##### 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 September 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
  CANEUM, INC.
  Nevada
    
    33-0916900State or other jurisdiction of
incorporation or organization
    
    I.R.S. Employer I.D. No.170 Newport Center Drive, Suite 220, Newport Beach, CA
    
    92660(Address of principal executive offices)
    
    (Zip Code)
 (949) 273-4000
 þ o þ o
 o þ




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PART I
 FINANCIAL INFORMATION
 Item 1. Financial Statements
 Table of Contents
 For the 3 and 9 months ended September 30, 2005 and 2004
 PageFinancial StatementsBalance Sheets  Assets
    
    
    3Balance Sheets  Liabilities and Stockholders Equity
    
    
    4Statements of Operations and Comprehensive Loss
    
    
    5Statements of Cash Flows
    
    
    6Notes to Financial Statements
    
    
    7Exhibit 10.18Exhibit 31.1Exhibit 31.2Exhibit 32
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Caneum, Inc.
 
 Balance Sheets
 As of September 30, 2005 (unaudited) and December 31, 2004
 ASSETS
 Sept 30,
    
    
    December 31,2005
    
    
    2004(unaudited)CURRENT ASSETSCash and cash equivalents
    
    $
    223,597
    
    
    $
    506,790Accounts receivable, net of allowance for doubtful accounts
of $6,733 and $10,446 in 2005 and 2004, respectively
    
    
    185,794
    
    
    
    102,083Deferred costs
    
    
    5,000
    
    
    
    Prepaid expenses and other assets
    
    
    58,565
    
    
    
    15,000TOTAL CURRENT ASSETS
    
    
    472,956
    
    
    
    623,873FIXED ASSETSSoftware
    
    
    16,128
    
    
    
    100Less accumulated depreciation
    
    
    (805
    )
    
    
    (100
    )TOTAL FIXED ASSETS
    
    
    15,323
    
    
    
    TOTAL ASSETS
    
    $
    488,279
    
    
    $
    623,873
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##### Table of Contents



Caneum, Inc.
 
 Balance Sheets (continued)
 As of September 30, 2005 (unaudited) and December 31, 2004
 LIABILITIES AND STOCKHOLDERS EQUITY
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)CURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    184,797
    
    
    $
    130,339Credit line
    
    
    9,368
    
    
    
    Accrued payroll and related expenses
    
    
    102,901
    
    
    
    103,543TOTAL CURRENT LIABILITIES
    
    
    297,066
    
    
    
    233,882COMMITMENTS AND CONTINGENCIES (Notes 3, 6 and 7)STOCKHOLDERS EQUITY (Notes 4 and 5)Common stock, 100,000,000 shares authorized
at $.001 par value: 4,755,983 and 4,358,271 shares
issued and outstanding, respectively
    
    
    4,756
    
    
    
    4,358Preferred stock, 20,000,000 shares authorized
at $.001 par value: 0 shares issued and outstanding
    
    
    
    
    
    
    Additional paid in capital
    
    
    3,010,227
    
    
    
    2,124,490Accumulated deficit
    
    
    (2,823,770
    )
    
    
    (1,738,857
    )TOTAL STOCKHOLDERS EQUITY
    
    
    191,213
    
    
    
    389,991TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    488,279
    
    
    $
    623,873
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Caneum, Inc.
 
 Statements of Operations and Comprehensive Loss (Unaudited)
 Three months ended
    
    
    For the nine months endedSeptember 30
    
    
    September 30
    
    
    September 30
    
    
    September 302005
    
    
    2004
    
    
    2005
    
    
    2004(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)
    
    
    (unaudited)REVENUE
    
    $
    739,417
    
    
    $
    162,628
    
    
    $
    1,379,321
    
    
    $
    376,667COST OF REVENUE
    
    
    606,159
    
    
    
    138,910
    
    
    
    1,082,161
    
    
    
    256,230GROSS PROFIT
    
    
    133,258
    
    
    
    23,718
    
    
    
    297,160
    
    
    
    120,437OPERATING EXPENSES
    
    
    340,000
    
    
    
    433,013
    
    
    
    1,382,825
    
    
    
    894,959LOSS FROM OPERATIONS
    
    
    (206,742
    )
    
    
    (409,295
    )
    
    
    (1,085,665
    )
    
    
    (774,522
    )OTHER INCOME (EXPENSE)Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,834Realized losses from the sales of securities
    
    
    
    
    
    
    (42,994
    )
    
    
    
    
    
    
    (53,689
    )Dividend income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Interest income
    
    
    273
    
    
    
    334
    
    
    
    1,552
    
    
    
    2,165TOTAL OTHER INCOME (EXPENSE)
    
    
    273
    
    
    
    (42,660
    )
    
