##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-QSB
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter ended September 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
    
    33-0916900State or other jurisdiction of incorporation or organization
    
    I.R.S. Employer I.D. No.170 Newport Center Drive, Suite 210, Newport Beach, CA
    
    92660(Address of principal executive offices)
    
    (Zip Code)
 (949) 273-4000
 (1) Yes þ No o (2) Yes þ No o
 Yes o No þ




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##### 



PART I
 FINANCIAL INFORMATION
 Item 1. Financial Statements
  PageFinancial StatementsCondensed Consolidated Balance Sheets  Assets
    
    
    2Condensed Consolidated Balance Sheets  Liabilities and Stockholders Equity
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)CURRENT ASSETSCash and cash equivalents, including restricted
cash of $349,088 as of September 30, 2006
    
    $
    469,402
    
    
    $
    99,760Accounts receivable, net of allowance for doubtful accounts of
$97,454 and $79,454, respectively
    
    
    1,658,650
    
    
    
    469,074Unbilled receivables
    
    
    72,325
    
    
    
    Prepaid assets  related parties (Note 3)
    
    
    
    
    
    
    68,750Other prepaid expenses and current assets
    
    
    34,054
    
    
    
    51,099TOTAL CURRENT ASSETS
    
    
    2,234,431
    
    
    
    688,683FIXED ASSETSProperty and Equipment
    
    
    22,444
    
    
    
    Software
    
    
    77,962
    
    
    
    16,128100,406
    
    
    
    16,128Less accumulated depreciation
    
    
    (53,635
    )
    
    
    (1,571
    )TOTAL FIXED ASSETS
    
    
    46,771
    
    
    
    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
    
    
    1,612,500
    
    
    
    2,525,500
    
    
    
    Less accumulated amortization
    
    
    (117,358
    )
    
    
    2,408,142
    
    
    
    TOTAL ASSETS
    
    $
    4,689,344
    
    
    $
    703,240
   2




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September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)CURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    640,490
    
    
    $
    284,656Credit line
    
    
    149,360
    
    
    
    6,833Accrued payroll and related expenses
    
    
    163,968
    
    
    
    25,839Income tax payable
    
    
    1,500
    
    
    
    Purchase price installment payable (Note 7)
    
    
    803,814
    
    
    
    TOTAL CURRENT LIABILITIES
    
    
    1,759,132
    
    
    
    317,328LONG TERM LIABILITIESDeferred tax liability
    
    
    9,300
    
    
    
    Purchase price installment payable (Note 7)
    
    
    661,697
    
    
    
    COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 10)
    
    
    
    
    
    
    STOCKHOLDERS EQUITYCommon stock, 100,000,000 shares authorized at $.001 par value:6,792,325 and 5,386,991 shares issued and outstanding, respectively
    
    
    6,860
    
    
    
    5,386Preferred stock, 20,000,000 shares authorized at $.001 par value:3,632,500 and 0 shares issued and outstanding, respectively
    
    
    3,632
    
    
    
    Additional paid in capital
    
    
    6,279,383
    
    
    
    3,434,328Accumulated deficit
    
    
    (3,990,660
    )
    
    
    (3,013,802
    )Deferred compensation
    
    
    (40,000
    )
    
    
    (40,000
    )TOTAL STOCKHOLDERS EQUITY
    
    
    2,259,215
    
    
    
    385,912TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    4,689,344
    
    
    $
    703,240
   3




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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)
    
    
    (unaudited)
    
    
    (unaudited)REVENUE
    
    $
    2,127,211
    
    
    $
    739,417
    
    
    $
    5,027,337
    
    
    $
    1,379,321COST OF REVENUE
    
    
    1,575,373
    
    
    
    606,159
    
    
    
    3,679,398
    
    
    
    1,082,161GROSS PROFIT
    
    
    551,838
    
    
    
    133,258
    
    
    
    1,347,939
    
    
    
    297,160OPERATING EXPENSES
    
    
    730,995
    
    
    
    340,000
    
    
    
    2,255,210
    
    
    
    1,382,825LOSS FROM OPERATIONS
    
    
    (179,157
    )
    
