SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 0-12493
DATAMEG CORP.
(Exact Name of Registrant As Specified In Its Charter)
NEW YORK 13-3134389
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3148 Dumbarton Street, N.W., Washington, D.C. 20007
(Address of Principal Office) Zip Code
(202) 965-2448
(Registrant's Telephone Number, Including Area Code)
N/A
Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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
___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by
a court. Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common stock par value $0.01 per share
33,245,634 shares outstanding at September 30, 2000
DATAMEG CORP.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Balance Sheet - December 31, 1999
and September 30, 2000 (unaudited) 1
Consolidated Statement of Operation
Three month periods ended September 30, 1999 and
September 30, 2000 (unaudited); and Nine month periods
ended September 30, 1999 and September 30, 2000 (unaudited)
Statements of Cash Flows -
Nine month periods ended September 30, 1999 and
September 30, 2000 (unaudited)
Notes to Financial Statement (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 3. Exhibits and Reports on Form 8-K
SIGNATURES
DataMEG Corp. and Subsidiary
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
September 30,
December 31, 2000
1999 (unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 1,030 $ 1,030
Accounts receivable 0 5,000
Employee advances 267 267
Prepaid expenses 56,667 0
Due from stockholder and officer 25,700 0
Total current assets 83,664 6,297
PROPERTY AND EQUIPMENT, net 46,387 46,159
OTHER ASSETS:
Intangible assets 91,631 91,631
Deposits 3,714 3,714
Total other assets 95,345 95,345
$ 225,396 $ 147,801
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Capital lease obligation $ 9,339 $ 18,788
Accounts payable and accrued expenses 76,285 101,198
Due to stockholders and officers 57,593 462,851
Convertible subordinated debentures 0 139,990
Total current liabilities 143,217 722,827
LONG TERM LIABILITIES:
Liability for stock to be issued 0 1,893,375
Total liabilities 143,217 2,616,202
COMMITMENTS AND CONTINGENCIES 0 0
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued or outstanding 0 0
Common stock, $.01 par value; 75,000,000 shares
authorized 29,653,843 and 33,245,634 shares issued and out-
standing at December 31, 1999 and September 30, 2000, respectively 102,736 332,456
Common stock subscriptions receivable (31,300) (757,550)
Additional paid-in capital 1,057,671 2,340,702
Accumulated deficit (1,046,928) (4,384,009)
Total stockholders' equity (deficit) 82,179 (2,468,401)
$ 225,396 $ 147,801
</TABLE>
The accompanying notes are an integral part of these financial statements.
DataMEG Corp. and Subsidiary
(A Development State Enterprise)
Statements of Operations
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the three For the three For the period
Months ended Months ended from inception
September 30, September 30, (January 13, 1999)
1999 2000 to September 30, 1999
(Unaudited) (unaudited) (unaudited)
REVENUE $ 0 $ 0 $ 0
COST OF REVENUES 0 0 0
Gross profit 0 0 0
OPERATING EXPENSES 227,864 2,603,968 543,981
Loss from operations (227,864) (2,603,968) (543,981)
OTHER INCOME (EXPENSES):
Realized gains on sale of securities 0 0 0
Total other (income) expenses 0 0 0
NET LOSS BEFORE BENEFIT FOR
INCOME TAXES (227,864) (2,603,968) (543,981)
Benefit for income taxes 0 0 0
NET LOSS $ (227,864) $ (2,603,968) $ (543,981)
Net loss per common share
(basic and diluted) $ (0.01) $ (0.08) $ (0.02)
Weighted average number of common
Shares outstanding 28,873,410 31,473,130 28,360,638
</TABLE>
DataMEG Corp. and Subsidiary
(A Development State Enterprise)
Statements of Operations (continued)
<TABLE>
<CAPTION>
<S> <C> <C>
For the nine Cumulative
months ended from inception
September 30, (January 13, 1999)
2000 to September 30, 2000
(unaudited) (unaudited)
REVENUE $ 0 0
COST OF REVENUES 0 0
Gross profit 0 0
OPERATING EXPENSES 3,337,080 4,392,539
Loss from operations (3,337,080) (4,392,539)
OTHER INCOME (EXPENSES):
Realized gains on sale of securities 0 8,530
Total other (income) expenses 0 8,530
NET LOSS BEFORE BENEFIT FOR
INCOME TAXES (3,337,080) (4,384,009)
Benefit for income taxes 0 0
NET LOSS $ (3,337,080) (4,384,009)
Net loss per common share
(basic and diluted) $ (0.11) (0.15)
Weighted average number of common
Shares outstanding 30,288,822 29,695,485
</TABLE>
The accompanying notes are an integral part of these financial statements.
