##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-QSB
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarter ended June 30, 2006
 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: 000-30874
 CANEUM, INC.
  Nevada
State or other jurisdiction of
incorporation or organization
    
    33-0916900
I.R.S. Employer I.D. No.170 Newport Center Drive, Suite 220, Newport Beach, CA
(Address of principal executive offices)
    
    92660
(Zip Code)
 (949) 273-4000
 þ o þ o
 o þ




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##### 



PART I
 FINANCIAL INFORMATION
 Item 2. Financial Statements
   PageFinancial StatementsCondensed Consolidated Balance Sheets  Assets
    
    
    - 3Condensed Consolidated Balance Sheets  Liabilities and Stockholders Equity
    
    
    - 4Condensed Consolidated Statements of Operations
    
    
    - 5Condensed Consolidated Statements of Cash Flows
    
    
    - 6Notes to Condensed Consolidated Financial Statements
    
    
    - 7EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)CURRENT ASSETSCash and cash equivalents, including
restricted cash of $343,750 as of
June 30, 2006
    
    $
    562,940
    
    
    $
    99,760Accounts receivable, net of
allowance for doubtful accounts
of $79,454 and $10,446, respectively
    
    
    1,635,100
    
    
    
    469,074Unbilled receivables
    
    
    90,630
    
    
    
    Prepaid assets  related parties (Note 3)
    
    
    8,995
    
    
    
    68,750Other prepaid expenses and current assets
    
    
    33,085
    
    
    
    51,099TOTAL CURRENT ASSETS
    
    
    2,330,750
    
    
    
    688,683FIXED ASSETSProperty and Equipment
    
    
    23,119
    
    
    
    Software
    
    
    77,962
    
    
    
    16,128101,081
    
    
    
    16,128Less accumulated depreciation
    
    
    (44,102
    )
    
    
    (1,571
    )TOTAL FIXED ASSETS
    
    
    56,879
    
    
    
    14,557INTANGIBLE ASSETS (Note 4 and 7)Employment contracts
    
    
    78,000
    
    
    
    Customer contracts/relationships
    
    
    670,000
    
    
    
    Licenses
    
    
    75,000
    
    
    
    Trademarks and logos
    
    
    90,000
    
    
    
    Goodwill
    
    
    1,294,537
    
    
    
    2,207,537
    
    
    
    Less accumulated amortization
    
    
    (57,243
    )
    
    
    2,150,294
    
    
    
    TOTAL ASSETS
    
    $
    4,537,923
    
    
    $
    703,240
  3




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June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)CURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    724,314
    
    
    $
    284,656Credit line
    
    
    90,409
    
    
    
    6,833Accrued payroll and related expenses
    
    
    166,556
    
    
    
    25,839Income tax payable
    
    
    10,800
    
    
    
    Purchase price installment payable (Note 7)
    
    
    637,500
    
    
    
    TOTAL CURRENT LIABILITIES
    
    
    1,629,579
    
    
    
    317,328LONG TERM LIABILITIESPurchase price installment payable (Note 7)
    
    
    577,500
    
    
    
    COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 10)STOCKHOLDERS EQUITYCommon stock, 100,000,000 shares
authorized
at $.001 par value: 6,255,646 and 5,386,991
shares issued and outstanding, respectively
    
    
    6,256
    
    
    
    5,386Preferred stock, 20,000,000 shares authorized
at $.001 par value: 4,000,000 and 0 shares
issued and outstanding, respectively
    
    
    4,000
    
    
    
    Additional paid in capital
    
    
    6,912,701
    
    
    
    3,434,328Accumulated deficit
    
    
    (4,552,113
    )
    
    
    (3,013,802
    )Deferred compensation
    
    
    (40,000
    )
    
    
    (40,000
    )TOTAL STOCKHOLDERS EQUITY
    
    
    2,330,844
    
    
    
    385,912TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    4,537,923
    
    
    $
    703,240
  4




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Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)
    
    
    (unaudited)REVENUE
    
    $
    2,211,847
    
    
    $
    435,382
    
    
    $
    3,066,567
    
    
    $
    639,904COST OF
REVENUE
    
    
    1,474,293
    
    
    
    338,064
    
    
    
    2,114,602
    
    
    
    476,002GROSS
PROFIT
    
    
    737,554
    
    
    
    97,318
    
    
    
    951,965
    
    
    
