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| CANM.PK > SEC Filings for CANM.PK > Form 10-Q on 19-Aug-2008 | All Recent SEC Filings |
19-Aug-2008
Quarterly Report
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.
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.
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.
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.
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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