SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 24, 2006
Caneum, Inc.
(Exact Name of Registrant as Specified in Charter)
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NEVADA | | 000-30874 | | 33-0916900 |
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(State or Other Jurisdiction of Incorporation) | | (Commission File Number) | | (IRS Employer Identification No.) |
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170 Newport Center Drive, Suite 220, Newport Beach, CA | | 92660 |
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(Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (949) 273-4000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| o | | Written communications pursuant to Rule 425 under the Securities Act |
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| o | | Soliciting material pursuant to Rule 14a-12 under the Exchange Act |
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| o | | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act |
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| o | | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act |
TABLE OF CONTENTS
Item 9.01 Financial Statements and Exhibits
(a)Financial Statements of Business Acquired
The audited financial statements of Tier One Consulting, Inc. for the years ended December 31, 2005 and 2004 are included with this amended report.
(b)Pro Forma Financial Information
The pro forma financial information required by this item in connection with the acquisition of Tier One Consulting, Inc. is included with this amended report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | Caneum, Inc. |
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Date: June 6, 2006 | | By | | /s/ Sukhbir S. Mudan |
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| | | | Sukhbir S. Mudan, President |
2
TIER ONE CONSULTING, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2005 AND 2004
CONTENTS
| | | | |
Report of Independent Registered Public Accounting Firm | | | 1 | |
| | | | |
Balance Sheets | | | 2 | |
| | | | |
Statements of Income | | | 3 | |
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Statements of Stockholders’ Equity | | | 4 | |
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Statements of Cash Flows | | | 5 | |
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Notes to Financial Statements | | | 7 | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Tier One Consulting, Inc.
We have audited the accompanying balance sheets of Tier One Consulting, Inc., as of December 31, 2005 and 2004, and the related statements of income, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tier One Consulting, Inc. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Mendoza Berger & Company, LLP
Mendoza Berger & Company, LLP
Irvine, California
May 26, 2006
TIER ONE CONSULTING, INC.
BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
ASSETS
| | | | | | | | |
| | 2005 | | | 2004 | |
Current assets: | | | | | | | | |
Cash | | $ | — | | | $ | 9,605 | |
Accounts receivable, net | | | 1,038,070 | | | | 679,159 | |
Prepaid expenses and other current assets | | | 10,131 | | | | 8,221 | |
| | | | | | |
| | | | | | | | |
Total current assets | | | 1,048,201 | | | | 696,985 | |
| | | | | | |
| | | | | | | | |
Property and equipment, net (Note 3) | | | 13,011 | | | | 10,713 | |
Website development costs, net (Note 4) | | | 29,224 | | | | 5,667 | |
Deferred taxes (Note 9) | | | — | | | | 1,200 | |
Stockholder loan | | | — | | | | 33,615 | |
| | | | | | |
| | | | | | | | |
Total assets | | $ | 1,090,436 | | | $ | 748,180 | |
| | | | | | |
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LIABILITIES AND STOCKHOLDER’S EQUITY
|
| | | | | | | | |
| | 2005 | | | 2004 | |
Current liabilities: | | | | | | | | |
Bank overdraft | | $ | 89,789 | | | $ | 277,611 | |
Accounts payable and other accrued expenses | | | 324,587 | | | | — | |
Accrued salaries and bonuses | | | 5,562 | | | | — | |
Line of credit (Note 5) | | | 59,470 | | | | — | |
Income tax payable (Notes 1 and 9) | | | 1,500 | | | | — | |
Deferred taxes (Note 9) | | | 9,300 | | | | 6,000 | |
Note payable to stockholder (Note 6) | | | 47,000 | | | | 185,000 | |
Other current liabilities | | | 1,019 | | | | 686 | |
| | | | | | |
| | | | | | | | |
Total current liabilities | | | 538,227 | | | | 469,297 | |
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| | | | | | | | |
Commitments (Note 7) | | | — | | | | — | |
| | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Common Stock, par value $0.0033, 1,000,000 shares authorized; 300,000 shares issued and outstanding | | | 1,000 | | | | 1,000 | |
Retained earnings | | | 551,209 | | | | 277,883 | |
| | | | | | |
| | | | | | | | |
Total stockholders’ equity | | | 552,209 | | | | 278,883 | |
| | | | | | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,090,436 | | | $ | 748,180 | |
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The accompanying notes are an integral part of these financial statements
2
TIER ONE CONSULTING, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
| | | | | | | | |
| | 2005 | | | 2004 | |
Revenues | | $ | 5,404,346 | | | $ | 3,802,162 | |
Cost of services | | | 3,407,445 | | | | 2,260,068 | |
| | | | | | |
| | | | | | | | |
Gross profit | | | 1,996,901 | | | | 1,542,094 | |
| | | | | | |
| | | | | | | | |
General and administrative expenses | | | 1,572,368 | | | | 1,340,338 | |
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| | | | | | | | |
Income from operations | | | 424,533 | | | | 201,756 | |
| | | | | | | | |
Other income (expense): | | | | | | | | |
Interest income | | | — | | | | 1,230 | |
Interest expense | | | — | | | | (5,606 | ) |
| | | | | | |
| | | | | | | | |
Income before provision for income taxes | | | 424,533 | | | | 197,380 | |
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Income tax provision (Notes 1 and 9) | | | 6,000 | | | | 5,600 | |
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Net income | | $ | 418,533 | | | $ | 191,780 | |
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| | | | | | | | |
Basic and diluted earnings per share | | $ | 1.40 | | | $ | 1.16 | |
| | | | | | |
| | | | | | | | |
Weighted average shares outstanding | | | 300,000 | | | | 165,835 | |
| | | | | | |
The accompanying notes are an integral part of these financial statements
3
TIER ONE CONSULTING, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
| | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | Total | |
| | Number | | | | | | | Retained | | | Stockholder’s | |
| | of Shares | | | Amount | | | Earnings | | | Equity | |
Balance, December 31, 2003 (unaudited) | | | 3 | | | $ | 1,000 | | | $ | 96,575 | | | $ | 97,575 | |
Three hundred thousand-for-three stock split, June 10, 2004 | | | 299,997 | | | | — | | | | — | | | | — | |
Distributions to stockholders | | | — | | | | — | | | | (10,472 | ) | | | (10,472 | ) |
| | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | 191,780 | | | | 191,780 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance, December 31, 2004 | | | 300,000 | | | | 1,000 | | | | 277,883 | | | | 278,883 | |
Distributions to stockholders | | | — | | | | — | | | | (145,207 | ) | | | (145,207 | ) |
| | | | | | | | | | | | | | | | |
Net income | | | — | | | | — | | | | 418,533 | | | | 418,533 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance, December 31, 2005 | | | 300,000 | | | $ | 1,000 | | | $ | 551,209 | | | $ | 552,209 | �� |
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The accompanying notes are an integral part of these financial statements
4
TIER ONE CONSULTING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
| | | | | | | | |
| | 2005 | | | 2004 | |
Cash flows provided by operating activities: | | | | | | | | |
Net income | | $ | 418,533 | | | $ | 191,780 | |
Adjustment to reconcile net income to cash provided by (used in) operating activities: | | | | | | | | |
Payroll depreciation and amortization | | | — | | | | 27,776 | |
Changes in operating assets and liabilities: | | | | | | | | |
Depreciation and amortization | | | 14,231 | | | | 7,088 | |
Accounts receivable and other receivables | | | (358,911 | ) | | | (450,696 | ) |
Prepaid expenses and other assets | | | (1,910 | ) | | | (4,056 | ) |
Accounts payable and other accrued expenses | | | 47,309 | | | | 220,914 | |
Accrued salaries and bonuses | | | 5,562 | | | | — | |
Deferred taxes | | | 4,500 | | | | 4,800 | |
Income tax payable | | | 1,500 | | | | — | |
| | | | | | |
| | | | | | | | |
Net cash provided (used) by operating activities | | | 130,814 | | | | (2,394 | ) |
| | | | | | |
| | | | | | | | |
Cash flows used from investing activities: | | | | | | | | |
Purchases of property and equipment | | | (8,086 | ) | | | (6,468 | ) |
Software and website development costs | | | (32,000 | ) | | | — | |
Stockholder loan | | | 33,615 | | | | (33,615 | ) |
| | | | | | |
| | | | | | | | |
Net cash used by investing activities | | | (6,471 | ) | | | (40,083 | ) |
