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, 2006 

[  ]**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**84107
(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) 

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 [ ]

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.  [ ]

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

State the issuers revenues for the most recent fiscal year: $43,244 

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.) $ $14,203,305 as of April 30, 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 [ ]No [ ]
(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 359,394,435 shares of common stock outstanding as of December 31, 2006 and 361,509,315 shares of common stock outstanding as of April 30, 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 [  ]No [X]
PART I 

ITEM 1.                              DESCRIPTION OF BUSINESS 
Overview 

Datameg is a holding company and through its subsidiaries is a development stage technology company focused on providing service assurance systems products and services for the 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. The Company operates under the name of Datameg Corporation and trades under the symbol DTMG on the OTCBB.

Through our wholly owned subsidiary, QoVox Corporation, 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. 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 detecting problems and resolving 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. 

Datameg Corporation is a 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 Company subsequently changed its name to Datameg Corporation and is the successor in business operations of the Virginia Datameg and New York Datameg. 

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. 

On July 1, 2005, our wholly owned subsidiary, QoVox Corporation, filed Articles of Amendment to its Articles of Incorporation, changing its corporate name from North Electric Company, Inc. to QoVox Corporation. The new corporate name better reflects QoVox’s core business of helping service providers assure the quality of Voice over Internet Protocol (VoIP) and other next generation IP based services. 

Datameg Corporation has two subsidiaries: CASCommunications, Inc., a Florida corporation, of which the Company owns 40%, and QoVox Corporation, a North Carolina corporation that the Company wholly owns. 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 are a development stage enterprise. CASCommunications is an inactive company. Datameg does not expect CASCommunications to generate any revenue in 2007. QoVox focuses on becoming a provider of network assurance products and services. QoVox’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. QoVox has developed their Network Assurance 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. 

As of April 30, 2007, we had a total of four fulltime employees and three part time independent contractors or consultants. Of these, six individuals serve in administrative and senior management capacities at our subsidiary QoVox, Inc. The balance is comprised of one fulltime employee, our Datameg CEO. 

Recent Developments 

On February 16, 2006 the Company announced that it appointed Lehman Bros. Managing Director John T. Grady Jr. to its Board of Directors.

On Feb. 27, 2006, the Company announced that it has appointed Robert B. Nelson as Vice President, Worldwide Sales, for its QoVox subsidiary. Reporting to Jim Murphy, Chairman of Datameg, Nelson will be responsible for sales and marketing of QoVox's VoIP quality assurance technology suite to telecommunications service providers and enterprise customers. 

On March 9, 2006, the Company entered into a contract with Robert B. Nelson appointing him Vice President, Worldwide Sales, for QoVox, Inc. Mr. Nelson’s compensation is comprised of a base salary with incentives for reaching specific gross sales and field trial goals; options to purchase 50,000 shares of the Company’s unregistered stock. The stock options to purchase 50,000 shares agreement had not been issued as of December 31, 2006.

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 and 500,000 shares due upon the Company’s receipt of new revenue. The initial stock grant of 500,000 shares has been issued.

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 $87,500 of previously accrued liabilities payable in 6 equal monthly installments in full satisfaction of amounts due under the Sales Representation Agreement that were included with accounts payable and accrued expenses as of December 31, 2005.****
On April 20, 2006, Former Director and Chief Executive Andrew Benson canceled his option agreement dated January 1, 2004 for 5 million common shares and forgave any and all cash owed to him under his consulting agreement and otherwise by Datameg Corporation in exchange for Datameg Corporation amending the exercise price from $.17 to $.10 for his remaining option agreement dated April 17, 2005 for 10 million shares. The Board of Directors so agreed.

On April 20, 2006, Director Neil Gordon reduced his option shares from 1,500,000 common shares at an exercise price of $.08 per share to 750,000 common shares at an exercise price of $.04 per share under the terms of his option agreement dated September 22, 2005 for his service as a director. The Board of Directors so agreed.****
On June 23, 2006, the Board of Directors of Datameg Corporation and former Director William J. Mortimer agreed that he shall receive 2 million Datameg common shares in full satisfaction of his compensation earned under his Restricted Stock Agreement. As of September 30, 2006, a balance of 10 million of his previously issued 12 million common shares was returned to the authorized and unissued stock of Datameg Corporation .

