursuant to SFAS No. 5, *“Accounting for Contingencies,”* American Marketing and Sales, Inc. has examined collection history, financial conditions of clients, and general economic conditions and determined that it is not necessary to set an allowance for doubtful accounts, which have historically not been significant.

NetSymphony Corporation & QoVox Corporation

NetSymphony Corporation and QoVox Corporation derive revenue from three primary sources: (1) system hardware component sales revenue, (2) software license revenue and (3) services and maintenance and right to use revenue, which include support, maintenance, right to use fees and consulting. Revenue on system hardware component sales 

 

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is recognized upon delivery to, and acceptance by, the customer. Software license revenue recognition is substantially governed by the provisions of Statement of Position No. 97-2*, “Software Revenue Recognition,”* (SOP 97-2) issued by the American Institute of Certified Public Accountants. The Company exercises judgment and uses estimates in connection with the determination of the amount of software license and services revenue to be recognized in each accounting period. For software license arrangements that do not require significant modification or customization of the underlying software, the Company recognizes revenue when: (1) it enters into a legally binding arrangement with a customer for the license of software; (2) it delivers the products or perform the services; (3) customer payment is deemed fixed or determinable and free of contingenciesor significant uncertainties (4) collection is probable and (5) vendor specific objective evidence (VSOE) of fair value exists to allocate the total fee among all delivered and undelivered elements in the arrangement. 

Multiple Element Arrangements 

The Company typically enters into arrangements with customers that include perpetual software licenses, system hardware, maintenance and right to use fees. Software licenses are sold on a per copy basis. Per copy licenses give customers the right to use a single copy of licensed software for exclusive use on the Company’s system hardware. Assuming all other revenue recognition criteria are met, license revenue is recognized upon delivery using the residual method in accordance with SOP No. 98-9, *“Modification of SOP 97-2: Software Revenue Recognition.”* Under the residual method, the Company allocates and defers revenue for the undelivered elements, based on VSOE of fair value, and recognizes the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue. The determination of fair value of eachundelivered element in multiple element arrangements is based on the price charged when the same element is sold separately. If sufficient evidence of fair value cannot be determined for any undelivered item, all revenue from the arrangement is deferred until VSOE of fair value can be established or until all elements of the arrangement have been delivered. If the only undelivered element is maintenance and technical support for which the Company cannot establish VSOE, the Company will recognize the entire arrangement fees ratably over the maintenance and support term. 

System hardware is hardware that is installed at a customer site for the purpose of utilizing the licensed software and as such, does not qualify as a separately deliverable element. The timing of revenue recognition from the sale of system hardware is therefore dependent upon the recognition of revenue for the related software licenses. 

Maintenance and right to use fees include updates (unspecified product upgrades and enhancements) on a when and if available basis, telephone support and bug fixes or patches and maintenance of the systems hardware, which would include repairs or replacement as necessary. VSOE of fair value for maintenance and right to use fees is based upon stated annual renewal rates. Maintenance and right to use fees revenue is recognized ratably over the maintenance and right to use term. 

*Revenue Recognition Criteria*

The Company defines revenue recognition criteria as follows: 

 

**•**

*Persuasive Evidence of an Arrangement Exists.*It is the Company’s customary practice to have a purchase order prior to recognizing revenue on an arrangement.

 

**•**

*Delivery has Occurred.*The Company’s software and systems hardware are physically delivered and installed at its customer’s site. The Company considers delivery complete when the software and system hardware products have been installed and the testing phase completed. The Company defers all the revenue until the testing phase has been completed andthe Company receives customer acceptance.

 

**•**

*The Vendor’s Fee is Fixed or Determinable.*The Company’s invoices or service agreements identify the price for services to be rendered, and customary payment terms are generally within 30 days after the invoice date.

 

**•**

*Collection is Reasonably Assured.*Due to a lack of customer history upon which a judgment could be made as to the collectibility of a particular receivable, revenue is currently recognized upon receipt of payment assuming all other conditions of the sale have been met.

 

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*Cost of Revenue*

Cost of revenue includes costs related to user license, systems hardware and maintenance and right to use fees revenue. Cost of user license revenue includes material, packaging, shipping and other production costs and third party royalties. Cost of systems hardware includes the cost of goods sold and installation costs. Cost of maintenance and right to use fees and consulting fees include related personnel costs, and hardware repair costs. Third party consultant fees are also included in cost of services. 

Inventory 

The Company’s inventory is stated at the lower of cost or market value. Cost is determined using the first in, first out method. Unusual losses resulting from lower of cost or market adjustments or losses on firm purchase commitments, if any, are disclosed, and if material, separately stated from cost of goods sold in the statement of operations. 

Commitments and Contingencies

Commitments and contingencies are evaluated on an individual basis to determine the impact on current and future liabilities and assets. We make a determination as to whether such a liability or loss is reasonably possible, and we either estimate the amount of possible loss or liability or range of loss or liability. In rare cases, we are not able to determine the amount of such loss or liability or even a range of amounts in a way that would not be misleading. We may be unable to calculate a liability or loss if substantiated information is unavailable or the amount of the loss or liability depends significantly on future events. 

In addition to evaluating estimates relating to the items discussed above, we also consider other estimates, including but not limited to, those related to software development costs, goodwill and identifiable intangible assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ from these estimates and assumptions. An explanation of significant estimates and related judgments made in these areas are noted below. Since December 31, 2004, there have been no significant changes to our critical accounting policies. 

Goodwill and Identifiable Intangible Assets 

Goodwill represents the excess of cost over the fair value of net tangible and identifiable intangible assets of acquired companies. As a result of our acquisition of substantially all of the assets and certain of the liabilities of QoVox, the Company recorded approximately $207,000 of goodwill. In accordance with the provisions of SFAS No. 142, we no longer amortize goodwill. However, goodwill must be reviewed at least annually for impairment. We have elected to perform our annual review at the end of each fiscal year. If the carrying value of our goodwill were to exceed the fair value at some time in the future, we would be required to report goodwill impairment charges as an operating expense in our statement of operations. Whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable, we must conduct an impairment assessment of its goodwill andidentifiable intangible assets. Factors that could trigger an impairment review include: 

 

**•**

Significant underperformance relative to expected historical or projected future research and development and operating results;

 

**•**

Significant changes in the manner of use of the acquired assets or the strategy for the overall business;

 

**•**

Significant negative industry or economic trends; and

 

**•**

When it appears that the carrying value of intangibles or goodwill might not be recoverable based on one or more of the above criteria, management will use projected discounted cash flow, independent valuation or other means to measure any impairment.

 

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Based on our analysis performed at December 31, 2007, we determined that there is little or no value in the goodwill and have impaired the entire balance based on the criteria identified above.

Software Development Costs 

Statement of Financial Accounting Standards (SFAS) No. 86, *“Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,”* requires capitalization of certain software development costs subsequent to the establishment of technological feasibility and readiness of general release. In 2004, certain costs were incurred subsequent to the establishment of technological feasibility and prior to the readiness of general release. These expenses were immaterial in nature and in total and therefore not capitalized.  We also license from a third party the use of certain software that we utilize in our products.  These computer software license fees are expensed as incurred.

Fair Value of Financial Instruments 

The carrying value of cash, notes receivable, accounts payable and accrued expenses and notes payable approximate fair value because of the relatively short maturity of these instruments. 

Stock Based Compensation 

The Company follows guidance provided in SFAS No. 123(R), *“Accounting for Stock Based Compensation,”* which requires companies to recognize expense for stock based awards issued to employees or outside consultants based on their estimated fair value on the grant date.  We have elected to use the Black-Scholes Pricing Model to value these awards.

Income Taxes 

The Company, a “C” corporation, accounts for income taxes under SFAS No. 109, *“Accounting for Income Taxes.”* Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The principal differences are net operating losses, startup costs and the use of accelerated depreciation methods to calculate depreciation expense for income tax purposes. 

Consolidation of Variable Interest Entities 

In January 2003 and revised December 2003, the FASB issued FIN No. 46*, “Consolidation of Variable Interest Entities.”* This interpretation of Accounting Research Bulletin No. 51*, “Consolidated Financial Statements,”* requires consolidation by business enterprises of variable interest entities, as defined, when certain conditions are met. Pursuant to FIN No. 46, the Company continues to consolidate CASCommunications, Inc. 

**Risk Factors**

**Business Risks**

**American Marketing and Sales, Inc.**

***Dependence on Key Employees.***Our success will depend upon the successful recruitment and retention of highly skilled and experienced managerial, technical, marketing and financial personnel such as the ones who have recently joined us. 

**NetSymphony Corporation & QoVox Corporation**

***Profitability Uncertain.***Since our inception, we have been principally engaged in product and business development activities for our network monitoring system. Our technology demonstration programs with certain IP telephony service providers, including Sprint and Time Warner Cable, confirm the QoVox Network Assurance 

 

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Systems performance and value to the communications industry. We believe that our initial demonstration and evaluation programs with certain carriers support the performance and efficacy of our system and will result in long-term implementation agreements. However, we cannot assure you that commercial viability will be demonstrated for the QoVox Network Assurance Systems, or that other competitive network monitoring solutions will not be chosen as alternatives to our QoVox solutions. Should competitor products displace our products in the market, our prospects for profitability may not be realized. 

***History of Operating Losses.***We have had a history of substantial operating losses since we commenced our current operations in January 1999. From 1999 to December 31, 2007 and prior to the acquisition of American Marketing and Sales, Inc., we generated approximately $135,000 in total revenue and accumulated a net loss of approximately $37 million. These losses were principally the result of our general and administrative costs, our research and development costs and adverse judgments in litigation to which we have been a party. As a result, our liabilities currently greatly exceed our assets.   American Marketing and Sales, Inc. generated approximately $12 million in revenues during 2007 and NetSymphony started generating revenues in the first quarter or 2008, so we anticipate a gradual reduction in our accumulated deficit.

***Dependence on Distributor Acceptance.***Our NetSymphony sales for the foreseeable future are expected to come from Internet telephony service providers and telecommunications network equipment OEMs. We expect that carriers will integrate our product into services they offer to their aggregated subscriber base. We expect OEMs will incorporate the QoVox Network Assurance Systems into their products once QoVox's Active Monitoring System becomes a network monitoring option. We cannot assure you that we will receive orders from our prospective distribution partners sufficient to provide cash from operations in amounts required to sustain profitable operations. Additionally, we cannot assure you that our products will be adopted at the rate we forecast. Any decrease in the adoption rate could adversely affect our performance. 

***Sales and Distribution.***We now have dedicated sales and marketing personnel. Our larger potential competitors have stronger brand name recognition and significant sales and marketing infrastructures. 

***Dependence on Key Employees.***Our success will depend upon the successful recruitment and retention of highly skilled and experienced managerial, technical, marketing and financial personnel such as the ones who have recently joined us. The competition for such personnel is intense and our competitors will have substantially greater financing and other resources to offer such personnel. Therefore, we cannot assure you that we will successfully recruit and retain necessary personnel. 

***New Products.***NetSymphony and******QoVox products and services are in development and are based upon our proprietary core technology. We believe that our future success will depend on additional monitoring algorithms and equipment, and related services, and therefore, on our ability to develop and introduce additional variations on our core technology that provide measurable competitive performance and economic benefit compared to existing and future network monitoring alternatives. 

In March 26, 2008) American Marketing & Sales announced the introduction of additional new products manufactured with 40% recycled resins. The new product line consists of fifteen items of office products including desk top organizers, letter trays, legal letter trays, pencil holders, paper clip and card holders, magazine holders, and telephone and draw organizers. Targeted customers include Walmart, Target, BJ’S, Sam’s Club, Staples, Office Max, Office Depot, W.B. Mason, and numerous mail order catalogs. The Office Products Green Line will be introduced and ready for shipment in April 2008.

The Office Products Green Line will supplement American Marketing & Sales’ extensive line of environment-friendly, injection-molded Green Line food-packaging/caterware products announced in January 2008. For those products, Innovative Designs has received orders or commitments to purchase the new Green Line of products from Whole Foods, the U.S. House of Representatives purchasing office in Washington, D.C., and several schools and colleges, including the University of Massachusetts.

***Dependence on Product Requirements of Customers.***Our success prior to acquiring the new companies   depended significantly on our ability to develop and introduce, on a timely basis, advanced network assurance products and systems that meet the needs of our customers. If we are unable to design, develop and introduce competitive products on a timely basis, our results of operations will be adversely affected in our Raleigh subsidiaries. 