DataMEG Corp.and Subsidiary
(A Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the period Cummulative
from inception For the nine from inception
(January 13, 1999) months ended (January 13,
to Septemeber 30, September 30, 1999) to
1999 2000 September 30, 2000
(unaudited) (unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (543,981) $ (3,337,080) $ (4,384,009)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 7,931 16,152 25,152
Stock issued, or to be issued, in lieu of
cash for professional services 0 1,943,873 2,056,373
Realized gains on sales of investments 0 0 (8,530)
Changes in assets and liabilities
Affecting operations:
Accounts receivable 0 (5,000) (5,000)
Employee advances (267) 0 (267)
Prepaid expenses (7,033) 56,667 0
Due from stockholder and officer 0 25,700 0
Accounts payable and accrued
Expenses 0 24,913 101,198
Due to stockholders and officers 51,701 405,258 462,851
Net cash used in operating
activities (491,649) (869,517) (1,752,232)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,030) 0 (30,222)
Payments for intangible assets (57,121) 0 (91,631)
Payments for security deposits 0 0 (3,714)
Purchases of investments (20,000) 0 (20,000)
Sales of investments 7,000 0 28,530
Net cash used in investing
activities (86,151) 0 (117,037)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (4,794) (6,475) (22,300)
Net proceeds from issuance of stock 631,541 736,002 1,752,609
Proceeds from issuance of debentures 0 139,990 139,990
Net cash provided by financing
activities 626,747 869,517 1,870,299
NET CHANGE IN CASH 48,947 0 1,030
CASH, BEGINNING OF PERIOD 0 1,030 0
CASH, END OF PERIOD $ 48,947 $ 1,030 $ 1,030
SUPPLEMENTAL DISCLOSURE OF NON0CASH INVESTING
AND FINANCING ACTIVITIES:
Financing of property and equipment
with capital lease $ 0 $ 15,924 $ 41,088
Issuance of stock in exchange for notes
receivable $ 0 $ 726,250 $ 757,550
</TABLE>
The accompanying notes are an integral part of these financial statements.
A. BASIS OF PRESENTATION AND ORGANIZATION
The accompanying unaudited financial statements have been prepared in
accodance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. The balance sheet at December 31, 1999 has een derived
from the audited financial statements at that date. These financial
statements should be read in conjunction with the Company's audited
financial statements and related notes included by the Registrant in
the Amended Current Report on Form 8-K/A filed with the SEC on November
1, 2000. The results of operations for the nine months ended Sptember
30, 2000 are not necessarily indicative of the results to be expected
for any subsequent quarter or for the entire fiscal year ending
December 31, 2000.
DataMEG Corp., formerly The Viola Group, Inc., a New York Corporation
and ts wholly-owned subsidiary, DataMEG Corporation (the "Company") is
a development stage enterprise. The Company is a technology development
enterprise focused on introducing to the marketplace a technology it
has developed, which it has termed Communications Acceleration System
(CAS). CAS is a high-speed data transmission processor that uses,
primarily, Plain Old Telephone Service (POTS) as the communication
medium to interface between the transmission source and the receiving
entity.
