Caneum (CANM) 10-Q 2008 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2008

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.

(Exact name of Registrant as specified in charter)

Nevada	33-0916900
State or other jurisdiction of incorporation or organization	I.R.S. Employer I.D. No.
3101 West Coast Highway, Suite 400, Newport Beach, CA (Address of principal executive offices)	92663 (Zip Code)

Issuer’s telephone number, including area code:(949) 273-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yesþ Noo (2) Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filero Accelerated Filero Non-Accelerated Filero Smaller reporting companyþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

State the number of shares outstanding of each of the issuer’s classes of common equity stock, as of the latest practicable date: At August 14, 2008, there were 10,866,866 shares of our common stock outstanding.

Contents

	Page
PART I		3
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation		19
Item 3. Quantitative and Qualitative Disclosures About Market Risk		25
Item 4T. Controls and Procedures		25
PART II		25
Item 1. Legal Proceedings		25
Item 2. Unregistered Sales of Equity Securities		26
Item 6. Exhibits		26
SIGNATURES		27
Exhibit 31.1
Exhibit 31.2
Exhibit 32

2

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

CANEUM, INC.
June 30, 2008 and December 31, 2007

Condensed Consolidated Balance Sheets
Assets

	June 30,		December 31,
	2008		2007
	Unaudited
CURRENT ASSETS
Cash and cash equivalents	$	50,070	$	46,280
Accounts receivable, net of allowance of $394,258 and $392,157, respectively		1,406,009		1,559,352
Accounts receivable from related parties, net of allowance of $153,852		47,240		111,010
Prepaid assets		82,969		134,764
Other current assets		32,180		33,202
Total current assets		1,618,468		1,884,608
LONG TERM ASSETS
Property & equipment, net		150,281		193,843
Intangibles, net		579,001		643,555
Goodwill		1,464,805		1,464,805
Other		34,060		32,264
TOTAL ASSETS	$	3,846,615	$	4,219,075

Note: The Balance Sheet at December 31, 2007, has been derived from the audited consolidated financial statements at that date.

See accompanying notes to unaudited condensed consolidated financial statements

3

CANEUM, INC.
June 30, 2008 and December 31, 2007

Condensed Consolidated Balance Sheets
Liabilities and Shareholders’ Equity

	June 30,			December 31,
	2008			2007
	Unaudited
CURRENT LIABILITIES
Accounts payable	$	1,705,198		$	1,552,870
Accrued expenses		48,313			25,975
Credit lines		1,190,450			1,231,694
Accrued payroll and related expenses		152,257			248,287
Deferred revenue		34,839			22,880
Current portion of installment loans		259,225			734,974
Other current liabilities		318,989			90,992
Total current liabilities		3,709,271			3,907,672
LONG TERM LIABILITIES
Current portion of installment loan reclassifed to non-current		—			200,000
Promissory notes — related party		625,000			—
Promissory notes		75,000			—
Installment loans, less current portion		433,672			17,894
Other non current liabilities		63,820			61,058
Total liabilities		4,906,763			4,186,624
SHAREHOLDERS’ EQUITY
Preferred stock, $0.001 par value 20,000,000 shares authorized, 0 and 3,332,500 shares issued and outstanding		—			3,332
Common stock, $0.001 par value 100,000,000 shares authorized, 10,453,513 and 8,896,368 shares issued and outstanding		10,452			8,895
Additional paid-in capital		8,869,394			8,708,827
Accumulated other comprehensive income		54,297			87,416
Accumulated deficit		(9,994,291	)		(8,776,019	)
Total shareholders’ equity (deficit)		(1,060,148	)		32,451
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,846,615		$	4,219,075

Note: The Balance Sheet at December 31, 2007, has been derived from the audited consolidated financial statements at that date.

See accompanying notes to unaudited condensed consolidated financial statements

4

CANEUM, INC.
Three and Six Months Ended June 30, 2008 and 2007

Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss)
Unaudited

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2008			2007			2008			2007
	Unaudited			Unaudited			Unaudited			Unaudited
Revenue	$	3,282,784		$	3,241,315		$	6,519,408		$	5,991,688
Cost of revenue		2,742,409			2,541,978			5,469,496			4,730,190
Gross profit		540,375			699,337			1,049,912			1,261,498
Operating expenses		1,124,476			1,187,839			2,203,847			2,297,794
Loss from operations		(584,101	)		(488,502	)		(1,153,935	)		(1,036,296	)
Other income (expense)
Interest expense, net		(57,363	)		(51,531	)		(112,669	)		(104,023	)
Gain (loss) on foreign exchange		53,308			(38,745	)		63,146			(53,048	)
Total other income (expense)		(4,055	)		(90,276	)		(49,523	)		(157,071	)
Minority interest		—			(11,974	)		—			(80,352	)
Loss before income tax		(588,156	)		(590,752	)		(1,203,458	)		(1,273,719	)
Income tax expense		(13,174	)		(10,748	)		(14,814	)		(13,732	)
Net loss	$	(601,330	)	$	(601,500	)	$	(1,218,272	)	$	(1,287,451	)
Basic and diluted net loss per common share	$	(0.06	)	$	(0.07	)	$	(0.13	)	$	(0.16	)
Weighted average number of common shares outstanding used in the calculation		9,534,667			8,045,480			9,293,810			7,996,050
Net loss	$	(601,330	)	$	(601,500	)	$	(1,218,272	)	$	(1,287,451	)
Comprehensive Income (Loss):
Foreign currency translation adjustment (Note 2)		(23,712	)		55,869			(33,119	)		69,925
Comprehensive Loss	$	(625,042	)	$	(545,631	)	$	(1,251,391	)	$	(1,217,526	)