 

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***Competition.***Our potential network access competitors include, but are not limited to, major network equipment manufacturers such as Agilent Technologies, Empirex, MinaCom, and Radcom. Our competitors may have substantially greater research and development, marketing, financial, technological, personnel and managerial resources than we have. 

***Industry Risks.***We depend on the willingness of telecommunications carriers and Internet service providers to purchase our products and services. A slowdown in the telecommunication or networking industries would adversely affect our ability to find partners and prospective customers. Segments of the telecommunications industry have experienced significant business downturns characterized by decreased product demand, price erosion, work slowdowns and layoffs. Our operations may in the future experience substantial fluctuations as a consequence of general economic conditions affecting the timing of orders from major customers and other factors affecting capital spending. 

***Selling Price/Manufacturing Cost Reduction.***We assume that our selling price per unit of product will be reduced over time as production is increased and target unit manufacturing costs are achieved. Selling price reduction and cost reductions are necessary to improve unit price/performance ratios and remain competitive. We cannot assure you that we will successfully achieve target cost goals. Furthermore, our product costs may not be competitive with other commercially available network monitoring technologies. 

***Management of Growth.***Our further development, and our goal to transition into a profitable going concern, will require additional management as well as improved operational and financial systems. In addition, to achieve broader market acceptance, we will need to expand our marketing and sales staff, our employee base and the scope of our operations, all of which will require additional personnel and associated costs. We cannot assure you that we will successfully manage such transition or the expansion of our operations, and our failure to do so could have an adverse effect on our Company. In general, our business plan calls for significant growth over the next five years. Our failure to manage our growth effectively could have a material adverse effect on our business, financial condition and operating results. 

**Technological Risks**

***Products Fail to Perform.***We have operated our network demonstration systems on live client network conditions. We designed our technology to operate consistent with telephony standards, but we cannot assure you that our products will work uniformly over the entire range of network conditions. While our network monitoring tools are based on well-known and robust microelectronics components, we have limited commercial experience with our products. Accordingly, we lack information on maintenance and returns that might result from less than expected product performance. 

***Technological Obsolescence.***Network monitoring and performance assurance technology is rapidly evolving and highly competitive. We cannot assure you that our research and product development efforts will remain up-to-date given research efforts and technological activities of others, including initiatives and activities of governments, major research facilities and other corporations, nearly all of which enjoy far greater resources than we do. 

***Intellectual Property Risks.***We do not own any patents. We rely primarily on trade secret laws, copyright law, unfair competition law and confidentiality agreements to protect our intellectual property. Our lack of ownership of patents together with the trend toward litigation regarding patent and other intellectual property rights in the telecommunications and networking industries, mean that litigation by third parties is a possibility. While we do not believe that any of our products infringe the valid intellectual property rights of third parties, we may be unaware of intellectual property rights of others that may cover some of our technology, products or services. Any litigation regarding patents or other intellectual property could be costly and time consuming and could divert our management and key personnel from our business operations. The complexity of thetechnology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements. However, we may be unable to obtain royalty or license agreements on terms acceptable to us, or at all. In addition, third parties may infringe our intellectual property, and we may expend significant resources enforcing our rights or suffer competitive injury. 

**Regulatory Risks**

 

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***Regulatory Environment.***The regulatory environment for the telecommunications industry has been undergoing liberalization at varying paces and with differing objectives, and in certain markets has been subject to political interference. For the most part, we believe that there will be increasing motivation on the part of regulators to set the regulatory framework for rapid deployment and use of Next Generation Network services. While it is unlikely, we could face regulatory risks.

**Financing Risks**

***Need for Additional Financing; Dilution**.* Sufficient revenue to cover our operating costs for the next twelve months and start to pay down our debts is now being generated due to closing of the aforementioned acquisition of American Marketing and Sales, Inc.**We may raise working capital from private and public sources and prospectively from corporate alliances to fund our operations to the point of being self-funding. Should we fail to raise the necessary funding at the levels planned, we may be required to scale back or cease operations but the acquisition has significantly diminished that possibility.  We may be required to seek additional financing in the future. We cannot assure you that adequate additional financing, on acceptable terms or at all, will be available when needed, or that future financingwould not further dilute shareholders’ interests. In addition, as a result of our inability to generate sufficient cash flow, we have historically issued stock and options to our executives, employees and consultants in lieu of cash compensation. Additional dilution to our shareholders’ interests is a possibility that may occur.

 

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ITEM 7.                                                                FINANCIAL STATEMENTS 

DATAMEG CORPORATION

Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

CONTENTS

 

Report of Independent Registered Public Accounting Firm 

22 

 

Balance Sheets 

23

 

Statements of Operations 

24

 

Statements of Changes in Stockholders’ Deficit 

25-26

 

Statements of Cash Flows 

27-28

 

Notes to Consolidated Financial Statements 

29-45

 

 

 

22

 

**5296 South Commerce Drive, Suite 300**

**Salt Lake City, Utah 84107-5370**

**Telephone (801) 281-4700**

**Facsimile (801) 281-4701**

 

**1284 West Flint Meadow Drive, Suite D**

**Kaysville, Utah 84037-9590**

**Telephone (801) 927-1337**

**Facsimile (801) 927-1344**

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To The Board of Directors and Stockholders

Datameg Corporation

 

We have audited the accompanying consolidated balance sheets of Datameg (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidatedfinancial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Datameg Corporation as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. 

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note M to the consolidated financial statements, the Company has incurred losses since inception, and has generated minimal revenues from its planned principal operations.  This raises substantial doubt about the Company’s ability to meet its obligations and to continue as a going concern. Management’s plans in regard to this matter are described in Note M.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Child, Van Wagoner & Bradshaw, PLLC

 

Child, Van Wagoner & Bradshaw, PLLC

Salt Lake City, Utah

March 31, 2008

 

23

 

**DATAMEG CORPORATION**

 

Consolidated Balance Sheets

 
 

 

 

 

 

December 31,

 

 

 

 

 

2007

 

2006

 

 

 

 

 

 

* *

ASSETS

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

 

$                   49,086 

 

$                  71,626 

 

Accounts receivable (Note O)

 

 

1,616,605

 

-

 

Inventory (Note C)

 

 

301,724 

 

163,400 

 

 

Total Current Assets

 

 

1,967,415 

 

235,026 

PROPERTY AND EQUIPMENT – NET (Note D)

 

 

2,777,524 

 

- 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

Goodwill (Note R)

 

 

- 

 

206,746 

 

Prepaid and deferred expenses

 

 

- 

 

8,750 

 

Deposits

 

 

7,218 

 

7,218 

 

 

Total Other Assets

 

 

7,218 

 

222,714 

 

 

TOTAL ASSETS

 

 

$             4,752,157

 

$                457,740 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

$              3,309,345 

 

$             2,765,551 

 

Due to related parties (Note E)

 

 

28,560 

 

57,510 

 

Notes payable – current (Note F)

 

 

956,877 

 

1,108,015

 

 

Total Current Liabilities

 

 

4,294,782 

 

3,931,076

 

 

 

 

 

 

 

 

NOTES PAYABLE – LONG-TERM (Note F)

 

 

4,347,459 

 

100,000 

 

 

TOTAL LIABILITIES

 

 

8,642,241 

 

4,031,076

 

 

 

 

 

 

 

 

MINORITY INTEREST

 

 

(67,939)

 

(67,939)

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 authorized

 

 

 

 

 

none issued and outstanding

 

-

 

-

 

Common stock, $0.0001 par value; 493,000,000 shares authorized,

 

 

 

 

 

391,950,062 and 359,394,435 shares issued and outstanding at

 

 

 

 
 

December 31, 2007 and 2006, respectively

 

 

39,195

 

35,939

 

Additional paid-in capital

 

 

33,056,270 

 

31,764,672

 

Stock subscriptions receivable (Note I)

 

 

(210,000)

 

(315,056)

 

Stock to be issued (Note G)

 

 

9,750 

 

93,750

 

Retained deficit

 

 

(36,717,360)

 

(35,084,702)

 

 

Total Stockholders' Deficit

 

 

(3,822,145)

 

(3,505,397)

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

 

$                 4,752,157 

 

$               457,740 

 

 

See accompanying notes to consolidated financial statements.

 

 

24

**DATAMEG CORPORATION**

 

Consolidated Statements of Operations

 

 

 

 

 

 

Year Ended 

 

 

December 31,

 

 

2007

 

2006

 

 

 

 

* *

* *

NET SALES

$                       817,477 

 

$                     43,244

 

COST OF SALES

(655,635)

 

(97)

 

 

 

 

 

 

GROSS MARGIN

161,842

 

43,147

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

General and administrative

1,439,597

 

1,093,477

 

Selling and marketing

127,213

 

103,035

 

Research and development

159,111

 

258,048

 

Inventory write-off

163,400

 

-

 

Goodwill impairment

206,746

 

-

 

Total Operating Expenses

2,096,067

 

1,454,560

 

 

 

 

 

 

LOSS FROM OPERATIONS

(1,934,225)

 

(1,411,413) 

 

 

 

 

 

 

OTHER INCOME (EXPENSES)

 

 

 

 

Interest expense

(138,122)

 

(139,379)

 

Miscellaneous other income

20,085

 

-

 

Gain (loss) on litigation

324,261

 

(11,867)

 

Debt forgiveness

95,343

 

54,496

 

Total Other Income (Expenses)

301,567

 

(96,750)

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES 

 

 

 

 

AND MINORITY INTEREST

(1,632,658)

 

(1,508,163)

 

 

 

 

 

 

PROVISION FOR INCOME TAXES

-

 

-

 

 

 

 

 

 

MINORITY INTEREST IN 

 

 

 

 

SUBSIDIARY LOSSES

-

 

-

 

 

 

 

 

 

NET LOSS

$               (1,632,658)

 

$             (1,508,163)

 

 

 

 

 

 

BASIC AND DILUTED:

 

 

 

 

Net loss per common share

$                       (0.00)

 

$                     (0.00)

 

 

 

 

 

 

Weighted average shares outstanding

372,135,169

 

347,642,448 

 

See accompanying notes to consolidated financial statements.

 

 

25

 

**DATAMEG CORPORATION**

 

Consolidated Statement of Changes in Stockholders’Deficit

Years Ended December 31, 2007 and 2006

 

 

Price pre Share

 

Common Stock Shares Outstanding 

 

Common Stock 

 

Additional Paid-In Capital

 

Stock to be Issued

 

Common Stock Subscriptions Receivable

 

Retained Deficit

 

Total Stockholders' Deficit

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

Balance December 31, 2005

 

 

320,458,313 

 

32,046 

 

30,211,296 

 

375,763 

 

(420,056)

 

(33,576,539)

 

(3,377,490)

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

Shares issued January 2006 for cash received December 2005 

 

 

5,263,333 

 

526 

 

195,974 

 

(96,500)

 

 

 

 

 

100,000                                

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

0.015

 

3,733,333 

 

373 

 

55,627 

 

 

 

 

 

 

 

56,000 

 

Shares issued for cash

0.020

 

4,500,000 

 

450 

 

89,550 

 

 

 

 

 

 

 

90,000 

 

Shares issued for cash

0.025

 

3,880,000 

 

388 

 

96,612 

 

 

 

 

 

 

 

97,000 

 

Shares issued for cash

0.030

 

2,166,665 

 

217 

 

64,783 

 

 

 

 

 

 

 

65,000 

 

Shares issued for cash

0.035

 

5,914,280

 

591 

 

206,409 

 

 

 

 

 

 

 

207,000 

 
 

Shares issued for cash

0.040

 

1,750,000 

 

175 

 

69,825 

 

 

 

 

 

 

 

70,000 

 
 

Shares issued for cash

0.045

 

1,333,332 

 

133 

 

59,867 

 

 

 

 

 

 

 

60,000 

 

Shares issued for cash

0.050

 

600,000 

 

60 

 

29,940 

 

 

 

 

 

 

 

30,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation of detachable warrants

 

 

 

 

 

 

80,000 

 

 

 

 

 

 

 

80,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares subscribed at December 31, 2006

 

 

 

 

 

 

 

 

84,000 

 

 

 

 

 

84,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

0.040

 

500,000 

 

50 

 

19,950 

 

 

 

 

 

 

 

20,000 

 

Shares issued for services

0.050

 

3,800,000 

 

380 

 

189,620 

 

 

 

 

 

 

 

190,000 

 

Shares issued for services

0.051

 

500,000 

 

50 

 

25,450 

 

 

 

 

 

 

 

25,500 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of convertible notes 

0.060

 

3,726,668 

 

373 

 

223,227 

 

(200,000)

 

 

 

 

 

23,600 

 

Conversion of convertible notes

0.080

 