On July 14, 2006, the foregoing agreements were amended: 
The option agreement dated January 1, 2004 granting Mr. Benson the right to exercise 5 million options to purchase a like number of Datameg common shares is revived in all terms and conditions, except that the option exercise price is reduced from $.20 per share to $.05 per share.
The option agreement dated April 17, 2005 granting Andrew Benson the right to exercise 10 million options to purchase a like number of Datameg common shares is canceled and said option agreement shall be destroyed by Datameg Corporation. The Board of Directors so agreed.

On July 12, 2006, Investment banker Byron J. Collier was appointed to the Advisory Board of Datameg Corporation by CEO James Murphy. 

On July 21, 2006, the Company (Obligor) signed a settlement and mutual release and promissory note with the law firm of Gibson, Dunn & Crutcher (Holder). Obligor shall pay Holder the principal sum of $155,000 plus interest at the Stated Interest Rate as follows: $10,000.00 on or before December 1, 2006, $15,000.00 on or before March 15, 2007, $10,000.00 on or before June 15, 2007, $10,000.00 on or before September 15, 2007, $10,000.00 on or before December 15, 2007, $10,000.00 on or before March 15, 2008, $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. Notwithstanding the payment schedule in the preceding sentence, Holder agrees to waive all accrued and unpaid interest if Obligor pays the sum of $155,000.00 by December 1, 2007. The balance on the promissory note accrues interest at a rate of 6% per annum. 

Having received and considered a report by outside legal counsel on July 31, 2006, the Board of Directors of Datameg Corporation****directed outside legal counsel to affect the move of the principal office of the Company from Massachusetts to Utah on or before September 29, 2006. The move took place effective August 22, 2006 and new Company contact details are in the heading of this report.

On August 2, 2006, Former Director and Chief Executive Mark P. McGrath canceled his option agreement dated April 17, 2005 for 5 million shares.

On August 3, 2006, the Company dismissed Fitzgerald, Snyder & Co., P.C. ("Fitzgerald, Snyder") as the Company’s independent registered public accounting firm and engaged Child, Van Wagoner & Bradshaw, PLLC ("CVB") as its new independent registered public accounting firm for FY 2006.

On November 16, 2006, QoVox Corporation, a wholly owned subsidiary of Datameg Corporation, announced  that it had retained Mark Ragusa to provide Sales, Business Development and Chief Marketing Officer services.

Products in Development 

Our product and product in development is the Network Assurance System. 

Network Assurance System 

From the middle of 2002 to now, our primary development focus has been on the Network Assurance System. We are designing this product to ensure the integrity and full functionality of communications networks and to quickly and automatically determine if the networks are meeting the quality and service expectations of customers. We believe that this product will enable communications network operators and service providers to quickly, efficiently and automatically determine if their networks are meeting their quality and service expectations through active testing and monitoring, automatic detection and location of errors and confirmation that any corrective actions have been successful. We are accepting customer orders that can be delivered 30 days after the order is received. 

Description of Primary Industry 

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. QoVox 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 current and 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: 

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 test equipment 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 

QoVox is now the only operating unit that is performing research and development and through which we conduct most of our business. For the years ended December 31, 2006 and 2005, our research and development expenses were approximately $250,000 and $900,000, respectively. 

Business Overview of CASCommunications 

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 2007. 

For the years ended December 31, 2004 and 2005, research and development expenses related to the development of CASCommunications technology were approximately $0 (zero) and $0 (zero), respectively. 

 

ITEM 2.                              DESCRIPTION OF PROPERTY 
Datameg leases for its wholly owned subsidiary, QoVox, approximately 2,600 square feet of space at One Springfield Center, 6131 Falls of the Neuse, Raleigh, North Carolina 27609. The term of the lease is for 37 months beginning December 1, 2004 and expiring January 31, 2008. The monthly rent is approximately $5,000. The property is being used to market and develop QoVox’s products. Our management believes that our insurance coverage is adequate. 