See accompanying notes to unaudited condensed consolidated financial statements

5

CANEUM, INC.
June 30, 2008 and 2007
Condensed Consolidated Statements of Cash Flows
Unaudited

	For the Six Months Ended
	June 30,			June 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,218,272	)	$	(1,287,451	)
Adjustments to reconcile net loss to net cash used in operating activities
Stock option compensation expense		241,864			299,212
Expenses paid by common stock issuances or committed issuances		292,070			317,003
Interest accreted to TierOne installment loans		—			34,538
Depreciation and amortization		49,789			33,946
Amortization of acquired intangibles		91,326			122,354
Bad debt expense		35,000			—
Minority interest		—			80,352
(Increase) decrease in
Accounts receivable		109,286			(1,070,247	)
Prepaid assets and other current assets		43,549			(58,584	)
Increase (decrease) in
Accounts payable and accrued expenses		201,467			698,495
Accrued payroll and related expenses		(37,910	)		6,514
Deferred revenue		11,959			—
Other current liabilities		4,519			—
Net cash used in operating activities		(175,353	)		(823,868	)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition of remaining interest of Continuum		—			(89,286	)
Purchase of property & equipment		(17,185	)		(36,802	)
Sale of property & equipment		1,050			—
Net cash used in investing activities		(16,135	)		(126,088	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of promissory notes		500,000			—
Payment of debt		(76,896	)		(543,857	)
Addition to debt		18,750			24,225
Repurchase of common and preferred shares		(200,000	)		—
Increase (decrease) in credit lines		(41,244	)		1,232,671
Net cash provided by financing activities		200,610			713,039
Effect of changes in foreign currency exchange rates on cash		(5,332	)		19,028
Net increase (decrease) in cash and cash equivalents		3,790			(217,889	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		46,280			335,202
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	50,070		$	117,313
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	106,451		$	72,745
Income taxes paid	$	14,814		$	13,732

See accompanying notes to unaudited condensed consolidated financial statements

6

Supplemental disclosure of non-cash investing and financing activities:

During the six months ended June 30, 2008, the Company converted $200,000 of installment debt due to the former Principals of Tier One into $200,000 Promissory Notes due in 2011.

During the six months ended June 30, 2008, the Company settled $50,457 of commission and payroll liabilities by issuance of 225,807 shares of common stock.

As of June 30, 2008, the Company accrued a $300,000 liability for remaining payments due to Barron Partners for repurchase of 3,332,500 shares of Preferred Stock and 330,397 shares of common stock.

During the six months ended June 30, 2007, the Company issued 260,761 common shares valued at $135,596 as part of the consideration given for the acquisition of the remaining 45% Minority Interest of Continuum Systems, Inc.

See accompanying notes to unaudited condensed consolidated financial statements

7

Caneum, Inc.,
Notes to Condensed Consolidated Financial Statements
June 30, 2008

NOTE 1 — CORPORATE HISTORY

Organization

Caneum, Inc. (the “Company,” “we,” “us,” or “our”) was incorporated in Nevada on March 1, 2000, as Saiph Corporation for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship. On March 5, 2003, the Company filed Amended Articles of Incorporation changing its name to SaiphT Corporation. On July 21, 2003, the Company changed its name to Caneum, Inc.

Caneum, Inc. is a global provider of business process and information technology outsourcing services across vertical industries, including technology, energy, government, transportation, financial services, education and healthcare. The Company provides a suite of business strategy and planning capabilities to assist companies with their outsourcing decisions in the areas of data, network, product development, product maintenance and customer support, and fulfills its services in-house, on-shore, near-shore and off-shore, depending on the business goals and objectives of its global customers. The Company is opportunistically pursuing accretive acquisitions within its core outsourcing service suite in order to broaden its core capabilities, expand its customer base, and supplement its organic growth.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and with the rules and regulations of the Securities and Exchange Commission related to a quarterly reports on Form 10-Q. Accordingly, they do not include all the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. The interim financial statements include all adjustments that, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operations for the periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature.

Results for the interim periods are not necessarily indicative of the results for the entire year. For more complete financial information, these financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2007, included in Caneum’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

8

Caneum, Inc.,
Notes to Condensed Consolidated Financial Statements
June 30, 2008

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Tier One Consulting, Inc., and the majority (55%) owned subsidiary, Caneum India Pvt. Ltd., formerly Continuum Systems Private Limited, an Indian corporation (“Continuum”) acquired on December 31, 2006. The remaining 45% of the outstanding stock of Caneum India was acquired on June 6, 2007, when Continuum became a wholly (100%) owned subsidiary of the Company. However one share is held by Suki Mudan, President of Caneum, Inc., as nominee shareholder but the beneficial ownership continues to be held by Caneum Asia Pacific Pte Limited. This was a requirement for compliance with Indian regulations which mandate that a company must have a minimum of two (2) shareholders. Continuum was renamed Caneum India Private Limited (“Caneum India”). This acquisition of Caneum India occurred through the Company’s wholly owned subsidiary, Caneum Asia Pacific PTE LTD. (“Caneum Asia Pacific”), formed in Singapore on December 21, 2006. The consolidated financial statements include 100% of the accounts of Caneum India from June 6, 2007, the date of acquisition of the remaining 45% of the outstanding stock. All significant inter-company balances and transactions have been eliminated upon consolidation.