625,000 

 

63 

 

49,937 

 

(29,513)

 

 

 

 

 

20,487 

 

Conversion of convertible notes

0.100

 

600,000

 

60

 

59,940

 

(40,000)

 

 

 

 

 

20,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options vesting

 

 

 

 

 

 

328,360 

 

 

 

 

 

 

 

328,360 

 

 

26

 

* *

*(continued)***

**DATAMEG CORPORATION**

 

Consolidated Statement of Changes in Stockholders’ Deficit (Continued)

Years Ended December 31, 2007 and 2006

 

 

Price pre Share

 

Common Stock Shares Outstanding 

 

Common Stock 

 

Additional Paid-In Capital

 

Stock to be Issued

 

Common Stock Subscriptions Receivable

 

Retained Deficit

 

Total Stockholders' Deficit

 

Exercise of stock options

0.010

 

200,000 

 

20 

 

1,980 

 

 

 

 

 

 

 

2,000 

 

Write-down of stock subscription receivable

 

 

 

 

 

 

(105,000)

 

 

 

105,000 

 

 

 

- 

 

Cancellation of shares

 

 

(156,489)

 

(16)

 

(188,675)

 

 

 

 

 

 

 

(188,691)

 

Net loss 

 

 

 

 

 

 

 

 

 

 

 

 

(1,508,163)

 

(1,508,163)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Balance December 31, 2006**

 

 

**359,394,435**

 

**35,939**

 

**31,764,672**

 

**93,750**

 

**(315,056)**

 

**(35,084,702)**

 

**(3,505,397)**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued January 2007 for cash received December 2006

 

 

1,927,380

 

193

 

83,807

 

(84,000)

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for cash

0.030

 

6,230,678

 

623

 

188,797

 

 

 

 

 

 

 

189,420

 

Shares issued for cash

0.035

 

1,428,571

 

143

 

49,857 

 

 

 

 

 

 

 

50,000 

 

Shares issued for cash

0.050

 

6,000,000

 

600

 

299,400

 

 

 

 

 

 

 

300,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for expense reimbursement

0.040

 

127,500 

 

13 

 

5,087 

 

 

 

 

 

 

 

5,100 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services 

0.040

 

100,000

 

10 

 

3,990 

 

 

 

 

 

 

 

4,000 

 

Shares issued for services

0.045

 

182,665

 

18

 

8,202

 

 

 

 

 

 

 

8,220

 

Shares issued for services 

0.049

 

2,650,000

 

265 

 

129,585 

 

 

 

 

 

 

 

129,850 

 

Shares issued for services

0.050

 

148,000

 

15

 

7,385

 

 

 

 

 

 

 

7,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for warrant exercise 

0.040

 

187,500

 

19

 

7,481 

 

 

 

 

 

 

 

7,500 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options vesting

 

 

 

 

 

 

114,420 

 

 

 

 

 

 

 

114,420 

 

Acquisition of American Marketing and Sales, Inc.

0.030

 

15,000,000 

 

1,500 

 

498,500 

 

 

 

 

 

 

 

500,000 

 

Cancellation of shares

 

 

(1,426,667)

 

(143)

 

143

 

 

 

 

 

 

 

-

 

Write down of stock subscription receivable

 

 

 

 

 

 

(105,056)

 

 

 

105,056 

 

 

 

 

 

Net loss 

 

 

 

 

 

 

 

 

 

 

 

 

(1,632,658)

 

(1,632,658)

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Balance, December 31, 2007**

 

 

**391,950,062**

 

**$               39,195**

 

**$         33,056,270**

 

**$               9,750**

 

**$           (210,000)**

 

**$       (36,717,360)**

 

**$                (3,822,145)**

 

 

See accompanying notes to consolidated financial statements.

 

28

 

**DATAMEG CORPORATION**

 

Consolidated Statements of Cash Flows

 

 

 

 

 

Year Ended 

 

December 31,

 

2007

 

2006

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

NET LOSS

$      (1,632,658)

 

$  (1,508,163)

 

 

 

 

ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATIONS:

 

 

 

Depreciation

73,125

 

367

Write-off of inventory

163,400

 

-

Impairment of goodwill

206,746

 

-

Common shares issued for services or reimbursement

17,320

 

235,500

Vesting of stock options issued for services

114,420

 

328,360

(Gain) loss on litigation

(324,361)

 

11,867

Write-off of debt

(95,343)

 

(54,496)

Amortization of accounts payable reserve

16,000

 

16,000

CHANGES IN OPERATING ASSETS

 

 

 

AND LIABILITIES:

 

 

 

Decrease in accounts receivable

121,288

 

7,100

(Increase) decrease in inventory

478,322

 

(3,612)

Decrease in prepaid and deferred expenses

8,750

 

18,437

Increase (decrease) in accounts payable and accrued expenses

(158,658)

 

163,924

Decrease in deferred revenues

-

 

(7,344)

Increase (decrease) in related party payables

(9,700)

 

750 

NET CASH USED IN OPERATIONS

(1,021,349)

 

(791,310)

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

Purchase of property and equipment

(1,354)

 

-

Net cash acquired in acquisition

35,418

 

-

NET CASH USED IN INVESTING ACTIVITIES

34,064

 

-

 

 

 

* *

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

Proceeds from issuance of common stock

539,420

 

777,000

Proceeds from stock to be issued

-

 

84,000

Proceeds from related party notes payable

425,000

 

-

Payments on promissory notes

(45,000)

 

(10,000)

Checks in excess of bank balance

37,825

 

-

Proceeds from exercise of warrants

7,500

 

-

NET CASH PROVIDED BY FINANCING ACTIVITIES

964,745

 

851,000

 

 

 

 

NET CHANGE IN CASH

(22,540)

 

59,690

 

 

 

 

CASH, BEGINNING OF PERIOD

71,626

 

11,936

 

 

 

 

 

 

29

 

CASH, END OF PERIOD

$              49,086

 

$          71,626

**DATAMEG CORPORATION**

 

Consolidated Statements of Cash Flows (Continued)

 

 

 

 

 

Year Ended 

 

December 31,

 

2007

 

2006

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING

AND FINANCING ACTIVITIES:

 

 

 

Purchase of fixed assets with common stock

$                         7,400

 

$                            -

Stock issued as a reduction of ‘Stock to be Issued’

$                       84,000            

 

$               366,013

Stock issued in lieu of accrued expenses

$                     129,850

 

$                            -

Stock issued in purchase of subsidiary

$                     500,000

 

$                            -

Notes payable issued in purchase of subsidiary

$                  4,000,000

 

$                            -

Conversion of notes payable to common stock

$                                -

 

$                  64,087

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF 

 

 

 

CASH FLOW INFORMATION

 

 

 

Interest paid

$                       12,916                       

 

$                            -

Income taxes paid

$                                -

 

$                            -

See accompanying notes to consolidated financial statements.

30

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

A. BASIS OF PRESENTATION AND ORGANIZATION 

Datameg Corporation is a holding company and Delaware corporation that is a successor by merger as of April 27, 2005 to Datameg Corporation, which was a New York corporation incorporated in October 1982 as The Viola Group, Inc. In August 2000 the Company exchanged 90% of its common stock for 100% of the stock of Datameg Corporation, a Virginia corporation that was incorporated in January 1999. The Viola Group subsequently changed its name to Datameg Corporation and is the successor in business operations of the New York Datameg. The Virginia Datameg was terminated on May 31, 2001.

On April 27, 2005, we entered into an Agreement and Plan of Merger with New York Datameg setting forth the terms of our re-incorporation from New York to Delaware. As part of the re-incorporation the Company increased its authorized number of shares to 503,000,000, of which 10,000,000 are preferred shares and 493,000,000 are common stock. The Company also changed its par value from $0.01 to $0.0001 per share.

Datameg Corporation has four subsidiaries: American Marketing and Sales, Inc., a Massachusetts corporation that the Company wholly owns; NetSymphony Corporation and QoVox Corporation, North Carolina corporations that the Company wholly owns; and CASCommunications, Inc., a Florida corporation, of which the Company owns 40%. The primary business of American Marketing and Sales, Inc., doing business as Innovative Designs, is marketing and selling food service products and caterware. NetSymphony Corporation was incorporated on March 29, 2007 to take advantage of additional, software driven network assurance products and services, and its planning and staffing are in the formative stage.  QoVox was known as North Electric Company, Inc. until July 1, 2005, when North Electric Company filed an Amendment to its Articles of Incorporation with the North Carolina Secretary of State to change its corporate name.Datameg and its subsidiaries individually and collectively have been considered a development stage enterprise in previous years. With the acquisition of American Marketing and Sales, Inc., the Company is no longer considered to be in the development stage as defined in SFAS No. 7, *“Accounting for Development Stage Enterprises.”* CASCommunications is an inactive company.  CASCommunications did not generate any revenue in 2007and is not expected to generate any revenue in 2008. 

Datameg Corporation is in the process of acquiring an additional Massachusetts corporation, Computer Ctr.Com, Inc. Computer Ctr.Com’s primary business is IT solutions, custom manufactured computer equipment, computer network engineering and management, PC support and repair services, digital video surveillance, data recovery, and hard drive forensics services, and on an unaudited basis reported $1,300,000 in gross revenue in 2006 and $1,015,000 in gross revenue in 2007.  The acquisition is expected to close in the second quarter of 2008.

During the years ended December 31, 2007 and 2006, American Marketing and Sales, Inc. recorded revenue of approximately $12 million and $9.5 million, respectively.  American Marketing and Sales, Inc. has successfully development and introduction of an extensive line of environment-friendly, injection-molded Green Line food-packaging/caterware products and has received orders or commitments to purchase the new Green Line of products from Whole Foods, the U.S. House of Representatives purchasing office in Washington, D.C., and several schools and colleges including the University of Massachusetts. The new Green Line products consist of 25 items including various sizes of trays, party platters, and serving bowls with lids.  These non-toxic products qualify for the Green label inasmuch as they are manufactured from FDA-approved polypropylene and polystyrene resins that contain up to 40 percent recycled plasticcontent. American Marketing is one of the first manufacturers in the industry to introduce injection-molded caterware and food service products worthy of the prestigious ‘recycled’ logo mark.

NetSymphony focuses on becoming a provider of network assurance products and services. NetSymphony’s network assurance products are designed to enable communications network operators and service providers to quickly and automatically determine if their network is meeting its quality and service expectations, while lowering network operating costs. NetSymphony has developed their Maestro System that covers the existing traditional telephone networks, networks that use the same communication technology as the Internet, and converged networks comprised of both of these network types. NetSymphony announced its first product sales in the first quarter of 2008.

 

31

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

A. BASIS OF PRESENTATION AND ORGANIZATION (CONT’D) 

During the years ended December 31, 2007 and 2006, QoVox recorded revenue of approximately $0 and $43,000. QoVox plans to provide consulting service to NetSymphony on a work for hire basis. Any revenues generated by QoVox or expenses incurred by NetSymphony as a result of this arrangement will be eliminated in consolidation.

CASCommunications had no recorded assets as of December 31, 2007 and had a loss before minority interest of zero for the years ended December 31, 2007 and 2006 due to the lack of activity during those periods. No consolidated assets are collateral for liabilities of CASCommunications. Datameg has provided $270,000 of the total capital of $388,000 provided to CASCommunications as of December 31, 2007. 

These consolidated financial statements reflect those of Datameg Corporation, American Marketing & Sales, Inc., Netsymphony Corporation, QoVox Corporation, and CASCommunications, Inc. In accordance with the Financial Accounting Standards Board (FASB) interpretation (FIN) 46R, *“Consolidation of Variable Interest Entities,**an interpretation of ARB No. 51,”* the Company continues to consolidate CASCommunications, Inc. as it expects to continue to absorb a majority of CASCommunications, Inc.’s losses. 

The Company operates under the name of Datameg Corporation and trades under the symbol DTMG on the OTCBB. The Company’s active subsidiaries are American Marketing & Sales, Inc., NetSymphony Corporation and QoVox Corporation, each of which the Company wholly owns.

As of March 31, 2008, we had a total of nine fulltime employees and four part time independent contractors or consultants. Of these, three individuals serve in administrative and senior management capacities at our subsidiaries. The balance is comprised of one fulltime employee, our Datameg CEO. 

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

Principles of Consolidation: 

The accompanying consolidated financial statements present the consolidation of the financial statements of Datameg Corporation, its partially owned subsidiary, CASCommunications, Inc., and its wholly owned subsidiaries, American Sales and Marketing, Inc., QoVox Corporation and NetSymphony Corporation. All inter-company transactions and balances have been eliminated in the consolidation. 