ITEM 3.                              LEGAL PROCEEDINGS 
During 2002, the Company entered into several stock purchase agreements with Hickey Hill Partners LLC and Miami Associates Investors, LLC ("Investors") to purchase shares of the Company’s common stock. The Company discounted the purchase price based upon market conditions at the time of issuance of the stock and the immediately following several days. The Company held advances in the amount of $35,000 for which stock was not issued. The Company believed that the investors defaulted on the stock purchase agreements and the investors believed that the Company defaulted on the stock purchase agreements. Hickey Hill Partners LLC filed a lawsuit against the Company and the Company’s former Chairman in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida. On April 3, 2003, the court issued a default judgment against the Company and its former Chairman in the amount of $64,352 that bears interest at the rate of 6% a year and prejudgment interest of $1,716. The Company recorded a liability for the judgment and additional accrued interest at December 31, 2003 in the amount of $68,945 that is included in accounts payable and accrued expenses. In March 2005, the Company entered into an agreement to pay $45,000 to Hickey Hill Partners, LLC by May 15, 2005 in full satisfaction of all outstanding, current and pending claims regarding this judgment. The balance was paid in full on May 25, 2006, resulting in a $0 liability as of December 31, 2006. 

Miami Associates Investors, LLC also filed a lawsuit 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 that is recorded in accounts payable and accrued expenses. 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, 2006, the balance remaining was approximately $34,000. The company may seek 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.

On February 9, 2007, QoVox filed suit the United States District Court, East District of North Carolina, Western Division, No. 5:07CV00046BO  against its former CEO 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, violation of the North Carolina Trade Secrets Act.  Defendants have retained counsel and appeared and their responses were due on April 13, 2007.

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 and additional $21,928.56.  Datameg contends Merrill has been paid in full and that it is further entitled to reimbursement of $10,179 for over billing.

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 $29,694.97.  Datameg outside legal counsel has requested additional documentation necessary to evaluate Donnelley claim. 

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.  Outside counsel is evaluating the complaint.

 

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 2003 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 
  
January 1, 2004 through March 31, 2004 
 
$ 
0.14
 
$ 
0.29
April 1, 2004 through June 30, 2004 
 
$ 
0.06
 
$ 
0.19
July 1, 2004 through September 30, 2004 
 
$ 
0.09
 
$ 
0.20
October 1, 2004 through December 31, 2004 
$ 
0.07
$ 
0.11
January 1, 2005 through March 31, 2005
 
$
0.05
 
$
0.15
April 1, 2005 through June 30, 2005
 
$
0.06
 
$
0.13
July 1, 2005 through September 30, 2005
 
$
0.06
 
$
0.14
October 1, 2005 through December 31, 2005 
 
$ 
0.04
 
$ 
0.08
January 1, 2006 through March 31, 2006
 
$
0.03
 
$
0.08
April 1, 2006 through June 30, 2006
 
$
0.02
 
$
0.07
July 1, 2006 through September 30, 2006
 
$
0.01
 
$
0.03
October 1, 2006 through December 31, 2006 
 
$ 
0.04
 
$ 
0.08
 

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. 

We issued a 10% stock dividend on June 6, 2003 to shareholders of record on January 8, 2003. 

Holders of Record of Common Stock 

As of April 30, 2007, we had outstanding 361,509,315 shares of our common stock and approximately 544 holders of record. 

Equity Compensation Plan Information 

In addition, we have granted options and warrants to employees and consultants to purchase up to 150,210,430 shares of our common stock at prices ranging from $0.01 to $5 per share from inception (January 13, 1999) through December 31, 2006. As of December 31, 2006, options and warrants which would permit the purchase of 10,080,238 shares were exercised and options and warrants for which would permit the purchase of 37,390,949 shares expired or were terminated. The remaining options and warrants to purchase up to 102,739,243 shares expire between July2007 and January 2013. 