Revenue Recognition

The Company derives its revenue primarily from the sale of services. Revenue is recognized as services are performed in accordance with the provisions of SEC Staff Accounting Bulletin (“SAB”) No. 104,Revenue Recognition. The Company recognizes revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed, the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. The Company records all expense reimbursements billed to customers as revenue, and related costs as cost of sales, when incurred, in accordance with Emerging Issues Task Force (“EITF”) 01-14 “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses.”

Segment Reporting

The Company has determined that it operates and reports as one single segment.

9

Caneum, Inc.,
Notes to Condensed Consolidated Financial Statements
June 30, 2008

Stock-Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),Share-Based Payment(“SFAS 123R”) which revises SFAS No. 123,Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued to Employees(“APB 25”). SFAS 123R requires all share based compensation payments to be recognized in the financial statements based on their fair value using an option pricing model.

The Company adopted SFAS 123R using the modified prospective method which requires that share based payments granted prior to adoption be expensed prospectively as they are earned. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. The Company uses the Black-Scholes option-pricing model to value stock option awards and has elected to treat awards with graded vesting as a single award. The Company accounts for stock-based compensation issued to non-employees under SFAS 123R and Emerging Issues Task Force (“EITF”) Issue 96-18, Accounting for Equity Investments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. As such, the value of such options is periodically re-measured and income or expense is recognized during their vesting terms.

Foreign Currency

Our foreign subsidiary’s functional currency is the Indian Rupee, their local currency. Translation of the subsidiary’s assets and liabilities is at the balance sheet date exchange rate. Translation of shareholders’ equity is at historical rates. Translation of income and expenses is at the average exchange rates for the applicable period. Adjustments from these translations are reflected in our consolidated balance sheet as a separate component of shareholders’ equity.

Transactions gains and losses arising from activities in other than the functional currency are calculated using average exchanges rates for the applicable period and reported in our consolidated statement of operations and comprehensive income (loss) as a non-operating item in each period.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, 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. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from those estimates.

10

Caneum, Inc.,
Notes to Condensed Consolidated Financial Statements
June 30, 2008

Comprehensive Income

The Company accounts for comprehensive income in accordance with SFAS No. 130,Reporting Comprehensive Income. The Company reports the accumulated balance of other comprehensive income or loss separately in the stockholders’ equity section of the consolidated balance sheets. The only component of other comprehensive income is the foreign currency translation adjustment.

New Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141R (revised 2007), “Business Combinations”. SFAS 141R replaces SFAS 141 and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, including goodwill, the liabilities assumed and any non-controlling interest in the acquiree. SFAS 141R also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact the adoption of SFAS 141R will have on our consolidated financial position and consolidated results of operations.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements”. SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. This standard is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact the adoption of SFAS 160 will have on our consolidated financial position and consolidated results of operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and Hedging Activities, an amendment of SFAS 133”. This Statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company currently engages in no hedging activities through use of derivative instruments.

11

Caneum, Inc.,
Notes to Condensed Consolidated Financial Statements
June 30, 2008

In May 2008, the FASB issued SFAS No.162 “The Hierarchy of General Accepted Accounting Principals”. This statement identifies the sources of accounting principals to be used in the preparation of financial statements of nongovernment entities that are presented in conformity with generally accepted accounting principals (GAAP) in the United States (the GAAP Hierarchy). This standard is not expected to have any impact on our financial statements.

NOTE 3 — GOING CONCERN UNCERTAINTY

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. For the six months ended June 30, 2008, the Company incurred a net loss of $1,218,272 and for the year ended December 31, 2007 the Company incurred a net loss of $2,966,415. As of June 30, 2008, the Company had negative working capital of $2,090,803 and an accumulated deficit of $9,994,291. These results and the Company’s reliance on obtaining investment funding raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters are discussed below. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty; however, the company is also currently exploring merger options to achieve greater synergies

The net loss for 2007 includes a significant amount of non-recurrent expenses specifically related to legal, accounting, auditing and public filing expenses associated with the resulting restatement of our 2006 quarterly filings and the extended period of time and prolonged difficulties associated with the completion of our 2006 audit.

During the third quarter of 2008, management does not expect to continue to incur significant cash losses from operations. However, additional capital may be required to continue to fund the Company’s operations. Management is actively bridging cash shortfalls in 2008, by additional fund raising activities from both existing and new investors alike. A $1,000,000 private placement in the form of a Promissory Note (Note 4) was commenced in March 2008 and $500,000 has been raised since then. However, there can be no assurance that management will be successful with any additional fund raising activity.

In August 2008, the Company initiated a Services Agreement, whereby certain of its vendor liabilities are managed and paid by an outside company for a small mark up charge.

12

Caneum, Inc.,
Notes to Condensed Consolidated Financial Statements
June 30, 2008

NOTE 4 — PROMISSORY NOTES

As of June 30, 2008, the Company had issued $625,000 of Promissory Notes — Related Party. The notes bear interest at 10% per annum payable quarterly in cash and have a maturity date of March 31, 2011. The Company will have the right to retire the notes for cash or to convert the principal and any unpaid interest into common shares of the Company at the lesser rate of a 25% discount to the ten-day average closing price of the common stock preceding the Maturity Date or $0.50. In the event of a change of control of the Company prior to the Maturity Date, 150% of the principal amount of the Note and any unpaid interest will be paid in cash as of the date of the change of control.