Consolidation of Variable Interest Entities: 

In January 2003 and revised December 2003, the FASB issued FIN No. 46, *“Consolidation of Variable Interest Entities.”*  This interpretation of Accounting Research Bulletin No. 51, *“Consolidated Financial Statements,”* requires consolidation by business enterprises of variable interest entities, as defined, when certain conditions are met. Pursuant to FIN No. 46, the Company continues to consolidate CASCommunications, Inc. 

Basis of Accounting: 

The accounts of the Company are maintained on the accrual basis of accounting whereby revenue is recognized when earned, and costs and expenses are recognized when incurred. 

 

32

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Use of Estimates: 

Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from those estimates. 

Inventory: 

The Company’s inventory is stated at the lower of cost or market value. Cost is determined using the first in, first out method. Unusual losses resulting from lower of cost or market adjustments or losses on firm purchase commitments, if any, are disclosed, and if material, separately stated from cost of goods sold in the statement of operations. 

Property and Equipment: 

Property and equipment are stated at cost. Depreciation and amortization is determined using the straight-line method over estimated useful lives ranging from three to seven years. 

Intangible assets: 

Intangible assets as of December 31, 2006 consisted of goodwill related to the North Electric Company, Inc. merger in April 2002. Effective January 2002, the Company adopted Statement of Financial Accounting Standards No. 142, *“Goodwill and Other Intangible Assets,”*(SFAS 142). SFAS 142 addresses accounting and reporting for acquired goodwill. It eliminates the previous requirement to amortize goodwill and establishes new requirements with respect to evaluating goodwill and impairment. The annual goodwill impairment assessment involves estimating the fair value of a reporting unit and comparing it with its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, additional steps are followed to recognize a potential impairment loss. The Company ascertained the fair value of its subsidiaries, anddetermined that there was little or no value in the goodwill, and impaired the entire balanceat December 31, 2007, as more fully discussed in Note R. 

Fair Value of Financial Instruments: 

The carrying value of cash, notes receivable, accounts payable and accrued expenses and notes payable are assumed to approximate fair value because of the relatively short maturity of these instruments. However, since the Company has been unable to pay its liabilities as they became due, significant discounts that cannot be estimated, may be appropriate for liabilities.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company maintains its cash accounts with several commercial banks. Cash balances are insured by the Federal Deposit Insurance Corporation, up to $100,000 per financial institution. At December 31, 2007 and 2006, the Company had no uninsured cash balances. 

 

33

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Capital Structure: 

SFAS No. 129, *“Disclosure of Information about Capital Structure,”* requires a summary presentation of the pertinent rights and privileges of the various securities outstanding. The Company’s outstanding stock is comprised of 391,950,062 and 359,394,435 shares of voting common stock as of December 31, 2007 and 2006, respectively. In April 2003, the Company amended its certificate of incorporation with the state of New York to increase the number of authorized shares of stock to 340,000,000 shares of common stock. In January 2003, the Company announced a ten percent stock dividend that was payable to shareholders of record as of January 8, 2003 and was paid in June 2003. In April 2005 we entered into an Agreement and Plan of Merger with Datameg Corp. NY setting forth the terms of our reincorporation from New York toDelaware. As part of the reincorporation the Company increased its authorized number of shares to 503,000,000, of which 10,000,000 are preferred shares and 493,000,000 are common shares. The Company also changed its par value from $0.01 to $0.0001 per share. 

Reclassifications:

Some of the prior period balances have been reclassified to conform to current period presentation.

Revenue Recognition:  

American Market & Sales

The Company recognizes revenue from product sales in accordance with Staff Accounting Bulletin No. 104, which requires recognition when persuasive evidence of an arrangement exists, the price is fixed or determinable, delivery has occurred, and payment is reasonably assured.  The Company has determined that these criteria have been met  upon shipment, and recognizes revenue at that point.  

 

Pursuant to SFAS No. 5, *“Accounting for Contingencies,”* the Company has examined collection history, financial conditions of clients, and general economic conditions and determined that it is not necessary to set an allowance for doubtful accounts, which have historically not been significant.

NetSymphony and QoVox

The Company derives revenue from three primary sources: (1) system hardware component sales revenue, (2) software license revenue and (3) services and maintenance and right to use revenue, which include support, maintenance, right to use fees and consulting.  Revenue on system hardware component sales is recognized upon delivery to, and acceptance by the customer.  Software license revenue recognition is substantially governed by the provisions of Statement of Position No. 97-2*, “Software Revenue Recognition,”* (SOP 97-2) issued by the American Institute of Certified Public Accountants.  The Company exercises judgment and uses estimates in connection with the determination of the amount of software license and services revenue to be recognized in each accounting period.  For software license arrangements that donot require significant modification or customization of the underlying software, the Company recognizes revenue when: (1) it enters into a legally binding arrangement with a customer for the license of software; (2) it delivers the products or performs the services; (3) customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties and (4) collection is probable and (5) vendor specific objective evidence (VSOE) of fair value exists to allocate the total fee among all delivered and undelivered elements in the arrangement. 

 

34

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Multiple Element Arrangements:

The Company typically enters into arrangements with customers that include perpetual software licenses, system hardware, maintenance and right to use fees. Software licenses are sold on a per copy basis. Per copy licenses give customers the right to use a single copy of licensed software for exclusive use on the Company’s system hardware. Assuming all other revenue recognition criteria are met, license revenue is recognized upon delivery using the residual method in accordance with SOP No. 98-9, *“Modification of SOP 97-2: Software Revenue Recognition.”* Under the residual method, the Company allocates and defers revenue for the undelivered elements, based on VSOE of fair value, and recognizes the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue. The determination of fair value ofeach undelivered element in multiple element arrangements is based on the price charged when the same element is sold separately. If sufficient evidence of fair value cannot be determined for any undelivered item, all revenue from the arrangement is deferred until VSOE of fair value can be established or until all elements of the arrangement have been delivered. If the only undelivered element is maintenance and technical support for which the Company cannot establish VSOE, the Company will recognize the entire arrangement fees ratably over the maintenance and support term. 

System hardware is hardware that is installed at a customer site for the purpose of utilizing the licensed software and as such, does not qualify as a separately deliverable element. The timing of revenue recognition from the sale of system hardware is therefore dependent upon the recognition of revenue for the related software licenses. 

Maintenance and right to use fees includes updates (unspecified product upgrades and enhancements) on a when and if available basis, telephone support and bug fixes or patches and maintenance of the systems hardware, which would include repairs or replacement as necessary. VSOE of fair value for maintenance and right to use fees is based upon stated annual renewal rates. Maintenance and right to use fees revenue is recognized ratably over the maintenance and right to use term. 

Revenue Recognition Criteria: 

The Company defines revenue recognition criteria as follows: 

*Persuasive Evidence of an Arrangement Exists.*It is the Company’s customary practice to have a purchase order prior to recognizing revenue on an arrangement. 

*Delivery has Occurred.*The Company’s software and systems hardware are physically delivered and installed at its customer’s site. The Company considers delivery complete when the software and system hardware products have been installed and the testing phase completed. The Company defers all the revenue until the testing phase has been completed and the Company receives customer acceptance. 

*The Vendor’s Fee is Fixed or Determinable.*The Company’s prices and services are indicated in invoices and service agreements.  Customary payment terms are generally within 30 days after the invoice date. 

*Collection is Reasonably Assured.*Due to a lack of customer history upon which a judgment could be made as to the collectability of a particular receivable, revenue is currently recognized upon receipt of payment assuming all other conditions of the sale have been met. 

 

35

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Cost of Revenue:

Cost of revenue includes costs related to user license, systems hardware and maintenance and right to use fees revenue. Cost of user license revenue includes material, packaging, shipping and other production costs and third party royalties. Cost of systems hardware includes the cost of goods sold and installation costs. Cost of maintenance and right to use fees and consulting fees include related personnel costs, and hardware repair costs. Third party consultant fees are also included in cost of services. 

Inventory: 

The Company’s inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method.  Unusual losses resulting from lower of cost or market adjustments or losses on firm purchase commitments, if any, are disclosed, and if material, separately stated from cost of goods sold in the statement of operations. 

Advertising: 

Advertising costs are charged to operations as incurred. For the years ended December 31, 2007 and 2006, there were only minimal advertising costs charged to operations. 

Research and Development: 

The Company expenses research and development costs as incurred. 

Software Development Costs: 

Statement of Financial Accounting Standards (SFAS) No. 86, *“Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,”*requires capitalization of certain software development costs subsequent to the establishment of technological feasibility and readiness of general release. The Company also licenses from a third party the use of certain software that it utilizes in its products.  These computer software license fees are expensed as incurred.

Income Taxes: 

The Company, a C-Corporation, accounts for income taxes under SFAS No. 109, *“Accounting for Income Taxes.”* Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The principal differences are net operating losses, startup costs and the use of accelerated depreciation methods to calculate depreciation expense for income tax purposes. 

Stock-Based Compensation: 

The Company follows guidance provided in SFAS No. 123R*, “Accounting for Stock-Based Compensation,”* which requires companies to recognize expense for stock-based awards granted to employees or outside consultants based on their estimated fair value on the grant date. 

 

36

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Comprehensive Income: 

SFAS No. 130, *“Reporting Comprehensive Income,”* establishes standards for reporting comprehensive income and its components. Comprehensive income is defined as the change in equity during a period from transactions and other events from non-owner sources. Entities that do not have items of other comprehensive income in any period presented are not required to report comprehensive income. Accordingly the Company has not made any such disclosure in the statements presented herein. 

Net Loss Per Common Share: 

The Company reports basic and diluted earnings per share (EPS) according to the provisions of SFAS No. 128, *“Earnings Per Share.”*SFAS No. 128 requires the presentation of basic EPS and, for companies with complex capital structures, diluted EPS. Basic EPS excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) available to common stockholders, adjusted by any convertible preferred dividends; the after-tax amount of interest recognized in the period associated with any convertible debt; and any other changes in income or loss that would result from the assumed conversion of those potential common shares, by the weighted number of common shares and common shareequivalents (unless their effect is antidilutive) outstanding.  Due to the Company’s continuing losses, potentially dilutive securities would have an antidilutive effect on EPS.  Accordingly, basic and diluted EPS are the same.

Recently Issued Accounting Pronouncements:

SFAS No. 159, “*The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115”*issued February 2007 permits entities to choose to measure many financial instruments andcertain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments.  SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.

 

SFAS No. 157,*“Fair Value Measurements”*issued September 2006, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice.  SFAS 157 is effective in the first fiscal year that begins after November 15, 2007.

Segment Information: 

SFAS No. 131, *“Disclosure about Segments of an Enterprise and Related Information,”* requires public enterprises to report certain information about operating segments, including products and services, geographic areas of operations, and major customers. Although the Company’s recent acquisition, American Marketing and Sales, Inc., is considered a separately reportable business segment, the Company has determined that no material segment information is relevant to this disclosure for the year ended December 31, 2007 due to the acquisition occurring so close to year-end (Note P).  The Company did not have any separately reportable business segments during the year ended December 31, 2006. 

 

37

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

C. INVENTORY

At December 31, 2006, the Company’s inventory consisted of various telecommunications equipment utilized by QoVox.  No revenues were generated by QoVox during 2007 and there was no movement in the inventory.  Due to the technologically dynamic telecommunications industry, an obsolescence reserve for the entire amount was recorded at December 31, 2007.

American Marketing and Sales, Inc.’s inventory is comprised of raw resins that are held by third-party manufacturing plants.  Once an order is placed, the plants use tooling molds to manufacture the caterware, which is shipped from the plant directly to customers.  At December 31, 2007, raw resins totaled $301,724. 

D. PROPERTY AND EQUIPMENT 

Property and equipment consisted of the following as of December 31: 

 

 

**2007**

 

**2006**

 

 

Equipment 

 

$ 

54,062 

 

$ 

46,106

 

 

Furniture 

 

40,224

 

10,095

 

 

Automobiles

 

35,003

 

 

-

 

 

Capital Leases 

 

35,100 

 

 

35,100

 

 

Tooling Molds

 

 

2,777,561

 

 

-

 

 

Total property and equipment

 

$ 

2,941,950

 

$ 

91,301

 

 

Less: accumulated depreciation 

 

(164,426) 

 

(90,301)

 

 

Property and equipment, net 

 

$2,777,524             

 

$

-

 

 

Depreciation expense totaled $73,125 and $367 for the years ended December 31, 2007 and 2006, respectively. Of the 2007 depreciation, $60,439 is attributable to the tooling molds used in production and has therefore been reported with cost of goods sold on the statement of operations.