    
    1,552
    
    
    
    (13,668
    )LOSS BEFORE INCOME TAX
    
    
    (206,469
    )
    
    
    (451,955
    )
    
    
    (1,084,113
    )
    
    
    (788,190
    )INCOME TAX EXPENSE
    
    
    
    
    
    
    (800
    )
    
    
    (800
    )
    
    
    (800
    )NET LOSS
    
    $
    (206,469
    )
    
    $
    (452,755
    )
    
    $
    (1,084,913
    )
    
    $
    (788,990
    )LOSS PER COMMON SHARE-Basic and Diluted
    
    
    (0.04
    )
    
    
    (0.11
    )
    
    
    (0.24
    )
    
    
    (0.20
    )SHARES USED IN EARNINGS PER SHARE CALCULATIONSWEIGHTED AVERAGE COMMON SHARES
    
    
    4,738,032
    
    
    
    4,037,987
    
    
    
    4,559,043
    
    
    
    4,023,608OTHER COMPREHENSIVE INCOME (LOSS)NET LOSS
    
    $
    (206,469
    )
    
    $
    (452,755
    )
    
    $
    (1,084,913
    )
    
    $
    (788,990
    )OTHER COMPREHENSIVE INCOME (LOSS):Unrealized loss on available-for-sale securities
    
    
    
    
    
    
    (242
    )
    
    
    
    
    
    
    (42,693
    )COMPREHENSIVE LOSS
    
    $
    (206,469
    )
    
    $
    (452,997
    )
    
    $
    (1,084,913
    )
    
    $
    (831,683
    )
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Caneum, Inc.
 
 Statements of Cash Flows
 For the nine months endedSeptember 30
    
    
    September 302005
    
    
    2004(unaudited)
    
    
    (unaudited)CASH FLOWS FROM OPERATING ACTIVITIESNet (loss)
    
    $
    (1,084,913
    )
    
    $
    (788,990
    )Adjustments to reconcile net loss to net
cash used by operating activities:Stock-based compensation expense
    
    
    334,858
    
    
    
    83,199Depreciation and amortization
    
    
    705
    
    
    
    Expenses paid by stock issuance
    
    
    39,077
    
    
    
    24,699Realized loss on sale of securities
    
    
    
    
    
    
    53,689Receipt of stock for services
    
    
    
    
    
    
    (32,500
    )Increase in accounts receivable
    
    
    (83,711
    )
    
    
    (57,641
    )Increase in deferred costs
    
    
    (5,000
    )
    
    
    (6,850
    )Increase in prepaid expenses and other assets
    
    
    (28,565
    )
    
    
    Increase accounts payable and accrued liabilities
    
    
    54,458
    
    
    
    169,067Increase in accrued payroll and related expenses
    
    
    81,558
    
    
    
    NET CASH FLOWS USED BY OPERATING ACTIVITIES
    
    
    (691,533
    )
    
    
    (555,327
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchases of available-for-sale securities
    
    
    
    
    
    
    (266,366
    )Proceeds from sales of available-for-sale securities
    
    
    
    
    
    
    248,624Capitalized acquisition costs
    
    
    
    
    
    
    (86,150
    )Development of software for internal use
    
    
    (16,028
    )
    
    
    NET CASH FLOWS USED BY INVESTING ACTIVITIES
    
    
    (16,028
    )
    
    
    (103,892
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of common stock for cash
    
    
    415,000
    
    
    
    200,000Increase in credit line
    
    
    9,368
    
    
    
    NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES
    
    
    424,368
    
    
    
    200,000NET (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (283,193
    )
    
    
    (459,219
    )CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD
    
    
    506,790
    
    
    
    781,387CASH AND CASH EQUIVALENTS, END OF THE PERIOD
    
    $
    223,597
    
    
    $
    322,168SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONStock issued to satisfy accrued expenses
    
    $
    82,200
    
    
    $
    Stock issued to purchase assets
    
    $
    15,000
    
    
    $
    Cash paid during the period for interest
    
    $
    
    
    
    $
    Cash paid for taxes
    
    $
    800
    
    
    $
    1,600
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Caneum, Inc.
 