The following table shows the aggregate amount of securities authorized for issuance under all equity compensation plans as of December 31, 2006: 

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 
Equity compensation plans not approved by security holders 
54,043,602
$ 
0.14
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
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: 

Purchased
Investor
Amount
Share Price
Number of Shares
Strike Price
Warrants
Expiration
10/5/2006
Christiane C. Hermstedt
$10,000
0.020
500,000
0.040
125,000
10/5/2008
10/11/2006
Christiane C. Hermstedt
$10,000
0.020
500,000
0.040
125,000
10/11/2008
10/12/2006
Patricia J. Thompson
$5,000
0.020
250,000
0.040
62,500
10/12/2008
10/16/2006
Sharon Judith Reibman
$10,000
0.020
500,000
0.040
125,000
10/16/2008
10/16/2006
The Harriet Reibman Living Trust
$10,000
0.020
500,000
0.040
125,000
10/16/2008
10/17/2006
Paul Mikulas
$5,000
0.020
250,000
0.040
62,500
10/17/2008
10/17/2006
Wanita J. Schrag
$5,000
0.020
250,000
0.040
62,500
10/17/2008
10/17/2006
Chaim Slomiuc
$10,000
0.020
500,000
10/18/2006
Patricia J. Thompson
$5,000
0.025
200,000
10/19/2006
John Dexter
$5,000
0.025
200,000
10/20/2006
W. Kevin King
$10,000
0.030
333,333
10/20/2006
Richard Feaster
$25,000
0.025
1,000,000
10/4/2006
Rajaraman Krishna (1)
$2,000
0.010
200,000
11/11/2006
Helga Revenaugh
$5,000
0.030
166,666
12/1/2006
Lisa M. Johnson-Potts
$3,000
0.030
100,000
11/30/2006
Dorothy Sawarin
$10,000
0.035
285,714
12/5/2006
Lois J. Davis
$3,000
0.030
100,000
12/14/2006
Patricia M. Rados
$3,000
0.040
75,000
12/21/2006
Paul Gallagher
$60,000
0.050
1,200,000
 
Totals
$196,000
7,110,713
687,500
(1)  Exercise of options

During the year ended December 31, 2006 and the first quarter of 2007, we issued approximately 33,938,323 shares of our common stock in exempt transactions entered into during 2006. In consideration, we have received approximately $859,000 in cash, and services with a fair value of $235,500. These issuances were made in reliance upon the exemptions from registration set forth in Section 4(2) of the Securities Act and the transaction did not involve a distribution or public offering. 

Issuance of Convertible Notes 

In the period April through December 2004, the Company entered into agreements to issue convertible notes with approximately fifty (50) investors in the aggregate amount of $1,088,995. The convertible notes accrue simple interest at an annual rate of 1.47% and convert any time between issuance and six months of the original issuance date of the notes into an aggregate of approximately 23,392,000 shares. The notes automatically converted to shares on the respective conversion dates reducing the convertible promissory note balance to a net of $13,660 at December 31, 2004 and increasing the liability to issue stock account by $1,042,245. A beneficial conversion value was recognized as debt discount and paid in capital was added in the amount of $855,328. For the year ended December 31, 2004, the discount amortized to interest expense was approximately $847,000. For the twelve months ended December 31, 2005, the discount amortized to interest expense was approximately $8,000. By December 31, 2006 all shares due to conversion of the 2004 notes had been issued. 

In the period January through December 2005, the Company entered into agreements to issue convertible notes with detachable warrants with approximately one hundred twenty two (122) investors in the amount of $1,647,507. The convertible notes accrue simple interest at an annual rate of either 1.47% or 5.0% and convert any time between three and six months of the date of the agreement or upon the automatic conversion date, which ever comes first. The Company elected to allow certain investors to accelerate the conversions. The notes converted into 30,494,538 shares. During 2005, we issued 25,542,871 of these shares pursuant to conversions under these agreements. The balance of 4,951,667 shares was issued in the first and second quarters of 2006. The detachable warrants issued during 2005 were valued under a Black Scholes model and approximately $725,000 was recorded and added to paid in capital.  A beneficial conversion value of approximately $1,300,000 was recognized as a debt discount and added to paid in capital and amortized to interest expense during 2005. 