    163,902OPERATING
EXPENSES
    
    
    1,062,119
    
    
    
    474,120
    
    
    
    1,564,084
    
    
    
    1,042,825LOSS FROM
OPERATIONS
    
    
    (324,565
    )
    
    
    (376,802
    )
    
    
    (612,119
    )
    
    
    (878,923
    )OTHER INCOME (EXPENSE)Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest
expense
    
    
    (30,645
    )
    
    
    
    
    
    
    (31,075
    )Interest
income
    
    
    5,652
    
    
    
    286
    
    
    
    5,683
    
    
    
    1,279TOTAL OTHER
INCOME
(EXPENSE)
    
    
    24,993
    
    
    
    286
    
    
    
    25,392
    
    
    
    1,279LOSS BEFORE
INCOME TAX
    
    
    (349,558
    )
    
    
    (376,516
    )
    
    
    (637,571
    )
    
    
    (877,644
    )INCOME TAX
EXPENSE
    
    
    
    
    
    
    
    
    
    
    (800
    )
    
    
    (800
    )NET LOSS
    
    $
    (349,558
    )
    
    $
    (376,516
    )
    
    $
    (638,311
    )
    
    $
    (878,444
    )LOSS PER COMMON SHARE-Basic and Diluted
    
    $
    (0.06
    )
    
    $
    (0.08
    )
    
    $
    (0.11
    )
    
    $
    (0.20
    )SHARES USED IN EARNINGS PER SHARE CALCULATIONSWEIGHTED AVERAGE COMMON SHARES-Basic and Diluted
    
    
    6,216,346
    
    
    
    4,545,645
    
    
    
    5,746,676
    
    
    
    4,468,765
  5




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For the six months endedJune 30,
    
    
    June 30,2006
    
    
    2005(unaudited)
    
    
    (unaudited)CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (638,311
    )
    
    $
    (878,444
    )Adjustments to reconcile net loss to net
cash used by operating activities:Stock-based compensation expense
    
    
    237,785
    
    
    
    328,201Depreciation and amortization
    
    
    72,887
    
    
    
    Expenses paid by stock issuance
    
    
    90,400
    
    
    
    24,077Increase in accounts receivable
    
    
    (712,620
    )
    
    
    (293,012
    )Increase in deferred costs
    
    
    
    
    
    
    (17,000
    )Decrease (Increase) in prepaid expenses and
other assets
    
    
    106,480
    
    
    
    (11,045
    )Increase accounts payable
and accrued liabilities
    
    
    47,074
    
    
    
    139,316Increase in accrued payroll
and related expenses
    
    
    140,884
    
    
    
    64,789NET CASH FLOWS USED BY
OPERATING ACTIVITIES
    
    
    (655,421
    )
    
    
    (643,118
    )CASH FLOWS FROM INVESTING ACTIVITIESCash issued for purchase of TierOne Consulting, Inc.,
net of cash acquired
    
    
    (1,194,021
    )
    
    
    Purchase of fixed assets
    
    
    (40,953
    )
    
    
    Development of software for internal use
    
    
    
    
    
    
    (7,271
    )NET CASH FLOWS USED BY
INVESTING ACTIVITIES
    
    
    (1,234,974
    )
    
    
    (7,271
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of common stock for cash
    
    
    350,000
    
    
    
    415,000Issuance of Series A preferred
shares for cash, net
    
    
    1,790,000
    
    
    
    Exercise of options
    
    
    130,000
    
    
    
    Increase in credit line
    
    
    83,575
    
    
    
    NET CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES
    
    
    2,353,575
    
    
    
    415,000NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS
    
    
    463,180
    
    
    
    (235,389
    )CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD
    
    
    99,760
    
    
    
    506,790CASH AND CASH EQUIVALENTS,
END OF THE PERIOD
    
    $
    562,940
    
    
    $
    271,401SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONAcquisition of license
    
    $
    75,000
    
    
    $
    Stock issued to satisfy
accrued expenses
    
    
    
    
    
    
    82,200Stock issued
in connection with sale of preferred stock
    
    $
    50,400
    
    
    $
    Cash paid for taxes
    
    $
    800
    
    
    $
    800
  6




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Consolidation
  7




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Revenue
Recognition
    Cash
and Cash Equivalents
  Stock
Options
   8




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For the six months endedJune 30,
    