In August 2000, the DataMEG Corporation (the "Subsidiary") consummated
a shre exchange with a public shell company, the Viola Group, Inc. that
has since changed its name to DataMEG Corp. (the "Parent"). In the share
exchange the Subsidiary exchanged all its outstanding shares for 90% of
the issued and outstanding voting common stock of the Parent. As a
result of the transaction, the pre-exchange stockholders of the Parent
owned in the aggregate, 3,300,007 shares as of the date of the share
exchange. The pre-exchange stockholders of the Subsidiary owned, as a
result of the share exchange, 90% of the issued ad outstanding common
stock of the Parent, equaling approximately 29,700,627 shares as of the
date of the share exchange. In addition, the Subsidiary was required to
pay consulting fees totaling $250,000 to an officer of the Parent and
assume tax liabilities totaling approximately $30,000. As a result of
the merger, the Subsidiary became the operating company. These financial
statements are those of the Subsidiary, with adjustments to reflect the
changes in equity structure resulting from the share exchange. The
company operates under the name of DataMEG Corp. and trades under the
symbol DTMG on the OTC-BB.
B. DUE TO/FROM STOCKHOLDERS
As of September 30, 2000, the Company was indebted to officers and stock-
hoders in the amount of $462,851 for expenses incurred on behalf of the
Company and unpaid compensation.
C. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
During 1999 the Company entered into an agreement with a consultant
for sevices rendered over the period October 1999 through June 2000.
Unpaid fees associated with this agreement total $60,000 as of September
30, 2000. In addition, the agreement with the consultant called for
additional consideration totaling 3% of outstanding stock and 4% in
warrants, contingent upon the consummation of the share exchange.
Pursuant to this agreement, the Company has agreed to issue this con-
sultant 990,000 shares of the common stock of the Parent and is in
negotiations to eliminate the requirement to issue any warrants.Such
shares had not been issued as of September 30, 2000 and the liability
is shown in the balance sheet as "Liability for stock to be issued".
No amount has been recorded related to the possible requirement to
issue warrants.
As of September 30, 2000, the Company had committed to issue options
to prchase approximately 160,000 shares of common stock at prices
ranging from $2.50 to $5.00 per share for persons who had performed
services for the Company.
As of September 30, 2000, the Company had committed to issue options to
puchase approximately 288,000 shares of common stock at $.10 per share
to certain stockholders who purchased stock in the Subsidiary prior to
the share exchange.
CONTINGENCIES
In February 2000, a complaint was filed against the Company alleging
that he Company and several of its officers breached a nondisclosure
and confidentiality agreement with the plaintiff and violated the
Uniform Trade Secrets Act. The plaintiff seeks compensatory and
punitive damages in unspecified amounts. Management believes that such
claims are without merit and that the Company and its officers have
not violated the rights of the plaintiff. As of the current date,
management is unable to estimate the amount of any losses which may be
associated with the complaint.
D. STOCK INCENTIVE PLAN
In July 2000, the Company adopted a stock incentive plan. The maximum
numbr of shares which may be awarded under the plan is 3,000,000. Any
person deemed eligible by the Stock Incentive Committee may receive
shares or options under the plan; option awards may be in the form of
an incentive option or a nonqualified stock option. Stock options
issued under the plan vest over several years, unless accelerated by
the Stock Incentive Committee. As of September 30, 2000, options for
490,000 shares of common stock had been awarded under this plan with
an exercise price of $.01 per share for 50,000 shares and $.30 per
share for 440,000 shares. Pursuant to APB 25 compensation in the amount
of approximately $60,000 has been recorded during the three months
ended September 30, 2000 relative to the options vested at that date.
As of September 30, 2000, options had been exercised to purchase
245,000 of the above shares.
E. CONVERTIBLE SUBORDINATED DEBENTURES
In July 2000, the Company issued convertible subordinated debentures
totaling approximately $140,000. The terms of the debentures require
interest payable at twelve percent per annum with a maturity date of
one year from the date of advance unless mutually extended. The deben-
tures are subordinate and junior to existing liabilities of the
Company and any subsequent borrowings from banks or insurance
companies. The debentures may be converted to common stock at a price
of $2.50 per share.