During the six months ended June 30, 2008, the Company had issued an additional $75,000 of Promissory Notes to non-related parties. The notes were sold with the same terms and conditions as the Related Party notes.

NOTE 5 — RELATED PARTY TRANSACTIONS

On January 2, 2007, we entered into an agreement to pay $1,250 per month of the rent on office space of Curo Capital, LLC, a company controlled by Alan Knitowski, our Chairman, and Luan Dang, one of our directors. The agreement expires on December 31, 2008.

Customer

Our Chairman, Alan Knitowski, also serves on the Board of Directors and is an investor in Vootage, Inc. We provide Vootage with offshore software development resources located at our offices in India. The initial contract amount, entered into and fully earned during the year ended December 31, 2007, was $237,000 and a subsequent contract for recurring services in the amount of $45,760 per month was signed in July 2007. The contract was reduced to $15,680 per month in March 2008 then terminated in May 2008. As of June 30, 2008, $169,240 had not been collected and remained in accounts receivable from related parties. The Company has reserved $120,000 against this receivable at June 30, 2008.

Mr. Knitowski and our Vice Chairman, Mr. Luan Dang, serve on the board and are investors in Trycera Financial. We provided Trycera Financial with IT services of which $33,852 remains unpaid and has been fully reserved at June 30, 2008.

13

Caneum, Inc.,
Notes to Condensed Consolidated Financial Statements
June 30, 2008

NOTE 6 — TIER ONE TRANSACTION

On March 28, 2006, the Company acquired all of the outstanding stock of Tier One Consulting, Inc. The purchase price for the shares of Tier One was $2,971,700, of which $1,375,000 was paid at closing, $1,375,000 of which was to be paid in two equal installments of $687,500 on the first and second anniversary of the closing, and $13,333 which was payable monthly for two years. The related installment payables have been recorded at present value using a discount rate between 11% and 12% and the related discount will be accreted to interest expense through the payment dates. 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 acquisition 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 first anniversary payment was offset by $1,975 and reduced to $685,525. On March 28, 2007, we renegotiated the first anniversary payment and paid a total of $361,775 to Messrs Willner and Morris, with the balance of the adjusted first anniversary payment payable in installments of $10,000 each per month beginning in April, 2007. In March 2008, we converted $200,000 of the remaining balance into promissory notes due in 2011 (Note 4) and paid off the remaining balance of $23,948. In accordance with SFAS 6, the Company had reclassified the $200,000 converted amount as a non-current liability at December 31, 2007. The debt modifications are accounted for on a prospective basis.

The final installment of $687,500 initially due March 28, 2008, was refinanced into a series of thirty-nine monthly installment payments of $20,000 beginning May 15, 2008 and going through July 15, 2011, with a final payment of $10,031 due August 15, 2011. The note bears 8% interest and any remaining balance becomes immediately due upon change of control of the Company. The unpaid balance at June 30, 2008 was $661,670.

NOTE 7 — STOCK PLAN

The Company’s 2002 Stock Option/Stock Issuance Plan was amended effective June 8, 2006, to increase the number of shares authorized under the Plan to 15,000,000 shares. The Plan will continue in effect until all of the stock available for grant or issuance has been acquired through exercise of options or grants of shares, or until December 1, 2010, whichever is earlier. Options that forfeited or canceled are added back into the Plan. At June 30, 2008 a total of 5,293,377 shares of common stock were available for grant under the plan and the company recognized share-based compensation expense in accordance with SFAS No. 123R, in the amount of $533,934 and $616,215 for the six months ended June 30, 2008 and 2007, respectively.

During the six months ended June 30, 2008, the Company issued 1,190,000 shares of restricted stock to members of the Board of Directors and certain other senior employees. The shares have vesting terms of one to four years and 1,050,000 shares would vest immediately upon change of control.

14

Caneum, Inc.,
Notes to Condensed Consolidated Financial Statements
June 30, 2008

As of June 30, 2008 there was $412,000 of total unrecognized compensation expense related to unvested stock options under the plan. The expense is expected to be recognized over a weighted average period of 1.5 years. In addition as of June 30, 2008, there was $278,740 of total unrecognized compensation expense related to unvested restricted stock under the plan. This expense is expected to be recognized over a weighted average period of 1.1 years. Because of its net operating losses, the Company did not realize any tax benefits for the tax deductions from share-based payment arrangements during the six month period ended June 30, 2008 and 2007.

NOTE 8 — NOTES PAYABLE

Credit Lines

On February 12, 2007, the Company and its wholly owned subsidiary, Tier One Consulting, Inc. (“Tier One”), (collectively the “Borrower”) entered into a Business Financing Agreement (the “Credit Agreement”) with Bridge Bank, National Association (the “Lender”) that provides for an accounts receivable backed $1,500,000 revolving line of credit (the “Line of Credit”) with an interest rate of Prime + 1.75%. The effective date of the Credit Agreement was January 24, 2007. Effective April 9, 2008 the facility was renewed for an additional year. Under the Line of Credit, the Lender will make advances to the Borrower not exceeding the lesser of (i) $1,500,000 or (ii) 80% of the eligible accounts receivable; provided that at any time the Lender may establish a percentage of eligible accounts receivable greater or lesser than 80%. The Company paid a initial $15,000 facility fee to the Lender for entering into the Credit Agreement and an additional $15,000 facility fee upon renewal. The Credit Agreement provides that the Borrower will pay a fee based on a percentage of the amount of the Line of Credit on each anniversary of the Credit Agreement. The balance outstanding as of June 30, 2008 was $1,100,203.