    
    (206,742
    )
    
    
    (907,270
    )
    
    
    (1,085,665
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (39,307
    )
    
    
    
    
    
    
    (78,563
    )
    
    
    Interest income
    
    
    4,092
    
    
    
    273
    
    
    
    9,775
    
    
    
    1,552TOTAL OTHER INCOME (EXPENSE)
    
    
    (35,215
    )
    
    
    273
    
    
    
    (68,788
    )
    
    
    1,552LOSS BEFORE INCOME TAX
    
    
    (214,372
    )
    
    
    (206,469
    )
    
    
    (976,058
    )
    
    
    (1,084,113
    )INCOME TAX EXPENSE
    
    
    
    
    
    
    
    
    
    
    (800
    )
    
    
    (800
    )NET LOSS
    
    $
    (214,372
    )
    
    $
    (206,469
    )
    
    $
    (976,858
    )
    
    $
    (1,084,913
    )LOSS PER COMMON SHARE-Basic and Diluted
    
    $
    (0.03
    )
    
    $
    (0.04
    )
    
    $
    (0.16
    )
    
    $
    (0.24
    )SHARES USED IN EARNINGS PER
SHARE CALCULATIONSWEIGHTED AVERAGE COMMON SHARES-Basic and Diluted
    
    
    6,614,031
    
    
    
    4,738,032
    
    
    
    6,062,621
    
    
    
    4,559,043
   4




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For the Nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005(unaudited)
    
    
    (unaudited)CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (976,858
    )
    
    $
    (1,084,913
    )Adjustments to reconcile net loss to net cash used by operating activities:Stock-based compensation expense
    
    
    379,902
    
    
    
    334,858Expenses paid by stock issuance
    
    
    75,476
    
    
    
    39,077Depreciation and amortization
    
    
    142,435
    
    
    
    705Increase in accounts receivable
    
    
    (717,865
    )
    
    
    (83,711
    )Increase in deferred costs
    
    
    
    
    
    
    (5,000
    )Decrease (Increase) in prepaid expenses and other assets
    
    
    127,040
    
    
    
    (28,565
    )Increase (Decrease) accounts payable and accrued liabilities
    
    
    (36,751
    )
    
    
    54,458Increase in accrued payroll and related expenses
    
    
    138,296
    
    
    
    81,558NET CASH FLOWS USED BY OPERATING ACTIVITIES
    
    
    (868,325
    )
    
    
    (691,533
    )CASH FLOWS FROM INVESTING ACTIVITIESCash issued for purchase of TierOne Consulting, Inc., net of cash acquired
    
    
    (1,080,305
    )
    
    
    Purchase of fixed assets
    
    
    (40,278
    )
    
    
    Development of software for internal use
    
    
    
    
    
    
    (16,028
    )NET CASH FLOWS USED BY INVESTING ACTIVITIES
    
    
    (1,120,583
    )
    
    
    (16,028
    )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
    
    
    
    Payment of debt
    
    
    (158,977
    )
    
    
    Conversion of warrants
    
    
    105,000
    
    
    
    Exercise of options
    
    
    130,000
    
    
    
    Increase in credit line
    
    
    142,527
    
    
    
    9,368NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
    
    
    2,358,550
    
    
    
    424,368NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    369,642
    
    
    
    (283,193
    )CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD
    
    
    99,760
    
    
    
    506,790CASH AND CASH EQUIVALENTS, END OF THE PERIOD
    
    $
    469,402
    
    
    $
    223,597SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONAcquisition of license
    
    $
    75,000
    
    
    $
    Stock issued to satisfy accrued expenses
    
    $
    
    
    
    $
    82,200Stock issued to purchase fixed assets
    
    $
    
    
    
    $
    15,000Stock issued in connection with sale of preferred stock
    
    $
    50,400
    
    
    $
    Cash paid for interest
    
    $
    
    
    
    $
    Cash paid for income taxes
    
    $
    800
    
    
    $
    800
   5




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Consolidation
   6




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Revenue Recognition
    Cash and Cash Equivalents
  Stock Options
    7




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For the nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005Volatility
    