F. 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
For the three For the three For the period For the nine months Cumulative
months ended months ended from inception ended September 30, from inception
September 30, September 30, (January 13, 1999) 2000 (January 13,1999)
1999 2000 to September 30, (unaudited) to September 30,
(unaudited) (unaudited) 1999 (unaudited) 2000 (unaudited)
Net loss
(numerator) (227,864) (2,603,968) (543,981) (3,337,080) (4,384,009)
Weighted average
Share
(denominator) 28,873,410 31,473,130 28,360,638 30,288,822 29,695,485
Basic and diluted net
loss per share (0.01) (0.08) (0.02) (0.11) (0.15)
</TABLE>
As required by the Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 98, the above calculation of EPS is based on SFAS No. 128,
"Earnings Per Share." Thus, options granted as of September 30, 2000 are
not included in the calculation of diluted EPS as their inclusion would be
anti-dilutive.
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
OVERVIEW
Management's discussion and analysis of financial condition and results of
operations except for the historical information contained herein, we wish to
caution you that certain matters discussed in this Report on Form 10-Q
constitute forward-looking events or statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those stated or implied due to a number of factors, including without
limitation those discussed under the caption "Factors That May Effect Future
Results".
DataMEG Corp., formerly The Viola Group, Inc., a New York Corporation and its
wholly-owned subsidiary, DataMEG Corporation (the "Company") is a development
stage enterprise. The Company is a technology development enterprise focused
on introducing to the marketplace a technology it has developed, which it has
termed Communications Acceleration System (CAS). CAS is a high-speed data
transmission processor that uses, primarily, Plain Old Telephone Service
(POTS) as the communication medium to interface between the transmission
source and the receiving entity.
In August 2000, the DataMEG Corporation (the "Subsidiary") consummated a share
exchange with a public shell company, The Viola Group, Inc. which has since
changed its name to DataMEG Corp. (the "Parent"). In the share exchange the
Subsidiary exchanged all its outstanding shares for 90% of the issued and
outstanding voting common stock of the Parent. As a result of the transaction,
the pre-exchange stockholders of the Parent owned in the aggregate, 3,300,007
shares as of the date of the share exchange. The pre-exchange stockholders of
the Subsidiary owned, as a result of the share exchange, 90% of the issued
and outstanding common stock of the Parent, equaling approximately 29,700,627
shares as of the date of the share exchange. In addition, the Subsidiary was
required to pay consulting fees totaling $250,000 to an officer of the Parent
and assume tax liabilities totaling approximately $30,000. As a result of the
merger, the Subsidiary became the operating company. These financial
statements are those of the Subsidiary, with adjustments to reflect the
changes in equity structure resulting from the share exchange. The company
operates under the name of DataMEG Corp. and trades under the symbol DTMG on
the OTC-BB.
During 1999 the Company entered into an agreement with a consultant for
services rendered over the period October 1999 through June 2000. Unpaid fees
associated with this agreement total $60,000 as of September 30, 2000. In
addition, the agreement with the consultant called for additional
consideration totaling 3% of outstanding stock and 4% in warrants, contingent
upon the consummation of the share exchange. Pursuant to this agreement, the
Company has agreed to issue this consultant 990,000 shares of the common
stock of the Parent and is in negotiations to eliminate the requirement to
issue any warrants. Such shares had not been issued as of September 30, 2000
and the liability is shown in the balance sheet as "Liability for stock to be
issued". No amount has been recorded related to the possible requirement to
issue warrants.
From DataMEG Corp.'s inception in January 1999 through September 2000,
operating activities consisted primarily of research and development, product
design, and development and testing of the CAS technology. During this
period, DataMEG Corp. has focused on developing this technology using its
internal resources, primarily, its Senior Technology Officer and other
external product development-engineering firms. Since inception, DataMEG Corp.
has incurred operating losses, and as of September 30, 2000, had an
accumulated deficit of $4.4 million. DataMEG Corp. has not realized any
operating revenue nor has it achieved profitability on a quarterly or annual
basis. While DataMEG Corp is developing and plans to introduce future
products, there can be no assurance that it will be successful in these
efforts.