E. RELATED PARTY TRANSACTIONS

As of December 31, 2007 and 2006, the Company was indebted to officers and stockholders in the amount of $28,560 and $57,510, respectively, for advances received and expenses incurred on behalf of the Company. This is exclusive of amounts included in accrued compensation.  Interest was not imputed on these advances due to immaterial impact on the financials, and the amounts will be repaid as cash flows allow.

F. PROMISSORY NOTES 

Note 1:  On October 29, 2001, the Company signed a confessed judgment promissory note with a law firm acknowledging monies owed amounting to $596,802, which had been previously accrued. The balance of the promissory note accrued interest at a rate of 9% and matured on December 31, 2001. On January 7, 2002, the Company received a notice of default relating to the Promissory Note and as of January 1, 2002 the outstanding balance was increased five percent (5%) and began to accrue interest at an annual rate of 15%. Accrued interest on the note totaled $551,425 and $461,804 at December 31, 2007 and 2006, respectively.

 

38

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

F. PROMISSORY NOTES (CONT’D)

Note 2:  In July 2003, the Company signed a promissory note with a professional for fees and the interest on unpaid fees due that professional through June 30, 2003 in the amount of $247,007. The note was due on August 15, 2003 and was guaranteed personally by the Company’s Chairman. The note stated an interest rate of 18% per annum, which had been accrued since the note’s inception and totaled approximately $208,000 at December 31, 2006. No significant payments have been made to date and since August 15, 2003, the Company has been in default with respect to this note.  In the event of default, the note requires that additional interest of 2% per thirty calendar day period accrue as liquidated damages. According to management, the Company’s independent legal counsel, and various Florida statutes, it is considered unlawful for a creditor to charge in excess of 18% interest per annum on a noteof this nature.  The Company has concluded that excess interest expense of approximately $53,000 has been recorded since the Company defaulted on the loan.  Accordingly, accrued interest and interest expense were reduced by approximately $15,000 and $38,000 during the years ended December 31, 2006 and 2005, respectively, resulting in claimed accrued interest balances of approximately $200,000 and $156,000 at December 31, 2007 and 2006, respectively.   On June 25, 2007, the holder of Note 2 filed suit, seeking to have a judgment rendered against the Company for all amounts claimed due. (See additional comments in under “Litigation” below)

Note 3:  In July 2004, the Company received a letter from a law firm representing former counsel to the Company concerning fees and costs totaling approximately $245,000 for which former counsel rendered invoices to the Company.  On July 21, 2006, the Company signed a settlement and mutual release and promissory note with the former counsel, whereby the Company shall pay the principal sum of $155,000 plus interest at 6% per annum as follows: 

 

 

**•**

$10,000.00 on or before December 1, 2006 (paid), 

 

**•**

$15,000.00 on or before March 15, 2007 (paid), 

 

**•**

$10,000.00 on or before June 15, 2007 (paid), 

 

**•**

$10,000.00 on or before September 15, 2007 (paid),  

 

**•**

$10,000.00 on or before December 15, 2007, (paid)

 

**•**

$10,000.00 on or before March 15, 2008, (paid)

 

**•**

$10,000.00 on or before June 15, 2008, 

 

**•**

$10,000.00 on or before September 15, 2008, 

 

**•**

$10,000.00 on or before December 15, 2008, 

 

**•**

$10,000.00 on or before March 15, 2009, and 

 

**•**

$50,000.00 plus all accrued and unpaid interest on or before June 15, 2009. 

 

Former counsel agrees to waive all accrued and unpaid interest if the Company pays the sum of $155,000 by December 1, 2007.  At December 31, 2007, the Company is current on its promissory note payments, resulting in a remaining balance of $100,000 ($40,000 current and $60,000 long-term).

Note 4:  As of January 1, 2006, the Company entered into promissory notes with three of its Ohio consultants to settle compensation accrued for services rendered to QoVox Corporation in previous years.  Total principal of $219,206, plus 7% interest per annum, was payable in six equal quarterly installments, with the first payment due April 15, 2006, and the following payments due the first day of July 2006, October 2006, and so forth.  

The Company had not made any payments on the notes, and was in default.  Due to questionable validity of the notes, the Company filed suit against the consultants.  The litigation was settled in 2008, resulting in the cancellation of all debts owed by the Company.  Since the events leading to the settlement were in existence at December 31, 2007, management recorded a total write-off of $324,361.  

 

39

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

F. PROMISSORY NOTES (CONT’D)

Note 5:  As part of the purchase of American Marketing and Sales, Inc., (AMS) as described under Note ‘R’ below, the Company entered into a $4 million note payable to the former shareholders of  AMS.  The note accrues interest at 6% per annum and the entire note balance, including accrued interest, is due and payable on the 2nd anniversary of the merger agreement, which was consummated on December 7, 2007.  Interest will start accruing in January 2008.

Note 6:  In May 2007, American Marketing and Sales, Inc. entered into a note payable with Flagship Bank of Leominster, MA for $400,000.  The note accrues interest at prime less .75% (approximately 6.5%), carries monthly payments of $93,918, and matures in May 2012. The Company is current on its payments, so there is no accrued interest at December 31, 2007.  The total remaining balance on the note at December 31, 2007 is $360,527, which is estimated payable as follows:

 

Summary of principal amount of promissory notes payable are as follows: 

 

Dec. 31,

Payments

Principal

Interest

2008

$93,918 

$73,068 

$20,850 

2009

93,918

77,962

15,956

2010

93,918

83,183

10,735

2011

93,918

88,754

5,164

2012

37,979

37,560

419

Totals

$413,651 

$360,527 

$53,124 

 

Note payable balances are summarized as follows:

 

 

December 31,

 

2007

2006

Note 1

$        596,802

$        596,802

Note 2

247,007

247,007

Note 3

100,000

145,000

Note 4

-

219,206

Note 5

4,000,000

-

Note 6

360,527

-

Total principal

5,304,336

1,208,015

Less long-term portion (Notes 3, 5 & 6)

4,347,459

100,000

Total current portion

$         956,877

$      1,108,015

G. STOCK TO BE ISSUED

Of the $93,750 balance of stock to be issued at December 31, 2006, $84,000 consisted of proceeds received in 2006 for 1,927,380 shares of common stock subsequently issued in the first quarter of 2007.  The remaining $9,750 balance at December 31, 2007 represents 250,000 shares payable to the Company’s outside legal counsel for services rendered.   These shares were issued in the first quarter of 2008.

 

40

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

H. COMMITMENTS AND CONTINGENCIES 

Commitments: 

In 2002, an investor filed a lawsuit against the Company and the Company’s Chairman for damages in the amount of $54,850.  On April 24, 2003, the court determined that the Company and our Chairman defaulted. A final judgment was ordered and finalized on December 3, 2003. The Company recorded a liability for the judgment and accrued interest at December 31, 2003 in the amount of $118,350. In March 2005, the Company entered into an agreement to pay $55,000 to this Investor by April 15, 2005 in full satisfaction of all outstanding, current and pending claims regarding this litigation. The reduced settlement was not paid in full when due, so additional fees and interest were charged. As of December 31, 2007, the balance remaining was approximately $34,000, which is included in accounts payable and accrued expenses. The Company is seeking legal advice from Florida counsel regarding the validity of theoriginal default judgment. 

On May 13, 2005, the Company entered into a Mutual General Release with one of its consultants settling any and all claims either company may have had. The terms of the release provided that the Company pay the Consultant $5,000 per month beginning in May for five months for a total of $25,000. The Company made its first payment of $5,000 on May 31, 2005 and has subsequently made $4,000 of additional payments, resulting in balances included in accounts payable and accrued expenses of $16,000 and $16,500 at December 31, 2007 and 2006. The Company is behind on its payments, and is considered to be in default with respect to this agreement.  

On July 1, 2005, the Company appointed Joshua E. Davidson to the position of Vice President, Finance. Effective July 1, 2005, the Company and Mr. Davidson entered into a letter agreement, under which the Company agreed to pay to Mr. Davidson $700 per day (or $350 per half day) that he performs services for the Company. On December 29, 2005 the contract with Mr. Davidson was amended changing the rate of pay to $75 per hour. In connection with his appointment as Vice President, Finance, the Company granted to Mr. Davidson a one-time signing bonus of one million restricted shares of the Company’s common stock, of which 50% (500,000 shares) were issued in 2005 and the remaining 50% (500,000 shares) vested on January 3, 2006, but remained unissued at December 31, 2007. On July 28, 2006, Mr. Davidson resigned his position and filed suit in Boston municipal court claiming $14,900 in additional compensation.The Company has denied his claim and has counter claimed for damages. Trial is set for June 2008.

On March 13, 2006, the Company entered into a contract with Michael West appointing him Senior Vice President, National Accounts, for QoVox, Inc. Mr. West’s compensation is comprised of a base salary with incentives for reaching specific sales goals; a stock grant of 1,000,000 shares of the Company’s unregistered stock, with 500,000 shares due upon execution of Mr. West’s contract (issued in May 2006), and 500,000 shares due upon the Company’s receipt of new revenue (not yet issued due to absence of revenues). 

On March 13, 2006, the Company terminated its Sales Representation Agreement with Omni Solutions, Inc. by entering into a mutual settlement and release agreement. Omni Solutions, Inc. acknowledged receipt of 12,000,000 common shares together with $87,000 of previously accrued liabilities payable in 6 equal monthly installments in full satisfaction of amounts due under the Sales Representation Agreement.****Due to questionable validity of the notes, the Company filed suit against the consultants.  The litigation was settled in 2008, resulting in the cancellation of all debts owed by the Company.  Since the events leading to the settlement were in existence at December 31, 2007, management recorded settlement income of $324,361.   The consultants were also required to return or cancel all common stock and options they held, which was done and recorded during thefirst quarter of 2008.

 

41

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

H. COMMITMENTS AND CONTINGENCIES (CONT’D)

Lease commitments: 

In October 2004, Datameg signed a lease agreement for office space in Raleigh, North Carolina. The term of the lease was for 37 months beginning December 2004 and ending in January 2008, and called for monthly payments of approximately $5,000.

In January 2008 upon expiration of the above lease agreement, the Company entered into a lease agreement at a new location for approximately 2,600 square feet of space at 7200 Falls of the Neuse Road, Suite 101, Raleigh, North Carolina 27615. The term of the lease is for 26 months beginning December 1, 2007 and expiring January 31, 2010. The monthly rent is approximately $1,950. The property is being used to market and develop NetSymphony’s products. 

 

American Marketing and Sales, Inc. rents a 3600-square-foot showroom and warehouse at 20 Mohawk Drive, Leominster, MA 01453.  The arrangement is month-to-month and cancellable at any time.  Monthly payments are $1,200 and include taxes and utilities.Total rent expense for all operating leases was $59,718 and $60,834 for the years ending December 31, 2007 and 2006, respectively. 

 

Contingencies:

 

In some if its former standard Stock Purchase Agreements, the Company granted some purchasers stock registration rights including a 2% monthly penalty for delayed registration payable in additional shares.  The Company has not met some of the registration requirements, which could result in the issuance of an estimated 2,006,189 additional shares.  However, the Company believes that the penalty is against Massachusestts’ public policy and is not payable or enforceable.  Accordingly, the Company has made no provision for this unlikely obligation.

 

I. STOCK SUBSCRIPTION RECEIVABLE 

On March 5, 2004, the Company entered into a stock subscription agreement with a foreign investor to purchase 2,941,176 shares of the Company’s common stock at a purchase price of $0.17 per share. On April 1, 2004, the investor made an initial subscription payment of $80,000 and the Company issued and delivered the full 2,941,176 shares of restricted Common Stock to the investor with the understanding that the investor was sending the Company the $420,000 balance and a stock subscription receivable was duly recorded on the Company’s books in the amount of $420,000. On April 14, 2004, the investor notified the Company of the investor’s intent not to invest further in the Company. The Company offered to issue a new stock certificate in the amount of 470,588 shares to accommodate the $80,000 initial subscription payment in exchange for the investor’s return of the stock certificateissued and delivered to the investor on April 1, 2004 for the full share amount of 2,941,176 shares**.**The investor refused the Company’s exchange offer and has continued to refuse to return the stock certificate for 2,941,176 shares

The Company intends to institute a legal action to seek vindication in 2008.  Given the uncertainties inherent in litigation, the Company took a charge of $105,000 (25%) against the receivable in the 4th quarter of 2006, and another charge of $105,056 during 2007, resulting in a $210,000 balance at December 31, 2007.