    
    71.23
    %
    
    
    94.33
    %Risk free Interest rate
    
    
    4.72
    %
    
    
    4.23
    %Expected life of Options
    
    4-5 years
    
    4-5 years
  Impact of SFAS No. 123R
  Nine monthsended September 30,2006Stock-based compensation expense
    
    $
    379,902Effect on loss per share:Basic
    
    $
    (0.06
    )
        8




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Three months
    
    
    Nine monthsended September 30,
    
    
    ended September 30,2005
    
    
    2005Net income (loss) as reported
    
    $
    (206,469
    )
    
    $
    (1,084,913
    )Add: stock option-based employee compensation
expense included in reported net loss, net of
related tax effects
    
    
    6,657
    
    
    
    334,858Deduct: stock-based employee compensation
expense, net of related tax effects
    
    
    (241,748
    )
    
    
    (1,132,630
    )Pro forma
    
    $
    (441,560
    )
    
    $
    (1,882,685
    )Basic and diluted net loss per share, as reported
    
    $
    (0.04
    )
    
    $
    (0.24
    )Basic and diluted net loss per share, pro forma
    
    $
    (0.09
    )
    
    $
    (0.41
    )
  Fair Value of Financial Instruments
   Accounting for Income Taxes
   9




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Earnings (Loss) Per Share
  Use of Estimates
  New Accounting Pronouncements
 Considering the
Effects of Prior Year Misstatements when Quantifying Current Year
Misstatements
 Fair Value
Measurements
 Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109 Accounting for Income Taxes
   Rent
    10




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Investor Relations
   Revenue
      11




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For the nine months endedSeptember 30,2006
    
    
    2005Current:Federal
    
    $
    
    
    
    $
    State
    
    
    800
    
    
    
    800800
    
    
    
    800Deferred:Federal
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    Income tax provision
    
    $
    800
    
    
    $
    800
    12




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13




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14




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For the nine months ended
    
    
    For the nine months endedSeptember 30, 2006
    
    
    September 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 nine months
ended September 30,
    
    
    2,795,000
    
    
    $
    0.78
    
    
    
    1,377,500
    
    
    $
    1.84Cancelled/forfeited
    
    
    (148,125
    )
    
    $
    1.86
    
    
    
    (31,250
    )
    
    $
    1.65Exercised
    
    
    (240,454
    )
    
    $
    0.54
    
    
    
    0
    
    
    $
    Outstanding
at September 30
    
    
    7,042,671
    
    
    $
    0.79
    
    
    
    5,336,250
    
    
    $
    0.97Options exercisable at September 30
    
    
    5,020,949
    
    
    $
    0.79
    
    
    
    4,074,739
    
    
    $
    0.97Weighted-average fair value of
options granted during the period
    
    
    
    
    
    $
    0.52
    
    
    
    
    
    
    $
    0.58
  15




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*
    
    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. During the quarter ended September 30, 2006, 210,000
warrants were exercised at $0.50 per share.*
    
    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.
   16




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Credit Lines
   Employment Contracts
    17




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18




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For the nine months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005Proforma
    
    
    Proforma(unaudited)
    
    
    (unaudited)REVENUE
    
    $
    6,136,557
    
    
    $
    5,077,572COST OF REVENUE
    
    
    4,234,629
    
    
    
    3,519,641GROSS PROFIT
    
    
    1,901,928
    
    
    
    1,557,931OPERATING EXPENSES
    
    
    2,882,718
    
    
    
    2,349,356LOSS FROM OPERATIONS
    
    
    (980,790
    )
    
    
    (791,425
    )OTHER INCOME (EXPENSE)Interest Expense
    
    
    (78,563
    )
    
    
    (118
    )Interest income
    
    
    9,775
    
    
    
    1,552TOTAL OTHER INCOME (EXPENSE)
    
    
    (68,788
    )
    
    
    1,434LOSS BEFORE INCOME TAX
    
    
    (1,049,578
    )
    
    
    (789,991
    )INCOME TAX EXPENSE
    
    
    (800
    )
    
    
    (800
    )NET LOSS
    
    $
    (1,050,378
    )
    