 Notes to Financial
Statements (unaudited)September 30, 2005
 NOTE 1 Corporate History
   NOTE 2 Significant Accounting Policies
 Basis of Presentation
  Revenue Recognition
  7




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Caneum, Inc.
Notes to Financial Statements (unaudited)
September 30, 2005
    Cash and Cash Equivalents
  Stock-Based Compensation
    8
    Table of Contents   Caneum, Inc.
Notes to Financial Statements (unaudited)
September 30, 2005
  Three months
    
    
    Three months
    
    
    Nine months
    
    
    Nine monthsended
    
    
    ended
    
    
    ended
    
    
    endedSept 30, 2005
    
    
    Sept 30, 2004
    
    
    Sept 30, 2005
    
    
    Sept 30, 2004Net loss as reported
    
    $
    (206,469
    )
    
    $
    (452,755
    )
    
    $
    (1,084,913
    )
    
    $
    (788,990
    )Stock based compensation deducted in
arriving at net loss as reported
    
    
    6,657
    
    
    
    61,949
    
    
    
    334,858
    
    
    
    83,199(199,812
    )
    
    
    (390,806
    )
    
    
    (750,055
    )
    
    
    (705,791
    )Stock based compensation determined
under the fair value method
    
    
    241,748
    
    
    
    165,886
    
    
    
    1,132,630
    
    
    
    394,048Net Loss, pro-forma
    
    $
    (441,560
    )
    
    $
    (556,692
    )
    
    $
    (1,882,685
    )
    
    $
    (1,099,839
    )Net loss per share, as reported
    
    $
    (0.04
    )
    
    $
    (0.11
    )
    
    $
    (0.24
    )
    
    $
    (0.20
    )Net loss per share, pro forma
    
    $
    (0.09
    )
    
    $
    (0.14
    )
    
    $
    (0.41
    )
    
    $
    (0.27
    )
  Three months
    
    
    Three months
    
    
    Nine months
    
    
    Nine monthsended
    
    
    ended
    
    
    ended
    
    
    endedSept 30, 2005
    
    
    Sept 30, 2004
    
    
    Sept 30, 2005
    
    
    Sept 30, 2004Volatility
    
    
    49.02
    %
    
    
    148.92
    %
    
    
    94.33
    %
    
    
    148.92
    %Risk free Interest rate
    
    
    4.20
    %
    
    
    4.00
    %
    
    
    4.23
    %
    
    
    4.00
    %Expected life of Options
    
    4-5 years
    
    4-5 years
    
    4-5 years
    
    4-5 years
  Fair Value of Financial Instruments
 9
    Table of Contents   Caneum, Inc.
Notes to Financial Statements (unaudited)
September 30, 2005
  Accounting for Income Taxes
  Earnings (Loss) Per Share
  Use of Estimates
  10




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Caneum, Inc.
Notes to Financial Statements (unaudited)
September 30, 2005
 New Accounting Pronouncements
  NOTE 3 Related Party Transactions
  Rent
  Management Services Agreement
  Consulting Services
 11




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Caneum, Inc.
Notes to Financial Statements (unaudited)
September 30, 2005
  Investor Relations
  Revenue
  NOTE 4 Common Stock
     12




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Caneum, Inc.
Notes to Financial Statements (unaudited)
September 30, 2005
   NOTE 5 Stock Plan
      13




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Caneum, Inc.
Notes to Financial Statements (unaudited)
September 30, 2005
 For the nine months ended
    
    
    For the nine months endedSept 30, 2005
    
    
    Sept 30, 2004Shares
    
    
    Weighted-Average
    
    
    Shares
    
    
    Weighted-AverageExercise Price
    
    
    
    
    
    
    Exercise PriceOutstanding at January 1
    
    
    3,990,000
    
    
    $
    0.67
    
    
    
    3,037,500
    
    
    $
    0.56Granted during the three months
ended March 31
    
    
    670,000
    
    
    $
    2.24
    
    
    
    750,000
    
    
    $
    0.75Outstanding at March 31
    
    
    4,660,000
    
    
    $
    0.89
    
    
    
    3,787,500
    
    
    $
    0.59Granted during the three months
ended June 30
    
    
    637,500
    
    
    $
    1.51
    
    
    
    1,105,000
    
    
    $
    0.75Options cancelled during the
three months ended June 30
    
    
    (31,250
    )
    
    $
    1.65
    
    
    
    
    
    
    $
    0.00Outstanding at June 30
    
    
    5,266,250
    
    
    $
    0.97
    
    
    
    4,892,500
    
    
    $
    0.63Granted during the three months
ended September 30
    
    
    70,000
    
    
    $
    1.10
    
    
    
    388,000
    
    
    $
    2.51Outstanding at September 30
    
    
    5,336,250
    
    
    $
    0.97
    
    
    
    5,280,500
    
    
    $
    0.77Options exercisable at September 30
    
    
    4,074,739
    
    
    
    
    
    
    
    2,112,708Weighted-average fair value of
options granted during the period
    
    $
    0.58
    
    
    
    
    
    
    $
    0.59
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Caneum, Inc.
Notes to Financial Statements (unaudited)
September 30, 2005
  Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted-Average
    
    
    
    
    