RESULTS OF OPERATIONS
Revenues for the nine months ended September 30, 2000 were $0 (zero) as well
as for the corresponding period in the prior year. No revenues were reported
for the three-month period ending September 30, 2000 as well as for the
corresponding period in the prior year.
Cost of Revenues for the nine months ended September 30, 2000 were $0 (zero)
as well as for the corresponding period in the prior year. None were reported
for the three-month period ending September 30, 2000 as well as for the
corresponding period in the prior.
Research and development expenses were $ 82,685.00 for the three months ended
September 30, 2000 compared to $ 27,254.00 for the same period in fiscal
1999. The increase in expenses was primarily due to increased costs
associated with non-recurring engineering costs and an increase in prototype
expenses for the design and development of the CAS technology. Research and
development is essential to DataMEG Corp's future success and it expects that
the amounts for research and development expenses will increase in future
periods.
As mentioned in the "Overview" DataMEG Corp entered into an agreement with a
consultant for services rendered over the period October 1999 through June
2000. These services were for general business and financial consulting
services. Unpaid fees associated with this agreement total $60,000 as of
September 30, 2000. In addition, the agreement with the consultant called for
additional consideration totaling 3% of outstanding stock and 4% in warrants,
contingent upon the consummation of the share exchange with The Viola Group,
Inc.
Pursuant to this agreement, the Company has agreed to issue this consultant
990,000 shares of the common stock of the Parent and is in negotiations to
eliminate the requirement to issue any warrants. Such shares had not been
issued as of September 30, 2000 and the liability is shown in the balance
sheet as "Liability for stock to be issued". No amount has been recorded
related to the possible requirement to issue warrants. A charge relating to
this consulting agreement had been charged to the Income Statement for three
and nine months ended September 30, 2000, in the amount of $1,893,375.00 for
the stock to be issued. An additional charge may be required relating to the
warrants granted pursuant to the consulting agreement.
Compensation paid and accrued to officers and others was $ 360,738.00 for the
three months ended September 30, 2000 compared to $ 160,232.00 for the same
period in fiscal 1999. As of September 30, 2000, the Company was indebted to
officers and stockholders in the amount of $462,851 for expenses incurred on
behalf of the Company and unpaid compensation.
General and administrative expenses were $ 2,521,283 for the three months
ended September 30, 2000 compared to $ 200,610.00 for the same period in
fiscal 1999. The increase in expenses reflects the expenses necessary to
support increased levels of business activities. DataMEG Corp expects that
the dollar amounts of general and administrative expenses will increase in
future periods as a result of expansion of business activity and the reporting
and other requirements of being a publicly traded company.
Cash used by operating activities for the nine months ending September 30,
2000 was $ 869,517.00. Cash used in investing activities was $0 for the nine
months ended September 30, 2000. Cash provided by financing activities was
$869,517 for the nine months ended September 30, 2000.
DataMEG Corp financed its operations primarily through private sales of its
capital stock and through borrowings on convertible debt agreements. The
Company is very active in managing its cash position. DataMEG Corp is
constantly reviewing its cash needs and it has been successful in the past
with infusion of cash from capital stock sales and other debt obligations.
These means and others currently available to DataMEG Corp. may or may not
continue to be able in the future. DataMEG Corp believes that the
current cash, cash equivalents may not be sufficient to meet anticipated cash
needs for working capital and capital expenditures for the next twelve months.
Therefore, it will continue to look for ways to finance its current
operations as well as it prototype development. As such, the Company is
pursuing potential financing methods that include consideration of a Private
Placement Memorandum that is intended to raise the funds necessary to support
the current operations of the Company over the next twelve months. The
Officers of the Company will continue to finance Company operations in the
interim period.
CURRENT DEVELOPMENTS
DataMEG Corp. has been involved in the development and testing of its CAS
technology over the past several months, that has resulted in the creation of
a working prototype that facilitates a complete file transfer over Plain Old
telephone Service (POTS). The demonstrations have initiated a discussion with
an interested party regarding the potential acquisition of DataMEG Corp. and
its assets. These discussions are ongoing and are satisfactory to the Company
at this time.