| | | | | | |
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Cash flows from financing activities: | | | | | | | | |
Bank overdraft | | | 89,789 | | | | — | |
Net borrowings under revolving line of credit | | | 59,470 | | | | — | |
Proceeds from notes payable | | | — | | | | 55,000 | |
Repayment of notes payable | | | (138,000 | ) | | | (12,000 | ) |
Distributions to stockholders | | | (145,207 | ) | | | (10,472 | ) |
| | | | | | |
| | | | | | | | |
Net cash provided (used) by financing activities | | | (133,948 | ) | | | 32,528 | |
| | | | | | |
| | | | | | | | |
Net decrease in cash | | | (9,605 | ) | | | (9,949 | ) |
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Cash, beginning of year | | | 9,605 | | | | 19,554 | |
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| | | | | | | | |
Cash, end of year | | $ | — | | | $ | 9,605 | |
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The accompanying notes are an integral part of these financial statements
5
TIER ONE CONSULTING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005 and 2004
| | | | | | | | |
| | 2005 | | | 2004 | |
Supplemental disclosure of cash flow information: | | | | | | | | |
Cash paid during the year for: | | | | | | | | |
Interest | | $ | — | | | $ | 5,606 | |
| | | | | | |
| | | | | | | | |
Income taxes | | $ | — | | | $ | 800 | |
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6
TIER ONE CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 and 2004
1. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| | Description of Business |
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| | Tier One Consulting, Inc. (the Company) was incorporated in California on March 17, 2003. The Company’s primary business is providing information technology consulting services to federal, state and local governments, public utilities, Fortune 1000 companies, and other large organizations. |
|
| | Revenue Recognition |
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| | The Company recognizes revenues as professional services are performed, fee is fixed or determinable and collectibility is reasonably assured. The majority of these services are provided under “time and expenses” billing arrangements and revenues are recorded as work is performed. Revenues are also derived from short-term fixed fee contracts primarily with government agencies. |
|
| | Property and Equipment |
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| | Property and equipment are stated at cost. Depreciation and amortization are calculated under the straight line method over the estimated useful lives ranging from three to five years. |
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| | Income Taxes |
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| | On March 18, 2003, the Company elected to be taxed as an “S” Corporation. Accordingly, the Company has not provided for federal income taxes since the income tax liability is that of the individual stockholders. The Company is subject to California state income tax, which is the greater of $800 or 1.5% of taxable income and, accordingly, a provision for such taxes has been included in the accompanying financial statements and as disclosed in Note 9. |
|
| | Concentrations of Credit Risk |
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| | Financial instruments which potentially expose the Company to concentration of credit risk consist primarily of trade receivables. |
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| | The Company extends credit to its customers based upon an evaluation of the customers’ financial condition and credit history, and generally does not require collateral. Credit losses are provided for in the financial statements and consistently have been within management’s expectations. |
7
TIER ONE CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 and 2004
1. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
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| | Concentrations of Credit Risk (Continued) |
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| | The Company earned revenues from one (1) customer that represented approximately 36% and 36% of revenues for the years ended December 31, 2005 and 2004, respectively. The accounts receivable balance from this customer aggregated $440,487 and $165,873 at December 31, 2005 and 2004, respectively. |
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| | Use of Estimates |