    
    NumberRange of
    
    Outstanding
    
    
    Remaining
    
    
    Weighted-Average
    
    
    Exercisable
    
    
    Weighted-AverageExercise Prices
    
    September 30, 2005
    
    
    Contractual Life
    
    
    Exercise Prices
    
    
    September 30, 2005
    
    
    Exercise Price$0.00 - $1.00
    
    
    3,836,250
    
    
    4 years
    
    $
    0.60
    
    
    
    3,763,334
    
    
    $
    0.60$0.00 - $1.00
    
    
    832,500
    
    
    5 years
    
    $
    1.48
    
    
    
    113,843
    
    
    $
    1.54$2.00 - $3.00
    
    
    667,500
    
    
    5 years
    
    $
    2.43
    
    
    
    197,562
    
    
    $
    2.50$0.00 - $3.00
    
    
    5,336,250
    
    
    4 years
    
    $
    0.94
    
    
    
    4,074,739
    
    
    $
    0.72
  
    
    50,000 warrants for common shares at $0.75 each. These warrants were issued during
previous quarters and are fully vested at September 30, 2005.
 
    
    50,000 warrants for common shares at $1.40 each. These warrants were issued to
consultants to the Company and are fully vested.
 NOTE 6  Commitments and Contingencies
 Credit Line
  Employment Contracts
  15




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
    
    Sukhbir Singh Mudan. The initial period of the employment agreement for Mr. Mudan
is three years. Mr. Mudan is required to devote not less than 75% 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.
  NOTE 7  Subsequent Events
 Clarence Kelley
  16




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17




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Item 2. Managements Discussion and Analysis and Plan of Operation
  Background
       18




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Critical Accounting Policies
    Results of Operations
 Three months ended September 30, 2005 and 2004
 Revenue
  19




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Cost of revenue and Gross Profit
  Operating expenses
   Other income (expense)
  Net loss
  Nine months ended September 30, 2005 and 2004
 Revenue
  Cost of revenue and Gross Profit
 20
    Table of Contents    Operating expenses
   Other income (expense)
  Net loss
  Liquidity and Capital Resources
    21




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Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
  22




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Forward-Looking Statements
  Item 3. Controls and Procedures
 Disclosure Controls and Procedures
 Internal Control Over Financial Reporting
  23




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Internal Control  Integrated Framework
 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
quarter ended September 30, 2005, we issued 9,090 shares valued at $1.10 per share, and
6,527 shares valued at $0.77 per share. These 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
represented that he 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
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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.
    
    In July 2005 we granted five-year options to Stephen Murphy to purchase 20,000 shares at
$1.09 per share for continued service as company accountant. The options vest one  fourth
of the total options granted at the end of each quarter over the next twelve months,
provided that if Mr. Murphy shall not continuously provide services to the Company through
and including the end of any quarter during the vesting period, the options for such
quarter shall lapse and shall not vest. The options were granted 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. Murphy
represented that he was an accredited investor as defined in Rule 501 of Regulation D at
the time of the grant. He delivered appropriate investment representations with respect to
this grant and consented to the imposition of restrictive legends upon the option grant
form. 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. Murphy 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 option grant. No underwriting discounts or commissions were paid in
connection with the transaction
    
    In August 2005 we granted five-year options to Avtar Ranshi to purchase 50,000 shares at
$1.11 per share for continued service as a director. The options vest one  fourth (1/4th)
of the total options granted at the end of each three-month period and immediately in the
event of a Corporate Transaction, as defined in the 2002 Stock Option/Stock Issuance Plan
of the Company. The options were granted 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. Ranshi represented that he was an accredited
investor as defined in Rule 501 of Regulation D at the time of the grant. He delivered
appropriate investment representations with respect to this grant and consented to the
imposition of restrictive legends upon the option grant form. 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.
Ranshi represented that he had been afforded the opportunity to
 
 25




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ask questions of our
management and to receive answers concerning the terms and
conditions of the option grant. No underwriting discounts or commissions were paid in
connection with the transaction.
 Item 5. Other Information
  NumberName
    
    of Shares
    
    
    AmountAnthony & Christian Tse
    
    
    34,000
    
    
    $
    25,500
   26




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Item 6. Exhibits
  4.3 & 10.18
    
    Grant of Stock Option Form used pursuant to the 2002 Stock Option/Stock Issuance Plan31.1
    
    
    Rule 13a-14(a) Certification by Principal Executive Officer31.2
    
    
    Rule 13a-14(a) Certification by Principal Financial Officer32
    
    
    Section 1350 Certification of Principal Executive Officer and Principal
Financial Officer
 SIGNATURES
  Caneum, Inc.Date: November 14, 2005
    By:
    /s/ Sukhbir Singh MudanSukhbir Singh Mudan, President and Treasurer (Principal executive officer, principal financial officer, and chief accounting officer) 27