DataMEG Corp. is also involved in the development of an ASIC chip platform
that will bring CAS technology into product form. The current ASIC design
platform is planned to allow for the transfer of data files over POTS at
transmission rates in excess of 8 Mbps. The Company hopes to achieve a
design that will ultimately allow for transfer rates in the range of 45-50
Mbps over POTS. The ASIC development schedule anticipates a product beta
release in early 2001. The final CAS product release could occur by mid-year
2001.
FACTORS THAT MAY EFFECT FUTURE RESULTS
DataMEG Corp expects that substantially all of its revenues will be generated
from the applications or uses of the CAS technology. While DataMEG Corp is
developing and plans to introduce future products, there can be no assurance
that it will be successful in these efforts.
DataMEG Corp has limited meaningful historical financial data upon which to
base projected revenues and planned operating expenses and upon which
investors may evaluate DataMEG Corp and its prospects. In addition, DataMEG
Corp operating expenses are largely based on anticipated revenue trends from
prospective joint development of applications of CAS, and a high percentage of
DataMEG Corp's expenses are and will continue to be fixed such as
compensation, research and development and sunk administrative expenses.
Investors should consider the risks and difficulties frequently encountered
by companies like DataMEG Corp in a new and rapidly evolving market. DataMEG
Corp's ability to sell products, and the level of success, if any, DataMEG
Corp achieves, depends, among other things, on the level of demand for the
CAS technology, which is in a new and rapidly evolving market.
Any failure of DataMEG Corp to increase revenues would prevent it from
achieving and/or maintaining profitability. DataMEG Corp has incurred losses
since inception and expects to continue to incur losses in the future. As of
September 30, 2000, DataMEG Corp had an accumulated deficit of $4.4 million.
DataMEG Corp has not achieved profitability on a quarterly or annual basis,
and DataMEG Corp anticipates that it will continue to incur net losses.
There can be no assurances that DataMEG Corp's revenues will grow or that
DataMEG Corp will generate sufficient revenues to achieve or sustain
profitability. DataMEG Corp has fixed expenses and expects to continue to
incur these expenses and in addition, DataMEG Corp may need to increase sales
and marketing, product development, administrative and other expenses. As a
result, DataMEG Corp will need to generate significantly higher revenues to
achieve and/or maintain profitability.
DataMEG Corp is entirely dependent on the CAS technology and its future
applications, and future growth in revenues depends on the commercial success
and acceptability of this line of broadband communication. There can be no
assurances that DataMEG Corp will be successful in completing the development
or introduction of these CAS products. Failure of current or planned products
to operate as expected could delay or prevent their adoption.
If DataMEG Corp does not respond rapidly to technological changes, DataMEG
Corp's product concepts could become obsolete. The market for broadband
communication products is likely to be characterized by rapid technological
change, frequent new product introductions and changes in customer
requirements. DataMEG Corp may be unable to respond quickly or effectively to
these developments. DataMEG Corp may experience design, manufacturing,
marketing and other difficulties that could delay or prevent DataMEG Corp's
development, introduction or marketing of new products and applications
relating to CAS.
The introduction of new products by competitors, market acceptance of
products based on new or alternative technologies or the emergence of new
industry standards, could render DataMEG Corp's existing or future products
obsolete. In developing DataMEG Corp's products, DataMEG Corp has made,
and will continue to make, assumptions about the standards that may be
adopted by users. If the standards adopted are different from those which
DataMEG Corp have chosen to support, market acceptance of its products may be
significantly reduced or delayed and its business will be seriously harmed.
In addition, the introduction of products incorporating new technologies and
the emergence of new industry standards could render DataMEG Corp's existing
application premises obsolete.
Despite DataMEG Corp's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use DataMEG
Corp's products or technology. Monitoring unauthorized use of DataMEG Corp's
products is difficult and DataMEG Corp cannot be certain that the steps
DataMEG Corp has taken will prevent unauthorized use of DataMEG Corp's
technology, particularly in foreign countries where the laws may not protect
proprietary rights as fully as in the United States. If competitors are able
to use DataMEG Corp's technology, DataMEG Corp's ability to compete
effectively could be harmed.