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| | The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. |
|
| | Fair Value of Financial Instruments |
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| | The carrying amounts for the Company’s cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, notes payable and other liabilities approximate their fair value. |
|
2. | | STOCKHOLDER LOAN |
|
| | The Company had an unsecured loan receivable from one stockholder, which bore an interest rate of 4.25% and was due on demand. The balance at December 31, 2004 was $33,615. The loan was paid off as of December 31, 2005. |
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TIER ONE CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 and 2004
3. | | PROPERTY AND EQUIPMENT |
|
| | Property and equipment at December 31 consisted of the following: |
| | | | | | | | |
| | 2005 | | | 2004 | |
Computer equipment | | $ | 23,119 | | | $ | 15,032 | |
| | | | | | | | |
Accumulated depreciation | | | 10,108 | | | | 4,319 | |
| | | | | | |
| | | | | | | | |
| | $ | 13,011 | | | $ | 10,713 | |
| | | | | | |
| | Depreciation expense for the years ended December 31, 2005 and 2004 was $5,789 and $3,088, respectively. |
|
4. | | CAPITALIZED WEBSITE DEVELOPMENT COSTS |
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| | The Company capitalizes certain website development costs and enhancements thereto. Such capitalized amounts are amortized commencing when the website is put into operation using the straight-line method over the remaining estimated useful life of the related website. The Company anticipates that the useful life of the website once put into full operation is 5 years. Although it is possible that management’s estimate for the future net realizable value could change in the near future, management is not currently aware of any events that would result in a change to its estimate which would be material to the Company’s financial position or its results of operations. |
|
| | The amount of website development costs capitalized during the years ended December 31, 2005 and 2004, was $32,000 and $0, respectively. Amortization of website development costs charged to expense during the years ended December 31, 2005 and 2004, was $8,442 and $4,000, respectively. |
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5. | | LINE OF CREDIT |
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| | The Company has an unsecured $60,000 line of credit with Wells Fargo Bank used to fund the Company’s short-term working capital requirements. The line of credit bears interest at “a reference rate”, as defined, minus 1% per annum. The balance is payable monthly and the line of credit has a maturity date of June 11, 2006 The line of credit is secured by substantially all of the assets of the Company and personally guaranteed by the Company’s stockholders. The line of credit was acquired by Caneum, Inc. when the Company was acquired in March 2006 (see Note 9). The outstanding balances under the line of credit were $59,470 and $0 at December 31, 2005 and 2004, respectively. |
9
TIER ONE CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 and 2004
5. | | LINE OF CREDIT (Continued) |
|
| | Additionally, the Company executed a new $250,000 relationship ready credit agreement with Citibank on December 20, 2005. The agreement bears interest at the Wall Street Journal Prime Rate, plus 0.5% per annum. The agreement is secured by substantially all of the assets of the Company and is personally guaranteed by the Company’s stockholders. There was no outstanding balance under this agreement at December 31, 2005 |
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6. | | NOTE PAYABLE TO STOCKHOLDER |
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| | Note payable to stockholder is as follows: |
| | | | | | | | |
| | 2005 | | | 2004 | |
Unsecured note payable to Michael A. Willner bearing interest at 4.25%, payable on demand. | | $ | 47,000 | | | $ | 185,000 | |
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7. | | COMMITMENTS |
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| | Lease Commitments |
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| | The Company leased its corporate office in Aliso Viejo, California under an operating lease that expired on May 31, 2006. Subsequently, the Company moved its corporate office to those occupied by the Company’s acquiror, Caneum Inc. in Newport Beach, California as described in Note 9. Because the lease was renewed on a quarterly basis after year-end 2005, there was no future minimum lease payment as of December 31, 2005. |