    June 30,2006
    
    2005Volatility
    
    
    71.23
    %
    
    
    116.99
    %Risk free Interest rate
    
    
    4.72
    %
    
    
    4.25
    %Expected life of Options
    
    4-5 years
    
    4-5 years
  Impact
of SFAS No. 123R
  Six monthsended June 30,2006Stock-based compensation expense
    
    $
    237,785Effect on loss per share:Basic
    
    $
    (0.04
    )
       9




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Three months
    
    
    Six monthsended June 30,
    
    
    ended June 30,2005
    
    
    2005Net income (loss) as reported
    
    $
    (376,516
    )
    
    $
    (878,444
    )Add: stock option-based
employee compensation
expense included in
reported net loss,
net of related tax
effects
    
    
    144,555
    
    
    
    328,201Deduct: stock-based employee
compensation
expense, net of
related tax effects
    
    
    (470,082
    )
    
    
    (890,882
    )Pro forma
    
    $
    (702,043
    )
    
    $
    (1,141,225
    )Basic and diluted net
loss per share, as
reported
    
    $
    (0.08
    )
    
    $
    (0.20
    )Basic and diluted
net loss per share,
pro forma
    
    $
    (0.15
    )
    
    $
    (0.26
    )
  Fair Value of Financial Instruments
   Accounting for Income Taxes
  10




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Earnings (Loss) Per Share
  Use of Estimates
  New Accounting Pronouncements
 Accounting for Servicing of Financial Assets  an Amendment of FASB Statement No. 140
   Rent
   11




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Investor Relations
  Consulting
  Revenue
      12




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For the six months endedJune 30,2006
    
    
    2005Current:Federal
    
    $
    
    
    
    $
    State
    
    
    800
    
    
    
    800800
    
    
    
    800Deferred:Federal
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    Income tax provision
    
    $
    800
    
    
    $
    800
   13




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For the six months ended
    
    
    For the six months endedJune 30, 2006
    
    
    June 30, 2005Weighted-Average
    
    
    
    
    
    
    Weighted-AverageShares
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise PriceOutstanding at January 1
    
    
    4,636,250
    
    
    $
    0.81
    
    
    
    3,990,000
    
    
    $
    0.67Granted during the three
months ended March 31,
    
    
    2,090,000
    
    
    $
    0.83
    
    
    
    670,000
    
    
    $
    2.24Cancelled/forfeited
    
    
    (148,125
    )
    
    $
    1.86
    
    
    
    
    
    
    $
    0.00Exercised
    
    
    (240,454
    )
    
    $
    0.54
    
    
    
    
    
    
    $
    0.00Outstanding at March 31
    
    
    6,337,671
    
    
    $
    0.81
    
    
    
    4,660,000
    
    
    $
    0.89Granted during the three
months ended June 30
    
    
    430,000
    
    
    $
    0.70
    
    
    
    637,500
    
    
    $
    1.51Options cancelled during
the three months ended
June 30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at June 30
    
    
    6,767,671
    
    
    $
    0.80
    
    
    
    5,297,500
    
    
    $
    0.97Options exercisable
at June 30
    
    
    4,228,858
    
    
    
    
    
    
    
    3,757,739Weighted-average
fair value of
options granted
during the period
    
    $
    0.50
    
    
    
    
    
    
    $
    1.51
 16




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Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted-Average
    
    
    
    
    
    
    NumberRange of
    
    Outstanding
    
    
    Remaining
    
    
    Weighted-Average
    
    
    Exercisable
    
    
    Weighted-AverageExercise Prices
    
    at 6/30/06
    
    
    Contractual Life
    
    
    Exercise Prices
    
    
    at 6/30/06
    
    
    Exercise Price$0.00  $1.00
    
    
    6,000,796
    
    
    4 years
    
    $
    0.70
    
    
    
    3,690,035
    
    
    $
    0.62$1.00  $2.00
    
    
    679,375
    
    
    5 years
    
    $
    1.47
    
    
    
    341,261
    
    
    $
    1.46$2.00  $3.00
    
    
    87,500
    
    
    5 years
    
    $
    2.66
    
    
    
    197,562
    
    
    $
    2.50$0.00  $3.00
    
    
    6,767,671
    
    
    4 years
    
    $
    0.80
    
    
    
    4,228,858
    
    
    $
    0.78
  *
    
    50,000 warrants for common shares at $0.75 each. These warrants
were issued during 2005 and are fully vested.*
    