ITEM 6.                              PLAN OF OPERATION 
Datameg is a holding company, but through its subsidiary, Qovox, is a development stage 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, QoVox Corporation, 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. 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 interworking 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 IDG, 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 SBC, Verizon, Bellsouth, Qwest, Sprint, AT&T, 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 interworking 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 QoVox targets. 

We believe the QoVox 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 expect 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
 
  
 
Convert our current trials into service engagements.
 
We plan to leverage our existing 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. 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*
QoVox’s *Network Assurance 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 the behalf of our customers, or our customer can operate the system. 

We commenced sales of the *Network Assurance System*in the second quarter of 2004, shipped the first evaluation system on July 29, 2004, and received our first revenue in December 2004. 

We have been conducting one field trial with Time Warner Cable, a large cable operator and another with Sprint, a large telecom operator. Our products are installed in multiple points throughout their networks and we have been actively characterizing the connectivity and measuring the voice quality across portions of these networks. These field trials have convinced us we have valuable solutions, however we have not been able to close these trials for revenue. The two main obstacles to recognizing revenue in these trials are lack of IP tests and insufficient server based correlation and analytics of the measurement results. 

The objectives for 2007 address these shortcomings and will enable us to provide industry-leading solutions in TDM and IP services testing.

QoVox has its office in Raleigh, North Carolina. At present, QoVox has a vice-president of sales and is pursuing 1 additional in-house sales representative and is in discussion with several of the largest distributors in North America.. 
***Business Strategy and Direction*
QoVox intends to develop and sell systems products and services. 

QoVox intends to continue to target telecom operators and cable operators. 

QoVox plans to develop its business first in the U.S. and Canada. Asian and European markets will be addressed in 2008. 

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

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

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

QoVox 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. To enable QoVox to become the premier service assurance provider, 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 2007.
- IP Measurement technology: QoVox now has as employees IP measurement experts that have developed award winning products that have been very successful commercially. This team will introduce IP measurement solutions in 2007 that will be the most advanced in the industry.
- Leverage Existing products: The value of the current 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 providers network. Our products check that calls can be connected properly across these network and measure the voice quality between various points in the network. 
***Services Offering*
At present, QoVox operates a Network Operations Center in Raleigh, NC, for a small number of network operators. 

QoVox plans to aggressively convert our existing sales opportunities to services offerings in 2007. 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 QoVox 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*
QoVox plans to develop a global sales and support channel, comprised of: 

  
 
direct QoVox sales representatives, sales engineers and support specialists; 
 
  
 
High end distributors that offer system integration in this market 
 
  
 
a small number of operational support system vendors, equipment manufacturers and system integrators who will provide referrals or resell the QoVox products and services. 
 
In the next three years, QoVox expects to fully develop the sales and support channel: 

  
 
in the U.S. and Canada, covering Tier 1 and Tier 2 wireline and mobile telecom operators and the Top 25 cable operators; 
 
  
 
in western and eastern Europe; and 
 
  
 
in Japan, China, Korea and India. 
 
QoVox plans to actively participate in international and regional industry forums and standardization bodies to build and earn a reputation as an innovative industry leader. 

QoVox 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 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:
- 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. QoVox’s solutions will be software based to overcome these challenges
- 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 QoVox will provide passive analysis in addition to its existing active capabilities.
- 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. QoVox is currently adding signaling capabilities 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 2007. 

Liquidity and Capital Resources 

Current cash on hand and projected cash on hand is inadequate to execute our plan of operation. We 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. Funding to support both short and midterm requirements for product development and launch will 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 2007. However, until the Company’s products generate significant revenue from a customer, future cash flows cannot be meaningfully projected.

In the period January through December 2006, the Company entered into private placement agreements to issue stock, and in some case warrants, with approximately sixty (60) investors in the amount of $859,000 These funds were used to fund operations during 2006.  The warrants were valued using the Black Scholes model and an amount of $80,000 was added to paid in capital.

Since December 31, 2006 we issued the following subscription agreements and associated warrants (if any):

Purchased
Investor                      
Amount
Share Price
Common Shares
1/22/2007*********************************