DataMEG Corp could become subject to litigation decisions regarding
intellectual property rights, which could seriously harm DataMEG Corp's
business and require DataMEG Corp to incur significant costs. In recent years,
there has been significant litigation in the United States involving patents
and other intellectual property rights.
In February 2000, a complaint was filed against the DataMEG Corp. alleging
that it and several of its officers breached a nondisclosure and
confidentiality agreement with the plaintiff and violated the Uniform Trade
Secrets Act. The plaintiff seeks compensatory and punitive damages in
unspecified amounts. Management believes that such claims are without merit
and that the Company and its officers have not violated the rights of the
plaintiff. As of the current date, management is unable to estimate the
amount of any losses that may be associated with the complaint.
Any acquisitions DataMEG Corp makes could disrupt its business and seriously
harm DataMEG Corp's financial condition. DataMEG Corp intends to consider
investments in complementary companies, products or technologies. While we
have no current agreements to do so, we may buy businesses, products or
technologies in the future. In the event of any future purchases, DataMEG
Corp could: issue stock that would dilute DataMEG Corp's current stockholders'
percentage ownership; incur debt; assume liabilities; incur amortization
expenses related to goodwill and other intangible assets; or incur large
and immediate write-offs.
DataMEG Corp's operation of any acquired business will also involve numerous
risks, including: problems combining the purchased operations, technologies
or products; unanticipated costs; diversion of management's attention from
DataMEG Corp's core business; adverse effects on existing business
relationships with suppliers and customers; risks associated with entering
markets in which DataMEG Corp has no or limited prior experience; and
potential loss of key employees, particularly those of the purchased
organizations.
An active public market for DataMEG Corp's common stock may not be sustained.
The market for technology stocks has been extremely volatile. The following
factors could cause the market price of DataMEG Corp's common stock to
fluctuate significantly: DataMEG Corp's loss of a major supplier, manufacture
or customer; the addition or departure of key personnel; variations in
DataMEG Corp's quarterly operating results; announcements by DataMEG Corp or
its competitors of significant contracts, new products or product
enhancements, acquisitions, distribution partnerships, joint ventures or
capital commitments; DataMEG Corp's sales of common stock or other securities
in the future; changes in market valuations of broadband access technology
companies; changes in market valuations of networking and telecommunications
companies; and fluctuations in stock market prices and volumes.
SUMMARY
DataMEG Corp. has been diligent in its development of the CAS technology and
the product possibilities that have evolved from the development program. The
work has been difficult and sometimes tedious, DataMEG Corp. has admittedly
been understaffed during the majority of the time spent working toward
the ends we are now achieving, over the past two years. The Company feels
strongly that their efforts have been fruitful and beneficial to the Company
and its shareholders. Today the Company is working to facilitate the next
step in the CAS development project, including operations financing, ASIC
chip development and introducing business resources that may take the CAS
technology project to conclusion and introduce a CAS product into the
marketplace.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 15, 2000 a complaint was filed by Quantum Advanced
Technologies, Inc. in the Superior Court for the District of Columbia, Civil
Division, Civil Action No. 00-0001066, against the Registrant's wholly owned
subsidiary, DataMEG Corporation, ("DTMG-VA") the three founders and
principal stockholders thereof, Reggie L. Phillips, DTMG-VA's and the
Registrant's Chief Operating Officer, Andrew Benson, the DTMG-VA's and the
Registrant's President and John P. Cairns, and against other entities
affiliated with Messrs. Benson and Phillips. The Complaint alleges: in Count
I, that Benson, Phillips, DTMG-VA and other entities with whom Benson and
Phillips were affiliated breached a nondisclosure and confidentiality
agreement with the Plaintiff by inducing Cairns to leave the Plaintiff's
employment and to bring with him to DTMG-VA, disclose and use proprietary,