|
| | Rent expense for the Company’s operating facility totaled $35,258 and $21,268 for 2005 and 2004, respectively. |
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8. | | STOCKHOLDERS’ EQUITY |
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| | On June 10, 2004, the shareholders approved an increase in the issued and outstanding common stock from 3 shares to 300,000 shares, reduced the par value from $333.33 to $.003 per share, and approved a three-for-three hundred thousand common stock split. All references to per share amounts in the financial statements reflect the stock split. |
10
TIER ONE CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 and 2004
9. | | INCOME TAXES |
|
| | The state income tax provision (benefit) at December 31 is summarized as follows: |
| | | | | | | | |
| | 2005 | | | 2004 | |
Current provision | | $ | 1,500 | | | $ | 800 | |
Deferred provision | | | 4,500 | | | | 6,000 | |
Deferred benefit | | | — | | | | (1,200 | ) |
| | | | | | |
| | | | | | | | |
| | $ | 6,000 | | | $ | 5,600 | |
| | | | | | |
| | The state income tax rate at December 31 is detailed below: |
| | | | | | | | |
| | 2005 | | | 2004 | |
Current provision | | $ | 0.004 | % | | $ | 0.002 | % |
Deferred provision | | | 1.496 | % | | | 1.607 | % |
Deferred benefit | | | — | % | | | (0.109 | )% |
| | | | | | |
| | | | | | | | |
| | $ | 1.500 | % | | $ | 1.500 | % |
| | | | | | |
| | Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant differences between the carrying amounts relate to the use of the cash method by the Company for income tax purposes whose components primarily consist of accounts receivable, accounts payable and net operating loss carryforwards. |
|
10. | | SUBSEQUENT EVENTS |
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| | Purchase of Company by Caneum, Inc. |
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| | Effective March 28, 2006, 100% of the outstanding stock of the Company was purchased by Caneum, Inc. of Newport Beach, California, for $2,750,000 in cash. The purchase price may be lowered if the Company’s 2005 earnings before interest and taxes (“EBIT”) falls below $300,000. The two shareholders of record have executed employment agreements with Caneum, Inc. and will continue to manage the Company for a period of two years, automatically renewable on an annual basis thereafter, unless notice is given by either one. |
11
TIER ONE CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 and 2004
10. | | SUBSEQUENT EVENTS (Continued) |
|
| | Purchase of Company by Caneum, Inc. (Continued) |
|
| | The purchase price was allocated as follows: |
| | | | |
Current assets | | $ | 1,048,201 | |
Property and equipment | | | 13,011 | |
Other long-term assets | | | 29,224 | |
Current liabilities | | | (538,227 | ) |
| | | |
| | | | |
Estimated fair value of tangible assets acquired | | | 552,209 | |
| | | | |
Goodwill and other intangible assets | | | 2,197,791 | |
| | | |
| | | | |
| | $ | 2,750,000 | |
| | | |
| | Caneum, Inc. has classified the excess of the purchase price over the estimated fair value of the tangible net assets acquired as goodwill as of December 31, 2005. Caneum, Inc. is in the process of analyzing the components of the intangible assets to determine the final purchase price allocation. |
12
CANEUM, INC.
PROFORMA FINANCIAL STATEMENTS
CANEUM, INC.
PROFORMA BALANCE SHEET
(UNAUDITED)
AS OF DECEMBER 31, 2005
ASSETS
| | | | |
| | December 31, | |
| | 2005 | |
CURRENT ASSETS | | | | |
Cash and cash equivalents | | $ | 99,760 | |
Accounts receivable | | | 1,445,405 | |
Prepaid expenses and other assets | | | 129,980 | |
| | | |
TOTAL CURRENT ASSETS | | | 1,675,145 | |
| | | |
| | | | |
FIXED ASSETS | | | | |
Fixed Assets | | | 83,247 | |
Depreciation | | | (26,455 | ) |
| | | |
TOTAL FIXED ASSETS | | | 56,792 | |
| | | |
| | | | |
OTHER ASSETS | | | | |
Goodwill | | | 1,348,325 | |
Employment contracts | | | 78,000 | |
Capitalized customer contracts/relationships | | | 670,000 | |
Capitalized licenses, service marks and intellectual property. | | | 90,000 | |
| | | |
| | | 2,186,325 | |
Amortization | | | (218,000 | ) |
| | | |
| | | 1,968,325 | |
| | | |
| | | | |
TOTAL ASSETS | | $ | 3,700,262 | |
| | | |
See accompanying notes to the proforma financial statements
CANEUM, INC.