As of June 30, 2008, the Company maintained a line of credit Wells Fargo Bank. Under the terms of the agreement there is no collateral for the line and the interest rate is variable in nature. The Company must pay the finance charge every month. The balance outstanding on the line was $90,247 at June 30, 2008, at an interest rate at that time of 7.25%.

15

Caneum, Inc.,
Notes to Condensed Consolidated Financial Statements
June 30, 2008

NOTE 9 — LITIGATION

Barron Litigation 

On or about August 17, 2007, the Company filed a complaint against Barron Partners LP in the United States District Court for the Southern District of New York. The Complaint alleged that Barron committed numerous material breaches of the Stock Purchase Agreement it entered into with the Company on or about March 24, 2006, including by engaging in trading activity in Caneum common stock that violates the Stock Purchase Agreement. The Complaint seeks, inter alia, damages, attorneys’ fees, costs, and a declaratory judgment that Barron’s material breaches of the Stock Purchase Agreement excuse the Company from further performance under the Stock Purchase Agreement. In a letter dated August 9, 2007, Barron demanded that the Company issue 2,600,000 additional shares of preferred stock to Barron because the Company did not meet the Adjusted EBITDA goals provided in the Stock Purchase Agreement for the year ended December 31, 2006 as interpreted by Barron. The Company’s complaint alleged that Barron’s material breaches of the Stock Purchase Agreement excused the Company from any obligation to issue additional stock to Barron.

Barron Partners LP filed an answer to this complaint, denying the allegations in the Company’s complaint. Barron also filed a counterclaim alleging breach of contract for failure to meet the adjusted EBITDA goals, the Company’s failure to maintain the effectiveness of its registration statement, and its failure to maintain a quotation for its stock on the OTC Bulletin Board. Barron claimed damages in the amount of approximately 2,000,000 shares and an unspecified cash amount.

This litigation was settled out of court on May 19, 2008. Under the terms of our settlement agreement with Barron Partners, we paid them $200,000 on June 26, 2008, and they delivered for cancellation a stock certificate representing 330,397 shares of our common stock, a preferred stock certificate representing 3,332,500 shares of our Series A Convertible Preferred Stock, an A Warrant certificate for 3,640,000 shares, a B Warrant certificate for 2,000,000 shares, and a C Warrant certificate for 2,000,000 shares, all of which have been cancelled. The common shares were returned to the authorized but unissued shares of the Company. The next payment of $100,000 to Barron Partners was made on July 23, 2008, and the final payments of $100,000 each are due on or before August 22, 2008, and September 21, 2008, respectively.

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Caneum, Inc.,
Notes to Condensed Consolidated Financial Statements
June 30, 2008

Innofone Litigation

The Company filed an action in the Superior Court of California, County of Orange, against Innofone, Inc. on or about November 13, 2006, alleging that Innofone breached its contracts with us by failing to pay approximately $200,000. Innofone then filed counterclaims alleging breach of contract and fraud. At a hearing on October 31, 2007, brought by the Company to seek summary judgment in the Innofone case, the Company was unsuccessful in seeking a summary judgment; the matter was scheduled for trial on November 29, 2007. On February 11, 2008, the court granted judgment in favor of the Company against Innofone in the amount of $198,203 and awarded us prejudgment interest in the amount of $27,122. The court also dismissed the cross-complaint previously filed by Innofone against us. There is no assurance that the Company will be able to collect on this judgment.

Publishing Concepts, L.P.

On September 27, 2007, the Company filed a complaint in the District Court of Dallas County, Texas, against Publishing Concepts, L.P., doing business as PCI, for failure to pay an invoice in the amount of $101,734.75 for services rendered to PCI by the Company. On October 22, 2007, PCI filed an answer generally denying the allegations contained in the Company’s complaint. It also alleged affirmative defenses that the Company overcharged PCI for the services due to the poor quality of the work performed and that therefore, PCI is due credits or offsets from the fees owed. The Company intends to pursue this matter vigorously.

NOTE 10 — FACILITY LEASE

In September, 2007, the Company relocated into new premises. The Company executed two three year leases for approximately 3,400 square feet of office space located at 3101 West Coast Highway, Suite 400, Newport Beach, California, with initial monthly average rent of approximately $14,700, escalating by 2% in years two and three. The lease facilities in India are for lease terms expiring through 2011. Rent expense for our corporate office for the six months ended June 30, 2008 and 2007 was $90,816 and $32,613, respectively.

Future minimum lease commitments for our Newport Beach corporate office are:

2008	$	89,203
2009	$	181,447
2010	$	138,365

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Caneum, Inc.,
Notes to Condensed Consolidated Financial Statements
June 30, 2008

Rent expense for our Caneum India facilities for the six months ended June 30, 2008 was $26,449.