    $
    (790,791
    )LOSS PER COMMON SHARE-Basic and Diluted
    
    $
    (0.17
    )
    
    $
    (0.17
    )SHARES USED IN EARNINGS PER SHARE
CALCULATIONS WEIGHTED AVERAGE COMMON
SHARES
    
    
    6,062,621
    
    
    
    4,559,053
  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 Nine months Ended September 30, 2006 versus the Three and Nine months Ended
September 30 , 2005
   Cost of Revenue and Gross Profit
     Operating Expenses
   21




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22




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




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24




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Pro forma  Profit from operations excluding investment and non-cash activity
  Nine months ended
    
    
    Three months endedSeptember 30,
    
    
    September 30,2006
    
    
    2006(unaudited)
    
    
    (unaudited)REVENUE
    
    $
    5,027,337
    
    
    $
    2,127,211COST OF REVENUE
    
    
    3,679,398
    
    
    
    1,575,373GROSS PROFIT
    
    
    1,347,939
    
    
    
    551,838GROSS OPERATING EXPENSES
    
    
    2,255,210
    
    
    
    730,995ADJUSTMENTS TO OPERATING
EXPENSESNon-cash related expenses:Stock-Based Compensation
    
    
    379,902
    
    
    
    142,117Depreciation/Amortization
    
    
    142,435
    
    
    
    46,388Bad Debt
    
    
    69,200
    
    
    
    18,000Non cash consulting expense
    
    
    65,558
    
    
    
    15,000Sub-total
    
    
    657,095
    
    
    
    221,505One time M&A expensesLegal and accounting fees
    
    
    75,933
    
    
    
    Filing fees
    
    
    13,061
    
    
    
    Sub-total
    
    
    88,994
    
    
    
    Total
    
    
    746,089
    
    
    
    221,505ADJUSTED OPERATING EXPENSES
    
    
    1,509,121
    
    
    
    509,490PROFIT (LOSS) FROM OPERATIONS
    
    $
    (161,182
    )
    
    $
    42,348
  25




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Off-Balance Sheet Arrangements
  Recently Issued Accounting Standards
 Considering the Effects of Prior
Year Misstatements when Qualifying Current Year Misstatements.
 Fair Value Measurements,
 Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109, Accounting for Income Taxes.
 Forward-Looking Statements
  Item 3. Controls and Procedures
    26




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
    
    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 successfully completed a search for a full-time Vice
President of Finance and Accounting responsible for day to
day accounting activities, financial reporting and
assisting the Principal Financial Officer with the
preparation of our financial statements.
    
    We are implementing standard operating procedures and
processes for monthly revenue recognition, expense
accruals, prepayments and stock-based compensation.
    
    We are implementing expense control procedures including
analysis of potential outsourced opportunities including,
but not limited to, human resources, marketing, and
accounting.
     27




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PART II
OTHER INFORMATION
 Item 4. Unregistered Sales of Equity Securities
  
    
    In June 2005 we entered into a financial services agreement with Ascendiant
Securities, LLC.  As part of the consideration to be paid for such services, we agreed
 to issue stock purchase warrants at the rate of 8% for any securities issued to investors
 introduced by Ascendiant.  On July 13, 2006, we issued 10,800 warrants to Ascendiant,
 exercisable at $.50.  These warrants 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.  Ascendiant was an accredited
 investor as defined in Rule 501 of Regulation D at the time of issuance.  They delivered
 appropriate investment representations with respect to this issuance and consented to
 the imposition of restrictive legends upon the certificates evidencing such shares.
 They represented that they 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.  Ascendiant represented that it 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.
  28




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Item 5. Other Information
   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
  29




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SIGNATURES
  Caneum, Inc.Date: November 22, 2006
    By:
    /s/ Suki MudanSuki Mudan, President (PrincipalExecutive Officer)Date: November 22, 2006
    By:
    /s/ Gary AllhusenGary Allhusen, Chief OperatingOfficer (Principal Financial Officer)  30




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##### Table of Contents



EXHIBIT INDEX
 ExhibitIndex
    
    Description31.1
    
    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
  31