PROFORMA BALANCE SHEET
(UNAUDITED)
AS OF DECEMBER 31, 2005
LIABILITIES AND STOCKHOLDERS’ EQUITY
| | | | |
| | December 31, | |
| | 2005 | |
CURRENT LIABILITIES | | | | |
Bank overdraft | | $ | 89,789 | |
Accounts payable and accrued liabilities | | | 548,523 | |
Credit line | | | 66,303 | |
Accrued payroll and related liabilities | | | 31,401 | |
Income tax payable | | | 1,500 | |
Deferred tax payable | | | 9,300 | |
Note payable to stockholder | | | 47,000 | |
Purchase payable in cash and 1st installment | | | 2,062,500 | |
| | | |
TOTAL CURRENT LIABILITIES | | | 2,856,316 | |
| | | |
| | | | |
COMMITMENTS AND CONTINGENCIES | | | | |
| | | | |
LONG TERM LIABILITIES | | | — | |
| | | | |
Purchase price installment | | | 687,500 | |
| | | |
| | | | |
TOTAL LIABILITIES | | $ | 3,543,816 | |
| | | |
| | | | |
STOCKHOLDERS’ EQUITY | | | | |
Common stock, 100,000,000 shares authorized at $.001 par value: 5,386,991 shares issued and issuable, respectively | | | 5,386 | |
Preferred Stock, 20,000,000 shares authorized at $.001 par value: 0 shares issued and issuable, respectively | | | — | |
Paid in capital | | | — | |
Additional paid in capital | | | 3,434,328 | |
Accumulated deficit | | | (3,243,268 | ) |
Deferred compensation | | | (40,000 | ) |
| | | |
TOTAL STOCKHOLDERS’ EQUITY | | | 156,446 | |
| | | |
| | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 3,700,262 | |
| | | |
See accompanying notes to the proforma financial statements
CANEUM, INC.
PROFORMA STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2005
| | | | |
| | December 31, | |
| | 2005 | |
| | 12 months | |
REVENUE | | $ | 7,488,489 | |
| | | | |
COST OF REVENUE | | | 4,992,429 | |
| | | |
| | | | |
GROSS PROFIT | | | 2,496,060 | |
| | | | |
OPERATING EXPENSES | | | 3,565,409 | |
| | | |
| | | | |
LOSS FROM OPERATIONS | | | (1,069,349 | ) |
| | | | |
OTHER INCOME (EXPENSE) | | | | |
Interest income | | | 1,737 | |
| | | |
TOTAL OTHER INCOME (EXPENSE) | | | 1,737 | |
| | | |
| | | | |
LOSS BEFORE INCOME TAX | | | (1,067,612 | ) |
| | | | |
INCOME TAX EXPENSE | | | (6,800 | ) |
| | | |
| | | | |
NET LOSS | | | (1,074,412 | ) |
| | | |
| | | | |
BASIC AND DILUTED LOSS PER COMMON SHARE | | | (0.23 | ) |
| | | | |
SHARES USED IN LOSS PER SHARE CALCULATIONS | | | | |
WEIGHTED AVERAGE COMMON SHARES | | | 4,670,050 | |
See accompanying notes to the proforma financial statements
Caneum, Inc.
Notes to the Pro Forma Financial Statements
December 31, 2005
NOTE 1 – BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Balance Sheet of the Company as of December 31, 2005, and the Statement of Operations for the Company for the year ended December 31, 2005, have been prepared to illustrate the estimated effect of the combination of Caneum, Inc. and Tier One Consulting, Inc. The pro forma financial statements do not purport to be indicative of the results of operations or financial position of the Company that would actually be attained had such transactions been completed on the assumed dates and for the period presented, or which may be attained in the future. The pro forma adjustments are described in the accompanying notes and are based upon available information and certain assumptions the Company believes are reasonable. The pro forma financial statements should be read in conjunction with the separate historical financial statements of the individual companies and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere.
NOTE 2 – ACQUISITION
On March 28, 2006, the Company entered into and closed a Stock Purchase Agreement with Tier One Consulting, Inc. (“Tier One”) and its two shareholders, Michael A. Willner and Robert J. Morris, in which the Company acquired all of the outstanding shares of Tier One. The purchase price for the shares of Tier One was $2,750,000, of which $1,375,000 was paid at closing and the balance of which is payable in two equal installments on the first and second anniversary of the closing. In addition, the Company deposited $343,750 into a designated bank account for payment toward the first installment and it agreed to reserve a like amount from its bank lines of credit for payment of the first installment, if necessary. The installment payments are subject to adjustment for certain set-offs for any post-closing undisclosed liabilities of Tier One, enforcement of indemnification provisions by Tier One in the agreement, a decline in the EBIT calculation in the Tier One audited financial statements for 2005, or any increase or decrease in the estimated cost of the audit of the Tier One financial statements for 2005. The funds for the payment at closing and the deposit into the designated bank account were furnished from the funding transaction with Barron described in Note 6 to the condensed consolidated financial statements contained in the Company’s Form 10-QSB for the quarter ended March 31, 2006. As a result of the acquisition of all of the outstanding stock of Tier One from its shareholders, Tier One is now a wholly owned subsidiary of the Company. The allocation of the purchase price to the net tangible and intangible assets of Tier One is described in Note 3.