Future minimum lease commitments for our Caneum India offices are:

2008	$	48,206
2009	$	69,947
2010	$	47,767
2011	$	7,357

NOTE 11 — SUBSEQUENT EVENTS

In July 2008, we sold an additional $100,000 of promissory notes. The notes are unsecured, bear interest at 10% per annum and mature March 31, 2011. At maturity, the Company will have the right to retire the notes for cash or to convert the principal and any unpaid interest into common shares of the Company at the lessor of $0.50 per share or a 25% discount to the ten-day average closing price of the common stock proceeding the maturity date. In the event of change of control prior to the maturity date, 150% of the principal amount of the note and any unpaid interest will be paid in cash as of the date of the change of control.

In July 2008, the Company issued 400,000 restricted shares as a bonus to certain employees with vesting terms of two to three years. 150,000 shares would partially vest upon a corporate merger transaction.

In July 2008, the Company cancelled Gary Allhusen’s remaining 859,375 options following his April 2008 resignation as Executive Vice-President and Chief Operating Officer of the Company.

In August 2008, the Company cancelled Mike Willner’s and Rob Morris’ remaining 2,000,000 options following their May 2008 termination from serving as Executive Vice Presidents of the Company.

In August 2008, the Company initiated a Services Agreement, whereby certain of its vendor liabilities are managed and paid by an outside company for a small mark up charge.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this quarterly report on Form 10-Q (the “Quarterly Report”) and the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2007 (the “2007 Annual Report”), as filed with the Securities and Exchange Commission (“SEC”). In addition to historical information, this discussion and analysis contains forward looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward looking statements as a result of certain factors, including but are not limited to those identified in 2007 Annual Report in the section entitled “Risk of Foreign Operations” and “Competition”.

Forward-Looking Statements

This report contains certain forward-looking statements and information that are based on assumptions made by management and on information currently available. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” and similar expressions, as they relate to our company or its management, are intended to identify forward-looking statements. These statements reflect management’s current view of our company concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others the following: changes in the information technology industry; changes in out-sourcing and off-shore operations; a general economic downturn; a further downturn in the securities markets; our early phase of operations; reliance on foreign suppliers and contractors; the inability to locate suitable acquisition targets; and other risks and uncertainties. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected.

Background

We have two wholly owned operating subsidiaries, Tier One Consulting, Inc., which operates from our Newport Beach, California, offices, and Caneum India Private Limited, formerly Continuum Systems Private Limited, which operates from our offices located in Gurgaon, Delhi, India, and is owned by our wholly owned holding company formed and located in Singapore, Caneum Asia Pacific Pte. Ltd.

Overview

We are a global provider of business process and information technology outsourcing services across vertical industries, including technology, energy, government, transportation, financial services, education and healthcare. We provide a suite of business strategies and planning capabilities to assist companies with their outsourcing decisions in the areas of data, network, product development, product maintenance and customer support, and fulfill our services in-house, on-shore, near-shore and off-shore, depending on the business goals and objectives of our global customers. In parallel, we are opportunistically pursuing accretive acquisitions within our core outsourcing service suite in order to broaden our core capabilities, expand our customer base and supplement our organic growth.

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We offer our customers business process outsourcing (BPO) services and information technology outsourcing (ITO) services. BPO services are comprised of the following:

• Customer Support, including call centers and web agents for online and offline technical, customer and product support;

• Human Resources, including benefits packages, pre-employment screening, retained and contingent recruiting and information technology centric staffing;

• Sales and Marketing, including online web agents, lead generation and distribution channel expansion;

• Investor Relations and Public Relations, including audio transcription and web development, deployment and maintenance for investor communications; and

• Finance and Accounting, including data entry and back office processing.

ITO services are comprised of the following: Information Technology Enterprise Software Services, including architecting, integrating, deploying, migrating and maintaining front-end Sales Force Automation (SFA), back-end Enterprise Resource Planning (ERP), case management, expert system and enterprise application software packages; Information Technology Infrastructure Services, including systems administration, database administration, web development, network optimization, infrastructure audits and system architecture; and Product Development, including hardware, firmware and software coding, development and maintenance for existing product lines and next generation product prototyping.

Results of Operations

Three and Six months ended June 30, 2008, versus the Three and Six months ended June 30, 2007

Revenue

Revenue was $3,282,784 and $3,241,315 for the three months ended June 30, 2008 and 2007, respectively, representing an increase of $41,469 compared to the same period in the prior year (the “comparable prior year period”). An increasing proportion of our revenue came from our largest customer, DIRECTV, which accounted for almost 46% of our total revenues for the three months ended June 30, 2008. For the prior year period DIRECTV accounted for approximately 22% of our total revenue.

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Revenue was $6,519,408 and $5,991,688 for the six months ended June 30, 2008 and 2007, respectively, representing an increase of $527,720 or 9% as compared to the same period in the prior year (the “comparable prior year period”). A significant portion of increase was due to expanded operations at out largest customer, DIRECTV, which accounted for almost 44% of our total revenues for the six months ended June 30, 2008. The other significant contribution to the revenue increase was increased BPO services through our wholly owned India subsidiary.

Cost of Revenue and Gross Profit

Cost of revenue was $2,742,409 and $2,541,978 for the three months ended June 30, 2008 and 2007, respectively, representing an increase of $200,431, or 8%. The increase was partly due to decreased margins as discussed below.

Cost of revenue was $5,469,496 and $4,730,190 for the six months ended June 30, 2008 and 2007, respectively, representing an increase of $739,306, or 16%. The increase was due to increased activity at DirecTV as described above, as well as decreased margins as discussed below.