 

42

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

J. INCOME TAXES

A reconciliation of income tax expense (benefit) at the statutory rate to the Company’s effective rate is as follows for 2007 and 2006: 

 

 

**2007**

 

**2006**

 

 

Computed at the expected statutory rate (35%)

 

$

(571,000)

 

 

(528,000)

 

 

State income tax net federal tax benefit 

 

(81,000)

 

(75,000)

 

 

Compensatory stock options cancelled or expired 

 

324,000

 

 

 

 

Less: valuation allowance change 

 

328,000

 

603,000

 

 

Total benefit for income taxes

 

$                        -

 

$                     -

 

 

 

Deferred tax assets and (liabilities) at December 31, 2007 and 2006 were as follows**:**

 

 

**2007**

 

**2006**

 

 

Deferred tax assets: 

 

 

 

 

 

 

Net operating loss carry forwards (NOL’s)

 

$ 

4,989,000

 

$

4,418,000

 

 

Depreciation and amortization 

 

(20,000)

 

(20,000)

 

 

Goodwill

 

83,000

 

-

 

 

Stock option compensation 

 

739,000

 

1,065,000

 

 

Gross deferred tax assets 

 

5,791,000

 

5,463,000

 

 

Valuation allowance 

 

(5,791,000)()

 

(5,463,000)

 

 

Net deferred tax assets 

 

$ 

-

 

$ 

-

 

 

The Company has available at December 31, 2007 approximately $13,435,000 of unused net operating loss carry forwards that may be applied against future taxable income that expire in 2019 through 2026. Due to stock ownership changes and other income tax statutes, the ability to benefit from the net operating loss carry forwards may be significantly restricted.  Accordingly, for this and other reasons, including uncertainties regarding the Company’s ability to generate taxable income sufficient to utilize NOL’s prior to their expiration, a valuation allowance has been provided against the deterred tax assets.

K. STOCK OPTIONS AND WARRANTS 

During the years ended December 31, 2007, the Company granted options and warrants to consultants, employees, and investors to purchase 11,225,000 shares of common stock,  at prices ranging from $0.01 to $0.25 per share. The vesting of the stock options resulted in an expense in the amount of $114,420 and $328,360 during the years ended December 31, 2007 and 2006, respectively. Of the options and warrants granted since inception, options and warrants for shares are unexercised and expire between January 2008 and January 2013. 

 

43

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

K. STOCK OPTIONS AND WARRANTS (CONT’D)

A summary of option and warrant activity, for both employees and consultants, for the years ended December 31, 2007 and 2006 is as follows: ****

 

 

**# of Shares**

 

**Price Per Share**

 

**Weighted Ave Price Per Share**

 

 

Outstanding December 31, 2005

 

122,727,992 

 

$0.01 - $0.25 

 

$ 

0.12 

 

 

Options and warrants granted 

 

14,606,251 

 

$0.04 - $0.10 

 

$ 

0.07 

 

 

Options and warrants exercised 

 

200,000

 

$0.01

 

 

 

 

Options and warrants expired 

 

34,395,000

 

$0.01 - $0.25

 

 

 

 

Outstanding, December 31, 2006

 

102,739,243

 

$0.01 - $0.25

 

$

0.13

 

 

Options and warrants granted

 

11,225,000

 

$0.06 - $.07

 

$

0.07

 

 

Options and warrants exercised

 

187,500

 

$0.04

 

$

.04

 

 

Options and warrants expired or terminated

 

47,053,039

 

$0.01 - $0.25

 

$

0.13

 

 

Outstanding and exercisable, December 31, 2007 

 

66,723,704

 

$0.01 - $0.25 

 

$ 

0.13 

 

 

At December 31, 2007 the weighted average remaining life of outstanding stock options and warrants, for both employees and consultants, was approximately 26 months. 

The fair value of options and warrants granted in 2007 are estimated on the date of the grant using a type of Black Scholes option pricing model. During the year ended December 31, 2007, the following assumptions were used to value grants: dividend yield of 0%, volatilities ranging from 170 to 175, terms varied based on the negotiated term of the options agreement, and risk free interest rates varied based on the Treasury bond yield with a term comparable to the length of the term listed in the options agreement.

L. NET LOSS PER COMMON SHARE

As required by SFAS No. 128, the following is a reconciliation of the basic and diluted EPS calculations for the periods presented: 

 

For the Year Ended December 31,

 

2007                           2006

 

Net Loss (numerator) 

$         (1,632,658)

$          (1,508,163)

 

Weighted Average Shares (denominator) 

372,135,169

347,642,448

 

Basic and diluted net loss per common share 

$                (0.00)

$                 (0.00) 

 

As required by the Securities and Exchange Commission Staff Accounting Bulletin No. 98, the above calculation of EPS is based on SFAS No. 128, *“Earnings Per Share.”*Thus, options and warrants granted as of December 31, 2007 and 2006 are not included in the calculation of diluted EPS as their inclusion would be antidilutive. 

 

44

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

M. GOING CONCERN 

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company has sustained substantial costs in implementing its action plan. In addition, the Company used substantial amounts of working capital in funding these costs. At December 31, 2007, current liabilities exceeded current assets by $2,327,367. The Company is seeking to raise additional capital and develop partnerships and cooperative agreements. In view of these matters, the ability of the Company to continue as a going concern is dependent upon the Company’s ability to achieve its business objectives and the success of its future operations.   

N. SETTLEMENT OF DEBT

During 2007 and 2006, the Company entered into several settlement agreements reducing existing obligations recorded in accounts payable and accrued liabilities.   Since the events leading to the settlements were in existence at each year-end, management has determined that the settlements to be reflected as of the balance sheet date preceding the settlement to more ensure the financials are not misleading.  This consideration resulted in a reduction of debt due to settlement or debt forgiveness totaling $419,604 and $38,496 during the years ended December 31, 2007 and 2006, respectively.  Management and legal counsel also determined that the statute of limitations had expired on several liabilities or their payment was remote based on aging and lack of collection efforts by creditors.  Based on AU 560, liabilities totaling $314,099 were also written off at December 31, 2005.  To compensate for any creditorsthat may seek payment, the Company set up a reserve of approximately 25% of the remaining accounts payable and applicable accrued liabilities at December 31, 2005.  The total reserve of $48,000 is amortized quarterly to other income over 3 years commencing the first quarter of 2006, resulting in reserve amortization of $16,000 in each of the years ended December 31, 2007 and 2006.  

O. ACCOUNTS RECEIVABLE

NetSymphony and QoVox have no receivables due to the change in product line.  Accounts receivable for American Marketing and Sales, Inc. total $1,616,605 at December 31, 2007.  Pursuant to SFAS No. 5, *“Accounting for Contingencies,”* the Company has examined collection history, financial conditions of clients, and general economic conditions and determined that it is not necessary to set an allowance for doubtful accounts, which have historically not been significant.

 

P.  ACQUISITION OF SUBSIDIARY

 

On December 7, 2007, the Company completed the acquisition of 100% voting interest in American Marketing and Sales, Inc., (AMS) a Massachusetts corporation, in exchange for 15 million restricted shares of Datameg common stock, valued at $.0333333 per share (for total value of $500,000), and a note payable in the amount of $4,000,000 (Note F) payable to the former shareholders of AMS, for total purchase price of $4.5 million. The acquisition was reported in a Form 8-K filed on December 13, 2007. 

 

The primary reasons for the acquisition was to move Datameg toward status as a going concern and to acquire a potential supplier of casings, packaging and other plastics for our NetSymphony product line.  The transaction is being accounted for using the purchase method of accounting pursuant to the provisions in SFAS 141, *"Business Combinations*," which states that the operations of the acquired entity be consolidated with the parent from the date of acquisition forward.  Accordingly, the financial statements represent the operations of AMS as of December 31, 2007, and for the period of December 8, 2007 through December 31, 2007.  Management recorded the AMS tooling molds at fair market value, which brought the net book value of AMS in line with the purchase price, resulting in no goodwill or cost allocation among the remaining assets andliabilities acquired in the acquisition. 

 

45

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

P.  ACQUISITION OF SUBSIDIARY (CONT’D)

 

A condensed balance sheet identifying allocation of the purchase price to assets acquired and liabilities assumed is as follows: 

 

 

**Book value on**

 

**Estimated Fair**

 

**Acquisition**

**Purchase**

**Market Value on**

 

**Date**

**Price**

**Acquisition Date**

**Asset (Liability)**

**(12/7/07)**

**Allocation**

**(12/7/07)**

 

 

 

 

Cash

$           35,418 

 

$         35,418 

Accounts receivable

1,737,893 

 

1,737,893 

Note receivable

425,000 

 

425,000 

Furniture and equipment

29,331 

 

29,331 

Automobiles

35,003 

 

35,003 

Tooling molds

1,671,432 

1,106,129 

2,777,561 

Inventory

780,046 

 

780,046 

Accounts payable

(935,528)

 

(935,528)

Accrued expenses

(24,197)

 

(24,197)

Notes payable

(360,527)

 

(360,527)

Total purchase price

$      3,393,871 

$ 1,106,129 

**$ 4,500,000**

Q. SUBSEQUENT EVENTS 

In March 2008, the Company issued 2,000,000 shares of restricted common stock for total proceeds of $50,000 to an independent investor.  Also in March 2008, the Company issued 1,123,184 shares of restricted common stock in lieu of cash for services rendered totaling $45,125.  Of this amount, 1,035,684 shares valued at $41,625 were issued to the Company’s SEC attorney.

R.  IMPAIRMENT OF GOODWILL 

Goodwill represents the excess of cost over the fair value of net tangible and identifiable intangible assets of acquired companies. As a result of our acquisition of substantially all of the assets and certain of the liabilities of QoVox, the Company recorded approximately $207,000 of goodwill. In accordance with the provisions of SFAS No. 142, goodwill must be reviewed at least annually for impairment. We have elected to perform our annual review at the end of each fiscal year. If the carrying value of our goodwill were to exceed the fair value at some time in the future, we would be required to report goodwill impairment charges as an operating expense in our statement of operations. Whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable, we must conduct an impairment assessment of its goodwill and identifiable intangible assets. Factors that couldtrigger an impairment review include: 

 

**•**

Significant underperformance relative to expected historical or projected future research and development and operating results;

 

**•**

Significant changes in the manner of use of the acquired assets or the strategy for the overall business;

 

**•**

Significant negative industry or economic trends; and

 

46

 

**•**

When it appears that the carrying value of intangibles or goodwill might not be recoverable based on one or more of the above criteria, management will use projected discounted cash flow, independent valuation or other means to measure any impairment.

 

47

**DATAMEG CORPORATION**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007 and 2006

 

R.  IMPAIRMENT OF GOODWILL (CONT’D)

Based on our analysis performed at December 31, 2007, we determined that there is little or no value in the goodwill and have impared the entire bgalance based on the criteria identified above.

 

48

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 

None

ITEM 8A.   

CONTROLS AND PROCEDURES

 (a)  Disclosure Controls and Procedures 

Our disclosure controls and procedures are not effective.

(b)  Internal Control Over Financial Reporting 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

An internal control material weakness is a significant deficiency, or aggregation of deficiencies, that does not reduce to a relatively low level the risk that material misstatements in financial statements will be prevented or detected on a timely basis by employees in the normal course of their work. An internal control significant deficiency, or aggregation of deficiencies, is one that could result in a misstatement of the financial statements that is more than inconsequential.

The management of Company assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2007, and this assessment identified the following material weakness in the company’s internal control over financial reporting:

During the course of the Company’s preparation of its 2004 financial statements, including the audit of those financial statements by the Company’s independent registered public accounting firm, five material weaknesses in the Company’s internal control over financial reporting were identified.  These material weakness were (1) the lack of an independent audit committee, (2) the delay in recording financial transactions, which could result in inadvertent errors or omissions, (3) the lack of an organized system of document review, signing, retaining copies, and orderly filing, (4) the lack of a significant segregation of duties or review of financial transactions and (5) the lack of documentation of controls and accounting procedures. Although some improvements have been made, these material weaknesses still exist as of December 31, 2007.

In making its assessment of internal control over financial reporting management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in *Internal Control—Integrated Framework.*Because of the material weakness described in the preceding paragraph, management believes that, as of December 31, 2007, the company’s internal control over financial reporting was not effective based on those criteria.

In connection with the effectiveness of Section 404 of the Sarbanes Oxley Act as to small business issuers in 2006, the Company plans to hire a financial executive to design effective disclosure controls and procedures.  The Company also plans to expand its Board of Directors, recruit independent directors, form an audit committee comprised solely of independent directors and otherwise remedy the material weaknesses and significant deficiencies in internal control over financial reporting that currently exist. 