Caneum, Inc.
Notes to the Pro Forma Financial Statements
December 31, 2005
NOTE 3 – PURCHASE PRICE
The allocation of the purchase price to the assets acquired and liabilities assumed was determined based on management’s best estimate considering all information available to it. The purchase price was allocated as follows:
| | | | |
Total Purchase Price | | | | |
Total purchase price | | $ | 2,750,000 | |
Costs of acquisition | | | 27,522 | |
| | | |
Total Purchase price | | $ | 2,777,522 | |
| | | |
| | | | |
Allocation of Purchase price | | | | |
Goodwill | | $ | 1,348,325 | |
Employment contracts | | | 78,000 | |
Customer relationships | | | 670,000 | |
Licenses, service marks and intellectual property | | | 90,000 | |
Current assets | | | 819,343 | |
Fixed assets, net | | | 36,994 | |
Accounts payable and accrued liabilities | | | (265,140 | ) |
| | | |
Total allocated | | $ | 2,777,522 | |
| | | |
Management considers the book value of Tier One’s assets and liabilities to be a fair representation of their value. For most of these assets book value is a close approximation of fair value as these assets and liabilities will soon turn to cash or require cash to pay them. For fixed and other assets it is a fair representation of the price at which they could change hands between a willing buyer and seller.
Employment contracts have been considered to have an estimated fair value of $78,000. This is based on the the estimated retention costs associated and benefits to accrue from the retention of the individuals concerned.
Customer relationships have been considered to have an estimated fair value of $670,000. Such amount is based on applying discounted cash flows to the revenue estimated to be generated and benefits to accrue from Tier One’s customers’ contacts and relationships.
Licenses, service marks and intellectual property have been considered to have an estimated fair value of $90,000. Such amount is based on the the estimated market price of specific licenses and intellectual property.
The remaining costs have been recorded as goodwill.
Caneum, Inc.
Notes to the Pro Forma Financial Statements
December 31, 2005
NOTE 4 – INTANGIBLE ASSETS
Caneum will capitalize the following intangible assets which will be amortized over the estimated useful lives with amortization expense as follows:
| | | | | | | | | | | | |
| | Intangible | | | | | | | Amortization | |
Description | | Asset | | | Life | | | (12 months) | |
Employment contracts | | $ | 78,000 | | | | 2 | | | $ | 39,000 | |
Customer relationships | | | 670,000 | | | | 5 | | | | 134,000 | |
Licenses, service marks and intellectual property | | | 90,000 | | | | 2 | | | | 45,000 | |
| | | | | | | | | | |
| | | | | | | | | | | | |
| | $ | 838,000 | | | | | | | $ | 218,000 | |
| | | | | | | | | | |
Management has consideredSFAS No.141—Business Combinations, SFAS No. 142 — Goodwill and Other Intangible Assets,and EITF 02-17, in assigning values to the assets purchased. Management believes that there is no distinct relationship between any individual customer contracts and the customer relationship itself. Additionally, while there are contracts in place, management considers the real value is in the relationships and the expectations for future contracts. Management has decided to amortize these assets, in the aggregate, over a life of 5 years, as this is management’s estimation of the period over which the assets are expected to contribute directly or indirectly to the future cash flows of Tier One.
NOTE 5 – COSTS OF ACQUISITION
Costs of $27,522, which include directly attributable attorney and accounting fees, have been recorded relating to this transaction and such amount has been reflected in the purchase price of the acquisition.