Our gross margin percentages were 16% and 22% for the three months ended June 30, 2008 and 2007, respectively. The decrease in the gross margin percentages was the result of three factors: higher commission payments to recruiters, a lower proportion of permanent placements (which are typically much higher margins) and a decline in the volume of high margin business with one of our key clients, DIRECTV.

Our gross margin percentages were 16% and 21% for the six months ended June 30, 2008 and 2007, respectively. The decrease in the gross margin percentages was the result of three factors: higher commission payments to recruiters, a lower proportion of permanent placements (which are typically much higher margins) and a decline in the volume of high margin business with one of our key clients, DIRECTV.

Operating Expenses

Operating expenses were $1,124,476 and $1,187,839 for the three months ended June 30, 2008 and 2007, respectively, representing a decrease of $63,363 or 5%. A significant factor for the decrease was U.S. payroll and professional services, as described below offset by higher office rent of $32,321.

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The major components of our operating expenses are as follows:

• Stock-Based Compensation expense and Expenses Paid by Stock Issuance were $363,825 and $280,323 for the three months ended June 30, 2008 and 2007, respectively. This represents a increase of $83,502 and is due to issuance of a stock bonus to each our Chairman and President valued at $60,000 offset by the lower value of our stock used as incentives for other services.

• U.S. Payroll and Related Expenses, (excluding stock based) amounted to $319,093 and $345,790 for the three months ended June 30, 2008 and 2007, respectively. The decrease of $26,697 or 8% resulted from the departure of three senior executives in April and May 2008.

• U.S. Professional Services, including legal, auditing and other consulting services amounted to $244,609 and $290,872 during the three months ended June 30, 2008 and 2007 respectively. The decrease of $46,263 was primarily attributable to the prior year period including increased audit and accounting costs due to the late filing of our Form 10-KSB for year ended December 31, 2006.

• Most expenses of our wholly-owned India subsidiary are a direct cost of revenue and are recoded as such. Operating expenses of our India subsidiary, excluding depreciation and amortization, were $105,300 and $62,161 for the three months ended June 30, 2008 and 2007, respectively.

Operating expenses were $2,203,847 and $2,297,794 for the six months ended June 30, 2008 and 2007, respectively, representing a decrease of $93,947 or 4%. A significant factor for the decrease was $82,281 less stock based compensation expense and expenses paid by stock issuance, as described below offset by higher office rent of $65,704.

The major components of our operating expenses are as follows:

• Stock-Based Compensation expense and Expenses Paid by Stock Issuance were $533,934 and $616,215 for the six months ended June 30, 2008 and 2007, respectively. This represents a decrease of $82,281 and principally results from the lower value of our stock used as incentives for services.

• U.S. Payroll and Related Expenses, (excluding stock based) amounted to $726,418 and $689,351 for the six months ended June 30, 2008 and 2007, respectively. The increase of $37,067 or 5% resulted from increased investment in infrastructure personal prior to the departure of three senior executives in April and May 2008.

• U.S. Professional Services, including legal, auditing and other consulting services amounted to $431,521 and $418,150 for the six months ended June 30, 2008 and 2007 respectively. The increase of $13,371 was primarily attributable to the legal costs associated with litigation against Barron Partners LP.

• Most expenses of our wholly-owned India subsidiary are a direct cost of revenue and are recoded as such. Operating expenses of our India subsidiary, excluding depreciation and amortization, were $214,332 and $115,955 for the six months ended June 30, 2008 and 2007, respectively.

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Other Income (Expense)

For the three months ended June 30, 2008 we recorded other expense, net of $4,055 compared to other expense, net of $90,276 for the three months ended June 30, 2007. The decrease in other expense, net resulted from $53,308 of foreign exchange gain during the current year period versus $38,745 of foreign exchange loss during the prior year period. The foreign exchange gain and loss is due to our wholly owned subsidiary transacting business in currencies other than their functional currency. Net interest expense increased $5,832 from the prior year period primarily due to interest expense associated with our promissory note offering.

Other expense, net was $49,523 and $157,071 for the six months ended June 30, 2008 and 2007, respectively. The decrease in other expense was primarily the result of $63,146 of foreign exchange gain in the current year period versus $53,048 of foreign exchange loss in the prior year period. Net interest expense increased $8,646 from the prior year period due to interest expense associated with our promissory note offering as well as six months of borrowings on our Bridge Bank line of credit compared to only four months of borrowings in the prior year period.

Net loss

We incurred a net loss of $601,330 and $601,500 for the three months ended June 30, 2008 and 2007, respectively.

We incurred a net loss of $1,218,272 and $1,287,451 for the six months ended June 30, 2008 and 2007, respectively.

Liquidity and Capital Resources

Cash and cash equivalents were $50,070 and $117,313 as of June 30, 2008 and 2007, respectively.

Net cash used in operations was $175,353 for the six months ended June 30, 2008 compared to $823,868 used in operations for the six months ended June 30, 2007. Cash used in operations in the current year period was reduced due to timely collection of receivables as well as extension of payables. Besides our cash loss from operations, the prior year period use of cash was due to extension of receivables funded by borrowings on our Bridge Bank line of credit.

Net cash used in investing activities was $16,135 and $126,088 for the six months ended June 30, 2008 and 2007, respectively. The prior year period included $89,300 of acquisition expenditures for the remaining 45% Minority Interest of Continuum.