(c)  Changes in Internal Control Over Financial Reporting 

There was no change in our internal control over financial reporting identified in the connection with an evaluation thereof that occurred during the last fiscal quarter (or our fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

49

ITEM 9.                              DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 

**Directors and Executive Officers**

Our directors, executive officers, significant employees, significant consultants and control persons as of December 31, 2007 were as follows:  

 

 

 

 

 

 

 

**Name**

  

**Age**

  

**Position**

  

**Position****Since**

James Murphy

 

55

 

Chairman, Chief Executive Officer, President and Director of Datameg Corporation and Director and President of NetSymphony Corporation and QoVox, Inc.

 

Dec. 2005

Leonard Tocci

 

66

 

President, American Marketing and Sales

 

Dec. 7, 2007 (date of acquisition)

John T. Grady Jr.

  

60

  

Director of Datameg Corporation

  

Feb. 2006

Dan Ference

  

59

  

Chief Operating Officer of QoVox Corporation

  

Sept. 2001

Neil R. Gordon

  

58

  

Director

  

Sept. 2005

Each of our directors will hold his directorship until the next annual meeting of our shareholders or until his successor is duly elected and qualified. Mr. Murphy will hold his position as our Chairman, Chief Executive Officer and President until the next annual meeting of the directors or until his successor is duly elected and qualified 

 ***James Murphy, Chairman, Chief Executive Officer, President and Director***

Mr. Murphy has a wide range of business experience including a highly successful partnership in Building #19 Corporation, and served as President of Sportbuild, Inc., a subsidiary of the Building #19 Corporation. Mr. Murphy has also been a successful partner in several other companies.

***Leonard Tocci, President of American Marketing and Sales, Inc.***

 

Len Tocci has a history of success in his 44-year career in the plastics industry.  From 1988 to 1998, he served as president and CEO of Tamor Plastics, where he grew sales from $25 million in 1991 to more than $100 million in 1998. 

 

Following graduation from the University of Bridgeport in 1963, Mr. Tocci began his career by joining Tucker Housewares Corp. where he rose to the position of vice president and director of marketing. Under his direction, Tucker became one of the leading manufacturers of houseware products in the U.S., second only to Rubbermaid.  Tucker’s sales rose from $7.5 million in 1968 to more than $76 million in 1984.  A proven entrepreneur, Mr. Tocci also founded and owned American Hanger, Inc., a manufacturer of plastic hangers, which grew to more than $18 million in annual revenues under his direction.     

 

***John T. Grady Jr., Director of Datameg Corporation***

John T. Grady Jr. is an independent director and a Lehman Bros. Managing Director. Prior to joining Lehman Brothers early in 2004, Mr. Grady was Managing Director of State Street Global Advisors (SSgA) Global Private Client Group and a member of the State Street Corporation Executive Operating Group. He additionally served as Chairman of the Board of Directors of State Street Bank and Trust Company, New Hampshire and Connecticut, and State Street Global Advisors, Florida. From 1994 through 2000, Mr. Grady was SsgA’s Director of Institutional Sales, Client Service, and Consultant Relations. Prior to joining SSgA in 1994, he was Director of Sales for State Streets Personal Trust Division.

 

50

Before joining State Street in 1991, Mr. Grady served as Director of Sales of The Shawmut Bank, N.A. (currently Bank of Americas.) He began his career in financial services as a Senior Executive with C.F.I. Boston, consulting to major corporate and financial service companies worldwide.

Mr. Grady received a Bachelor of Arts degree from Boston University. He is also a graduate of the Belmont Hill School where he continues to serve as a member of the Executive Committee and Investment Committee of the Board of Trustees.

 ***Neil R. Gordon, Director***

Mr. Gordon has served as a director since September 2005. Since 1995, Mr. Gordon has been the President of N.R. Gordon & Company, Inc., a financial consulting services company. From 1981 to 1995, Mr. Gordon was employed by Ekco Group, Inc., a consumer products manufacturer and marketer, serving as its Treasurer from 1987 to 1995. Mr. Gordon began his career with the accounting firm of Haskins & Sells. He serves as an advisor to a number of emerging companies. Mr. Gordon is a director of Avitar, Inc., a company that manufactures and sells an oral based test for drugs of abuse. Mr. Gordon received a Bachelor of Science Degree from Pennsylvania State University. 

 ***Dan Ference, Chief Operating Officer of QoVox Corporation***

Mr. Ference has served as Chief Operating Officer of QoVox Corporation since July 2005. Mr. Ference served as the President and Chief Executive Officer of QoVox from September 2001 to July 2005. Mr. Ference has over 27 years experience in the communications industry with various voice and data products and technologies, including almost 20 years of managing research and development programs and centers. From May 1994 to June 2001, Mr. Ference was vice president of Fujitsu Network Communications Raleigh, North Carolina Development Center, where he was responsible for overall Development Center Operations and the Network Management and related Network Element development programs. Prior to this, his career included serving at Bell Laboratories, ITT Network Systems, CITAlcatel, and Nortel, Inc. Mr. Ference holds a B.S. degree from Penn State University and an M.S. degree from Ohio StateUniversity both in Electrical Engineering. 

 Audit Committee and Audit Committee Financial Expert

We have a standing audit committee comprised of three members of the Board of Directors, two of whom are independent. We do not have an audit committee financial expert. As we generate revenue in the future, we intend to identify and appoint a financial expert to serve on our audit committee. 

Code of Ethics 

Due to a lack of adequate resources, we have not yet adopted a code of ethics. Prior to the adoption of a code of ethics, our management intends to promote honest and ethical conduct, full and fair disclosure in our reports to the SEC, and compliance with applicable governmental laws and regulations. 

ITEM 10.   

EXECUTIVE COMPENSATION

Summary Compensation Table 

The following table sets forth the total compensation paid to or accrued for the years ended December 31, 2007 to our chief executive officer and our other most highly compensated executive officers who were serving as executive officers at the end of our last fiscal year. None of our other executive officers earned more than $100,000 in total annual salary and bonus in the most recently completed fiscal year. 

 

51

 

 

 

**Annual**

**Other**

**Long Term Compensation**

 

 

 

**Compensation**

**Annual**

**Awards**

**Name**

**Position**

**Year**

**Salary**

 

**Bonus**

**Compensation**

**Restricted**

**Underlying**

 

 

 

**($)**

 

**($)**

**($)**

**Stock**

**Options/**

 

 

 

 

 

 

 

**Award(s)**

**SARs**

 

 

 

 

 

 

 

**($)**

**(#)**

James Murphy

President Datameg/ QoVox/ NetSymphony

2007

$150,000 

 

$0 

$0 

$0 

 

0

James Murphy

President Datameg/ QoVox/ NetSymphony

2006

$150,000 

 

$0 

$0 

$0 

 

2,500,000

Leonard Tocci

President American Marketing and Sales, Inc.

2007

$200,000

4

$0

$0

$0

 

0

Dan Ference

COO QoVox

2007

$144,000 

 

$0 

$0 

$0 

 

0

Dan Ference

COO QoVox

2006

$144,000 

 

$0 

$0 

$0 

 

0

Dan Ference

Pres. QoVox

2005

$144,000 

 

$0 

$0 

$0 

 

0

Dan Ference

Pres. QoVox

2004

$18,618 

3

0

$0 

$396,500 

2

2,000,000

(2)                                   During the year ended December 31, 2003, Mr. Ference received cash, stock and stock options as compensation. On November 30, 2003, the Company entered into an informal agreement with Mr. Ference related to past, present and future compensation. Under the terms of the agreement the Company committed to issue 1,770,000 shares of the Company’s common stock as satisfaction for amounts owed to Mr. Ference in unpaid compensation through the year ended December 31, 2003. The Company committed to issue Mr. Ference stock options for 5,500,000 shares of the Company’s common stock at a strike price of $0.15 per share. 1,500,000 vested onNovember 30, 2003 and the balance to vest over the following 36 months or until such time as the Company receives it first customer revenue at which time all unvested options will immediately vest and will expire three years after the date of vesting. During the year ended December 31, 2003 1,611,111 shares vested under this commitment, were valued under SFAS No. 123 using a Black Scholes model and the Company recorded an expense in the amount of $157,889 which was 

 

52

charged to officers’ compensation. During the year ended December 31, 2003, none of the vested stock options were exercised. The Company also increased Mr. Ference’s annual compensation and committed to issue 500,000 shares of the Company’s common stock as bonus compensation for achieving future performance benchmarks. 

During the year ended December 31, 2004, Mr. Ference received cash, stock and stock options as compensation. In March 2004, Mr. Ference met his first performance benchmark and the Company recognized a liability to issue him 250,000 shares of the Company’s unregistered common stock and recorded additional compensation of $42,500. The value of the liability to issue stock was based upon the market value of the stock on the date the performance benchmark was achieved less a 15% discount for lack of marketability. In July, Mr. Ference was granted 2,000,000 shares of the Company’s unregistered common stock as a bonus for his continued diligent efforts on the Company’s behalf. The stock was valued based upon the market value of the stock on the date the performance benchmark was achieved less a 15% discount for lack of marketability and additional compensation was recorded inthe amount of $320,000. In August 2004, Mr. Ference met his second performance benchmark and the Company recognized a liability to issue him 250,000 shares of the Company’s unregistered common stock and recorded additional compensation of $34,000. The value of the liability to issue stock was based upon the market value of the stock on the date the performance benchmark was achieved less a 15% discount for lack of marketability. In August 2004, Mr. Ference was granted stock options for 2,000,000 shares of the Company’s unregistered common stock at a strike price of $0.18 per share. The options were fully vested at the time of the grant and expire three years from the date of the grant. The options were valued under a Black Scholes model and were determined to have a fair value of $194,600 and the value was recorded as additional compensation in 2003. In addition, during 2004 the stock option grant from November 2003, continued to vest and uponreceipt of the Company’s first customer revenue in December 2004 all the previously unvested stock options vested in full and during the year for a total charge to officers expense of $383,311 in additional compensation. 

(3)                                   From the inception of North Electric Company, Inc., significant portions of Mr. Ference’s authorized annual salary were accrued but not paid.  For the years ending December 31, 2003, 2004 and 2005 his authorized annual salary was $136,000, $144,000 and $144,000, respectively. 

(4)                    Only the portion of the Mr. Tocci’s 2007 salary earned subsequent to the date of the American Marketing and Sales, Inc. acquisition, December 7, 2007, has been presented in the consolidated statement of operations.

At December 31, 2007, our executive officers had the following outstanding options:  

 

  

 

 

 

**Percent of total**

 

 

 

 

 

 

**Number of Securities**

 

**Options/SARs**

 

 

 

 

 

 

**Underlying Options/**

 

**Granted to Employees**

 

**Exercise or base**

 

 

**Name**

 

**SARs Granted (#)**

 

**In fiscal year**

 

**Price ($/sh)**

 

**Expiration Date(s)**

James Murphy

 

2,500,000

(1)

- 

 

$0.10 per share 

 

12/28/2010

James Murphy

 

2,500,000

(1)

- 

 

$0.17 per share 

 

12/28/2010

James Murphy

 

1,000,000

(1)

- 

 

$0.05 per share 

 

9/1/2008

James Murphy

 

1,000,000

(1)

- 

 

$0.05 per share 

 

12/28/2010

Daniel Ference

 

6,250,000

(2)

-

 

$0.06 per share 

 

12/31/2010

Neil Gordon

 

750,000

 

-

 

$0.04 per share

 

9/22/2010

 

(1)

All options are fully vested.  

 

53

 

(2)

In January 2007, the Company settled outstanding fees for services rendered during 2006 and prior.  Included in the settlement was the cancellation and replacement of his prior option agreements for the exercise of 5,500,000 and 2,000,000 options at $.15 and $.18, respectively, with the option to purchase 6,250,000 shares at $.06.  Since the circumstances leading to the settlement were in existence at December 31,2007 and related to services rendered during 2006 and prior, the options were considered issued and outstanding at December 31, 2007 and an incremental compensation expense resulting from the cancellation and replacement of the option agreements of $64,800 was recorded during 2006.

Directors Remuneration 

We do not currently compensate our directors for serving on the board of directors, other than through options as discussed above.

ITEM 11.                        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 

The following table sets forth the following information about the beneficial ownership of our common stock as of March 31, 2008 by (i) each person who we know is the beneficial owner of more than 5% of the outstanding shares of common stock, (ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. We are not aware of any beneficial owner of more than 5% of the outstanding common stock. Unless otherwise indicated, the address of each named beneficial owner or executive officer is c/o Datameg Corporation, 2150 S 1300 E, Suite 500, Salt Lake City, UT 84107.