    50,000 warrants for common shares at $1.40 each. These warrants
were issued to consultants to the Company and are fully vested.*
    
    In connection with the Barron funding that is more fully
described in
Note 6, the Company issued 4,160,000 warrants for common
shares at $0.50, 2,080,000 warrants for common shares at $1.00 and
2,080,000 warrants for common shares at $1.50.*
    
    The Company issued shares of common stock in a private placement with
accompanying Common Stock Purchase Warrants at the rate of 50% of
the shares purchased. Accordingly 283,668 warrants are outstanding
related to this common stock. The warrants will be exercisable at $1.00
with certain incentive discounts to the exercise price available through
December 31, 2008.
   Credit Line
  17




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Employment Contracts
  *
    
    Sukhbir Singh Mudan. The initial period of the employment agreement
for Mr. Mudan is three years. Mr. Mudan is required to devote 100%
of his business time to the business of the Company, and his base
salary is $120,000 per annum. Mr. Mudan received options to
purchase 1,000,000 shares at $0.55 per share as additional
compensation for entering into the agreement.*
    
    Alan S. Knitowski. Mr. Knitowski is required to devote his best
efforts to performing well all duties that the Company may
reasonably assign to him from time to time during the term of the
agreement, but he will not be required to devote in excess of 25%
of his business time and effort to providing these services. His
base salary is $120,000 per annum and he received options to
purchase 1,000,000 shares at $0.55 per share as additional
compensation for entering into the agreement.
    18




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For the six months endedJune 30,
    
    
    June 30,2006
    
    
    2005Proforma
    
    
    Proforma(unaudited)
    
    
    (unaudited)REVENUE
    
    $
    4,041,900
    
    
    $
    3,109,256COST OF REVENUE
    
    
    2,702,496
    
    
    
    2,106,716GROSS PROFIT
    
    
    1,339,404
    
    
    
    1,002,540OPERATING EXPENSES
    
    
    2,079,593
    
    
    
    1,657,404LOSS FROM OPERATIONS
    
    
    (740,190
    )
    
    
    (654,864
    )OTHER INCOME (EXPENSE)Interest Expense
    
    
    (31,075
    )
    
    
    Interest income
    
    
    5,683
    
    
    
    1,279TOTAL OTHER INCOME (EXPENSE)
    
    
    (25,392
    )
    
    
    1,279LOSS BEFORE INCOME TAX
    
    
    (765,582
    )
    
    
    (653,585
    )INCOME TAX EXPENSE
    
    
    (825
    )
    
    
    (800
    )NET LOSS
    
    $
    (764,757
    )
    
    $
    (654,385
    )LOSS PER COMMON SHARE-Basic and Diluted
    
    $
    (0.12
    )
    
    $
    (0.15
    )SHARES USED IN EARNINGS PER SHARE CALCULATIONS
WEIGHTED AVERAGE COMMON SHARES
    
    
    5,746,676
    
    
    
    4,468,765
 19




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Item 2. Managements Discussion and Analysis and Plan of Operation
  Background
  Critical Accounting Policies
    20




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Results of Operations
 Three Months and Six Months Ended , 2006 versus the Three and Six Months Ended , 2005
   Cost of Revenue and Gross Profit
     21




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Operating Expenses
        22




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Other
Income (Expense)
   Net loss
   Liquidity and Capital Resources
    23




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Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Accounting for Servicing of Financial Assets  an Amendment of FASB Statement No. 140
 Forward-Looking Statements
  24




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Item 3. Controls and Procedures
    
    
    We are implementing a monthly review and sign-off process on all accrual and
amortization entries by the Principal Financial Officer for the accounts listed above; and
    
    We have begun searching for, and prior to the next quarter end, we believe we will
hire, a full-time Controller responsible for day to day accounting activities, financial
reporting and assisting the Principal Financial Officer with the preparation of our
financial statements.
  25




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PART II
 OTHER INFORMATION
 Item 2. Unregistered Sales of Equity Securities
  