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Net cash provided by financing activities was $200,610 for the six months ended June 30, 2008 compared to cash provided by financing activities of $713,039 for the six months ended June 30, 2007. During the current year period we repurchased from Barron Partners all outstanding convertible Preferred Shares and 330,397 common shares for $500,000, of which $200,000 was paid as of June 30, 2008. Following the repurchase, all of the shares were retired. The funds for the share repurchase were obtained by selling our convertible promissory notes. For the six months ended June 30, 2008 we raised $500,000 from the sales of convertible promissory notes. The current year also includes some reduction in notes payable to the prior Tier One shareholders as well as some reduction in our Bridge Bank line of credit. The prior year period included $1,232,671 of advances from our lines of credit, offset by principal payments of $467,700 to the prior Tier One shareholders, $50,000 to a prior shareholder of Continuum Systems (now wholly owned as Caneum India) and $26,157 of other debt.

In March 2008, in conjunction with our promissory note offering, we converted $200,000 of the Tier One principal balance into promissory notes due in 2011. The remaining balance of $23,948 for the first installment on the Tier One acquisition debt was also paid off in March 2008. The final installment of $687,500 initially due March 28, 2008, was refinanced into a series of thirty-nine monthly installment payments of $20,000 beginning May 15, 2008 and going through July 15, 2011, with a final payment of $10,031 due August 15, 2011. The note bears 8% interest and any remaining balance becomes immediately due upon change of control of the Company. The unpaid balance at June 30, 2008 was $661,670.

In August 2008, we initiated a Services Agreement, whereby certain of our vendor liabilities are managed and paid by an outside company for a small mark up charge.

Off-Balance Sheet Arrangements

During the six months ended June 30, 2008, we did not engage in any off-balance sheet arrangements.

Recent Accounting Pronouncements

Refer to Note 2 to the unaudited condensed consolidated financial statements for a discussion of the impact of recent accounting pronouncements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we have elected not to provide the information required by this item.

Item 4T. Controls and Procedures

Disclosure Controls and Procedures

Upon our initial evaluation, our senior management identified several material weaknesses in our disclosure controls and procedures and internal control over financial reporting. We continue to investigate further and to apply compensating procedures and processes, as necessary and within the constraints of our financial means, to ensure the reliability of our financial reporting and are evaluating and intend to adopt measures designed to remediate any weaknesses.

Our controls and procedures are inadequate to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. Our disclosure controls and procedures are not designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure. Based on an initial assessment that has not been completed yet, management has determined that the Company’s disclosure controls as of June 30, 2008, were ineffective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting which were identified in connection with the evaluation that occurred during the last quarter ended June 30, 2008, which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

Barron Litigation 

Under the terms of our settlement agreement with Barron Partners, we paid them $200,000 on June 26, 2008, and they delivered for cancellation a stock certificate representing 330,397 shares of our common stock, a preferred stock certificate representing 3,332,500 shares of our Series A Convertible Preferred Stock, an A Warrant certificate for 3,640,000 shares, a B Warrant certificate for 2,000,000 shares, and a C Warrant certificate for 2,000,000 shares, all of which have been cancelled. The common shares were returned to the authorized but unissued shares of the company. The next payment of $100,000 to Barron Partners was made on July 23, 2008, and the final payments of $100,000 each are due on or before August 22, 2008, and September 21, 2008, respectively.

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Item 2. Unregistered Sales of Equity Securities

In February 2008, we commenced our offering of 10% promissory notes to raise a maximum of $1,000,000 (the “Note Offering”). The promissory notes are not payable until March 31, 2011 in cash or, at the option of the Company, in shares of common stock at a 25% discount to the ten-day average closing price of the common stock preceding such date or $0.50 per share whichever is less. Through the quarter ended June 30, 2008, we sold notes in the principal aggregate amount of $700,000 to the following persons:

Name	Investment Date		Investment Amount
Michael A. Willner		3/19/08	$	100,000
Robert Morris		3/20/08		100,000
Ecewa Capital Group, LLC		3/25/08		50,000
Ecewa Capital Group, LLC		4/24/08		50,000
Matthew Portoni		4/27/08		25,000
Ecewa Capital Group, LLC		5/6/08		200,000
Charles Eckel		5/12/08		50,000
Avtar Singh Ranshi		5/14/08		100,000
Roger Goulette		5/27/08		25,000
TOTAL			$	700,000

These notes were sold 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. Each Investor was an accredited investor at the time of the sale and delivered appropriate investment representations with respect to this issuance and consented to the imposition of restrictive legends upon the promissory representing the loans. Each investor also 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. Each investor was afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the transaction. No underwriting discounts or commissions were paid in connection with the sale of the notes.

Item 6. Exhibits

The following exhibits are included as part of this report:

31.1	Rule 13a-14(a) Certification by Principal Executive Officer
31.2	Rule 13a-14(a) Certification by Principal Financial Officer
32	Section 1350 Certification of Principal Executive and Financial Officer

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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.

	Caneum, Inc.
Date: August 18, 2008	By:	/s/ Suki Mudan
		Suki Mudan, President
		(Principal Executive and Financial Officer)

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EXHIBIT INDEX

Exhibit
No.		Description
	31.1	Rule 13a-14(a) Certification by Principal Executive Officer
	31.2	Rule 13a-14(a) Certification by Principal Financial Officer
	32	Section 1350 Certification of Principal Executive and Financial Officer

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