**NAME AND ADDRESS OF**

**DIRECTOR OR EXECUTIVE OFFICER**

 

**AMOUNT AND NATURE OF**

**BENEFICIAL OWNERSHIP**

 

**PERCENT OF CLASS(3)**

 

 

 

 

 

 

 

 

 

 

 

James Murphy 

 

18,560,000

(3) 

 

4.7

%

 

 

Leonard Tocci

 

20,091,666

 

 

5.1

%

 

 

Neil Gordon

 

750,000

(4)

 

.2

%

 

 

John T. Grady, Jr.

 

0

 

 

0

%

 

 

Dan Ference 

 

8,500,000

(5) 

 

2.2

% 

 

 

Directors and Officers as a Group 

 

47,901,666

 

 

12.2

% 

 

 

 (1)   Unless otherwise noted below, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. For purposes of this chart, a person is considered to be the beneficial owner of securities that can be acquired by such person within 60 days after March 31, 2008 through the exercise of warrants or options or the conversion of convertible securities. 

(2)   Each beneficial owner’s, director’s or executive officer’s percentage ownership is determined by assuming that any warrants, options or convertible securities that are held by such person (but not those held by any other person) and which are exercisable within 60 days after March 31, 2008 have been exercised. 

(3)   Including 7,000,000 shares of our common stock that Mr. Murphy has the right to acquire through the exercise of fully vested stock options. 

 (4) Including 750,000 shares of our common stock that Mr. Gordon has the right to acquire through the exercise of fully vested stock options.

(5)  Including 6,250,000 shares of our common stock that Mr. Ference has the right to acquire through the exercise of fully vested stock options.

ITEM 12.   

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

54

The Company’s officers and stockholders regularly advance the Company money or make purchases in the Company’s behalf. As of December 31, 2007 and December 31, 2006, the Company was indebted to officers and stockholders in the amount of $28,560 and $57,510 respectively.  This is exclusive of amounts included in accrued compensation.  Interest was not imputed on these advances due to immaterial impact on the financials, and the amounts will be repaid as cash flows allow.

 ITEM 13.  EXHIBITS

**EXHIBIT INDEX**

Exhibit

 

No.

Description

2.10

Agreement and Plan of Merger between Datameg Corp., a New York corporation ("Datameg NY"), and Datameg Corporation, a Delaware corporation, dated April 27, 2005.(1)

3.10

Certificate of Incorporation of Datameg Corporation, a Delaware corporation, dated April 27, 2005.(1)

3.20

Bylaws of Datameg Corporation, a Delaware corporation, effective as of April 27, 2005.(1)

5.10

Opinion of Duane Morris LLP as to legality of securities being registered.

10.10

Engagement Agreement between Datameg Corporation and 350 Group, LLC, dated April 28, 2005.(1)

10.20

Form of Convertible Promissory Notes issued in May and June 2004, together with table identifying issuance date, noteholder, amount and conversion price.(2)

10.30

Form of Subscription Agreement, Individual Investor Questionnaire, Sample Convertible Promissory Note and Sample Warrant for Common Stock.(3)

10.40

Joint Sales and Marketing Agreement, dated as of July 16, 2004, by and between North Electric Company and Tekno Telecom LLC.(4)

10.50

Exclusive Distribution Agreement, dated January 1, 2004, by and between North Electric Company, Inc. and International Network Technology, Ltd.(5)

10.60

Release dated as of April 1, 2005, by an among Datameg NY and Hickey Hill Partners, LLC.(6)

10.70

Subscription Agreement, dated March 5, 2004, by and between Datameg and Mei Chung Tang Lee.(2)

10.80

Consulting Agreement, dated as of August 6, 2004, by and between Datameg NY and Mark McGrath.(6) (*)

10.90

Option Agreement between Datameg NY and Mark McGrath, dated as of April 17, 2005.(1) (*)

10.10

Option Agreement between Datameg Corporation and Mark P. McGrath, dated as of July 25, 2005.(7) (*)

10.11

Management Consultant Agreement between William J. Mortimer and QoVox Corporation, dated July 18, 2005.(7) (*)

10.12

Restricted Stock Agreement between William J. Mortimer and Datameg Corporation, dated as of July 25, 2005.(7) (*)

10.13

Letter Agreement by and between Neil R. Gordon and Datameg Corporation dated September 22, 2005 (8) (*)

10.14

Option Agreement by and between Neil R. Gordon and Datameg Corporation dated September 22, 2005 (8) (*)

10.15

Employment Agreement between Dan Ference and QoVox Corporation, dated August 19, 2005.(3) (*)

 

55

 

10.16

Settlement Agreement and Mutual Release, dated as of February 12, 2004, by and between Datameg NY and Rex Hestor.(9) (*)

10.17

Option Agreement by and between Datameg NY and Rex Hestor, dated as of January 2004.(3) (*)

10.18

Stock Lock-up Agreement by and between Datameg NY and Rex Hestor, dated as of January 2004.(9) (*)

10.19

Letter Agreement by and between Joshua E. Davidson and Datameg Corporation, dated as of July 1, 2005.(10) (*)

10.20

Option Agreement between Datameg Corporation and Joshua E. Davidson, dated as of July 25, 2005.(7) (*)

10.21

Agreement dated as of March 22, 2005, by and between Datameg NY and Kanti Purohit.(6) (*)

10.22

Agreement and Settlement, dated as of March 22, 2005, by and between Datameg NY and Kanti Purohit.(6) (*)

10.23

Consulting Agreement, dated as of July 1, 2004, by and between Datameg NY and James Murphy.(4) (*)

10.24

Option Agreement, dated January 1, 2004, by and between Datameg NY and Andrew Benson.(9) (*)

10.25

Option Agreement between Datameg NY and Andrew Benson, dated April 17, 2005.(1) (*)

10.26

Mutual General Release between Andrew Benson and Datameg NY dated April 27, 2005.(1) (*)

10.27

Resignation by Andrew Benson from directorship of Datameg Corporation, a Delaware corporation, dated April 29, 2005.(1) (*)

10.28

Consulting Agreement between Datameg Corporation, a Delaware corporation, and Andrew Benson, dated as of May 1, 2005.(1) (*)

10.29

Resignation by William J. Mortimer as General Manager of QoVox, Inc.(11)

10.30

Appointment of James Murphy as its Chief Executive Officer, President and Chairman of the Board of Directors.(12)

10.31

Appointment of Lehman Bros. Managing Director John T. Grady Jr. to Board of Directors.(13)

10.32

Appointment of Bob Nelson as Vice President, Worldwide Sales, for QoVox.(14)

10.33

Appointment of Michael West as Senior Vice President, National Accounts, for QoVox.(15)

10.34

Benson And Gordon Compensation Amendments.(16)

10.35

Director Mark P. McGrath resignation. (17)

10.36

Investment banker Byron J. Collier appointed to the Advisory Board (18)

10.37

Director William J. Mortimer receives 2 million Datameg common shares, returns 10 million under RSA (19)

10.38

Benson Amendment And Utah Move (20)

10.39

Former Director and Chief Executive Mark P. McGrath canceled his option agreement for 10 million shares. (21)

10.40

Changes in Registrant’s Certifying Accountant (22)

10.41

QoVox received its 4th purchase order from the Time Warner Cable Raleigh Division. (23)

10.42

Patrick J. Glennon was appointed to the Company’s advisory board. (24)

10.43

Dr. Jim DeCoste was appointed to the Company’s advisory board. (25)

10.44

Ragusa consulting services retained as Chief Marketing Officer for QoVox.(26)

10.45

FeatureTel enters 60 day trial of QoVox product. (27)

10.46

Lingle and Stewart become President and Chief Techology Officer of QoVox. (28)

10.47

Shireman becomes VP Sales of QoVox. (29)

10.48

Non-Reliance on Previously Filed Audited Report (30)

10.49

Amendment to Notice of Non-Reliance on Previously Filed Audited Report (31)

10.50

Entry into a Material Definitive Agreement to Acquire Computer Ctr.Com, Inc.(32)

10.51

Appointment of Winthrop Sargent as contracted Vice President of Finance. (33)

10.52

Announcement of acquisition of American Marketing & Sales, Inc. (34)

10.53

Announcement of completion of field audits for American Marketing & Sales, Inc. and Computer Center.Com (35)

10.54

Announcement of closing of American Marketing & Sales, Inc. acquisition (36)

21.10

Subsidiaries of the Registrant.(3)

99.10

Exhibit of Unregistered Sales of Securities.(7)

99.20

Press Release dated September 1, 2005.(3)

(1)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on May 4, 2005.

(2)

Incorporated by reference to the Form SB-2/A filed by Datameg NY on June 14, 2004.

(3)

Incorporated by reference to the Form SB-2 filed by Datameg Corporation on September 1, 2005.

(4)

Incorporated by reference to the Quarterly Report on Form 10-QSB/A filed by Datameg NY on November 26, 2004.

(5)

Incorporated by reference to the Annual Report on Form 10-KSB filed by Datameg NY on April 14, 2004.

(6)

Incorporated by reference to the Annual Report on Form 10-KSB/A filed by Datameg NY on April 20, 2005. 

(7)

Incorporated by reference to the Quarterly Report on Form 10-QSB/A filed by Datameg Corporation on August 29, 2005. 

(8)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on September 22, 2005. 

(9)

Incorporated by reference to the Form SB-2/A filed by Datameg NY on February 27, 2004. 

(10)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on July 26, 2005.

(11)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on December 14, 2005.

(12)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on January 17, 2006.

(13)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on February 23, 2006.

(14)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on March 1, 2006.

(15)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on March 14, 2006.

(16)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on April 20, 2006.

(17)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on June 7, 2006.

(18)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on July 12, 2006.

(19)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on July 14, 2006.

(20)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on July 31, 2006.

(21)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on August 4, 2006

(22)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on August 7, 2006

(23)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on September 5, 2006

(24)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on September 19, 2006

(25)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on September 26, 2006

(26)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on November 17, 2006

(27)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on December 20, 2006

(28)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on January 24, 2007

(29)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on February 15, 2007

(30)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on April 18, 2007

(31)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on May 24, 2007

(32)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on June 14, 2007

(33)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on August 8, 2007

(34)

Incorporated by reference to the Current Report on Form 8-Kfiled by Datameg Corporation on August 17, 2007

(35)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on October 31, 2007

(36)

Incorporated by reference to the Current Report on Form 8-K filed by Datameg Corporation on December 13, 2007

(*)

Management contract or compensatory plan. 

Exhibits to Form 10-KSB

31.1Certification of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 302 of the SarbanesOxley Act of 2002. 

32.1 Certification of the Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the SarbanesOxley Act of 2002. 

ITEM 14.   

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 
 
**Fiscal Year**

 

 

 

**Audit**

 

 

 

**All**

 

 

 

 

 
**Ended**

 

**Audit**

 

**Related**

 

**Tax**

 

**Other**

 

**Total**

 

 

 
**December** **31,**

 

**Fees (1)**

 

**Fees (2)**

 

**Fees (3)**

 

**Fees (4)**

 

**Fees**

 

 

 
2006 

 

$ 

81,000

 

$ 

0 

 

$ 

5,000 

 

$ 

0 

 

$ 

86,000

 

 

 
2007

 

$ 

92,000

 

$ 

0 

 

$ 

5,000

 

$ 

0 

 

$ 

97,000

 

 

(1)           The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements and review of the registrants financial statements included in the registrants Form 10-Q (17 CFR 249.308a) or 10-QSB (17 CFR 249.308b) or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. 

(2)           The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the registrants financial statements and are not reported under Item 9(e)1 of Schedule 14A. 

(3)           The aggregate fees billed in the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. All the fees billed under this item in 2007 and 2006 were for tax compliance services. 

(4)           The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in Items 9(e)1 through 9(e)3 of Schedule 14A (See (1), (2), and (3) above). 

Audit Committees PreApproval Policies and Procedures 

Our president preapproves all professional services and fees provided by our principal accountants. During 2007 and 2006, our sole director approved only professional services rendered by our principal accountants for the audit of our annual financial statements and review of our financial statements included in our Forms 10-QSB or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years and tax compliance. 

SIGNATURES 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DataMEG Corp.

(Registrant)

Date:

March 31, 2008

By:

/s/ James Murphy

James Murphy, Chairman of the Board of Directors and Sole Principal Financial Officer

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 

 

Date:

March 31, 2008

By:

/s/ James Murphy

James Murphy, Chairman of the Board of Directors and Sole Principal Financial Officer

 

 

56

 

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