confidential and trade secret information relating to a new modulation
technology with enormous potential commercial value in the field of data
transmission technology allegedly developed by Cairns at the end of 1996
while an employee of Plaintiff; Count II alleges that the same conduct by
Benson, Phillips, DTMG-VA, and other entities with whom Benson and Phillips
are affiliated, is in violation of the Uniform Trade Secrets Act. Count III
alleges that Benson, Phillips, DTMG-VA and other affiliates with whom Benson
and Phillips are affiliated, tortuously interfered with the Plaintiff's
contractual relationship with Cairns. Count IV alleges that Benson, Phillips,
DTMG-VA, and other entities with whom Benson and Phillips are affiliated,
tortuously interfered with Plaintiff's prospective business expectancy by
misappropriating the Plaintiff's proprietary, confidential and trade secret
information and by attempting to develop, market and sale products, services
and applications which use the claimed proprietary technology. Count V
alleges that Cairns breached his employment agreement with the Plaintiff by
disclosing the aforesaid proprietary, confidential and trade secret
information to Benson, Phillips, DTMG-VA and other entities with whom Benson
and Phillips are affiliated. Count VI alleges that Cairns breached a
fiduciary duty of confidentiality owed by virtue of his employment with the
Plaintiff with respect to its proprietary confidential and trade secret
information. And Count VII alleges that Cairns has violated the Uniform
Trade Secrets Act of the District of Columbia by virtue of his disclosure of
the Plaintiff's alleged proprietary confidential and trade secret information
relating to the technology and conduct constituting his misappropriation of
the Plaintiff's trade secrets in violation of the Uniform Trade Secrets Act.
The Complaint seeks declaratory and injunctive relief, compensatory and
punitive damages in unspecified amounts and a decree directing that all
inventions, improvements, developments conceived, produced or developed by
the Defendants or any of them relating to the Plaintiff's claim of
proprietary, confidential and trade secret information be assigned to the
Plaintiff. The Complaint also seeks costs and attorneys fees as provided in
the alleged nondisclosure and confidentiality agreement to which the
Defendants are allegedly parties.
Both DTMG-VA and Messrs. Phillips, Benson and Cairns dispute the
allegations of the Complaint. DTMG-VA contends that the Tone Frequency
Technology that DTMG-VA is developing is unrelated to the Waveform Technology
owned by Quantum Advanced Technologies and therefore, believes that it has
not violated any rights of Quantum Advanced Technologies. The ultimate
outcome of the litigation which may extend over a substantial period of time
is uncertain. At a minimum, such litigation may distract the management of
DTMG-VA and the Registrant from expending time and efforts on behalf of the
business of that company.
Item 2. Exhibits and Reports on Form 8-K
Reports filed on Form 8-K
(1) On August 18, 2000, the Registrant filed a report on Form 8-K
disclosing the changed control of Registrant. As a consequence of the
closing and effectiveness of a certain Agreement and Plan of Share Exchange
between the Registrant and DataMEG Corporation, a Virginia corporation
("DTMG-VA") pursuant to which DTMG-VA became a wholly-owned subsidiary of the
Registrant and the former shareholders of DTMG-VA exchanged their shares in
DTMG-VA for common stock of the Registrant equaling upon completion of the
share exchange ninety percent (90%) of the issued and outstanding voting
capital stock of the Registrant.
(2) On November 3, 2000, the Registrant filed a report on Form 8-K
disclosing a change in the Registrant's certifying accountant in connection
with the share exchange previously reported and further reporting the
amendment of the Registrant's Certificate of Incorporation to change the name
of the Registrant to DataMEG Corp.
(3) On November 3, 2000, the Registrant filed an Amendment to its
report on Form 8-K filed August 18, 2000 by furnishing financial statements
and pro forma financial information with respect to DataMEG Corporation, a
Virginia Corporation ("DTMG-VA"), the Registrant acquired in connection with
the previously reported share exchange.
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has fully caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATAMEG CORP.
Date: November 20, 2000
By: /s/ Andrew Benson
-------------
Andrew Benson
President and Acting Chief Financial Officer
(principal executive officer)