    
    In February 2005 we entered into a consulting agreement with Robert Mitro, one of our
directors, to provide consultation relating to general business and financials matters. As
part of the consideration to be paid for such services, we agreed to issue shares of our
common stock at the rate of $5,000 per month. The monthly fee is payable in shares of
restricted stock at a price per share equal to the average closing bid (or sale if
reported) price of the shares in the public trading market for the twenty trading days
immediately preceding the first of the following month. For services rendered for the
month of April 2006, we issued 6,822 shares valued at $0.73 per share, and for services
rendered in the month of May 2006, we issued 6,817 shares valued
at $0.73 per share and for services rendered in June 2006, we
issued 7,413 shares valued at $0.67. These
21,052 shares were issued without registration under the Securities Act by reason of the exemption
from registration afforded by the provisions of Section 4(6) and/or Section 4(2) thereof,
and Rule 506 promulgated thereunder, as a transaction by an issuer not involving any public
offering. Mr. Mitro was an accredited investor as defined in Rule 501 of Regulation D at
the time of issuance. He delivered appropriate investment representations with respect to
this issuance and consented to the imposition of restrictive legends upon the certificates
evidencing such shares. He represented that he had not entered into the transaction with
us as a result of or subsequent to any advertisement, article, notice, or other
communication published in any newspaper, magazine, or similar media or broadcast on
television or radio, or presented at any seminar or meeting. Mr. Mitro represented that he
had been afforded the opportunity to ask questions of our management and to receive answers
concerning the terms and conditions of the stock issuance. No underwriting discounts or
commissions were paid in connection with the transaction.
    
    On February 17, 2006, our compensation committee approved an engagement agreement with
Ronald Vance, our secretary and outside counsel. Pursuant to the terms of that engagement
agreement, we issued 994 shares to Mr. Vance for services rendered in the month of April
2006 and 608 shares for services rendered in the month of May 2006. All of the shares were
issued without registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, and Rule 506 promulgated
thereunder, as a transaction by an issuer not involving any public offering. Mr. Vance was
a sophisticated investor as defined in Rule 501 of Regulation D at the time of the
issuance. He delivered appropriate investment representations with respect to this
issuance and consented to the imposition of restrictive legends upon the certificate
evidencing the shares. He represented that he had not entered into the transaction with us
as a result of or subsequent to any advertisement, article, notice, or
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other communication published in any newspaper, magazine, or similar media or broadcast on
television or radio, or presented at any seminar or meeting. Mr. Vance was provided access
to information similar to the type of information which would be included in a prospectus
and was also afforded the opportunity to ask questions of our management and to receive
answers concerning the terms and conditions of the issuance. No underwriting discounts or
commissions were paid in connection with the issuance.
    
    In April 2006 we issued 14,286 shares to Rich Low for acceptance of position as Director
of Recruiting Operations. The shares were issued without registration under the Securities
Act by reason of the exemption from registration afforded by the provisions of Section 4(6)
and/or Section 4(2) thereof, and Rule 506 promulgated thereunder, as a transaction by an
issuer not involving any public offering. Mr. Low was an accredited investor as defined in
Rule 501 of Regulation D at the time of the issuance. He delivered appropriate investment
representations with respect to this issuance and consented to the imposition of
restrictive legends upon the certificate evidencing the shares. He represented that he had
not entered into the transaction with us as a result of or subsequent to any advertisement,
article, notice, or other communication published in any newspaper, magazine, or similar
media or broadcast on television or radio, or presented at any seminar or meeting. Mr. Low
represented that he had been afforded the opportunity to ask questions of our management
and to receive answers concerning the terms and conditions of the issuance. No
underwriting discounts or commissions were paid in connection with the issuance.
    
    In March 2006, we amended our agreement with Ascendiant
Securities, LLC to include advisory services for six (6) months
following the date of the addendum, dated March 28, 2006
associated with the compensation received as a success fee for
raising more than $1.5 million in a closed institutional
financing. This compensation consisted of 29,527 shares valued
at $.81-.73 per share.
 Item 4. Submission of Matters to a Vote of Security Holders
    28




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##### Table of Contents



Item 6. Exhibits
  31.1
    
    Rule 13a-14(a) Certification by Principal Executive Officer31.2
    
    Rule 13a-14(a) Certification by Principal Financial Officer32.1
    
    Section 1350 Certification of Principal Executive Officer32.2
    
    Section 1350 Certification of Principal Financial Officer
 SIGNATURES
  Caneum, Inc.Date: August 17, 2006
    
    
    
    By
    
    /s/ Suki MudanSuki Mudan, President (PrincipalExecutive Officer)Date: August 17, 2006
    
    
    
    By
    
    /s/ Gary AllhusenGary Allhusen, Chief OperatingOfficer (Principal Financial Officer)
 29