KRANEM CORP - FORM 10-Q - November 21, 2011

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - KRANEM CORP	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - KRANEM CORP	exhibit31-1.htm
EX-32.1 - EXHIBIT 32.1 - KRANEM CORP	exhibit32-1.htm
EX-32.2 - EXHIBIT 32.2 - KRANEM CORP	exhibit32-2.htm
EX-31.2 - EXHIBIT 31.2 - KRANEM CORP	exhibit31-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: September 30, 2011

[ ] 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: 000-53364

KRANEM CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Colorado	000-53563	02-0585306
(State or other jurisdiction of	(Commission File Number)	(IRS Employer Identification No.)
incorporation or organization)

1080 O’Brien Drive
Menlo Park, CA 94025
(Address of principal executive offices)

(650) 319-6743
(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]	Accelerated filer [ ]

Non-accelerated filer [ ]	Smaller reporting company [X]
(Do not check if a smaller reporting company)

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

Yes [ ] No [X]

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 10, 2011 is as follows:

Class of Securities	Shares Outstanding
Common Stock, no par value	39,888,750

KRANEM CORPORATION


TABLE OF CONTENTS

PART I		2

FINANCIAL INFORMATION		2

ITEM 1.	FINANCIAL STATEMENTS.	2
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	20
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	31
ITEM 4.	CONTROLS AND PROCEDURES.	31

PART II		32

OTHER INFORMATION		32

ITEM 1.	LEGAL PROCEEDINGS.	32
ITEM 1A.	RISK FACTORS.	32
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	32
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	33
ITEM 4.	[REMOVED AND RESERVED]	33
ITEM 5.	OTHER INFORMATION.	33
ITEM 6.	EXHIBITS.	33

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

KRANEM CORPORATION CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2011

		Consolidated	Consolidated
	Note	30-Sep-11	31-Dec-10
		US $	US $
		(Unaudited)	(Audited)
ASSETS
Current Assets:
Cash and cash equivalents		123,969	545,374
Available for sale financial assets		-	172,538
Financial assets	6A	940,260	455,856
Accounts receivable, net of allowance for doubtful debts	6B	5,718,860	5,422,724
Accounts receivable - related parties	6B	1,389,865	-
Inventories		-	145,023
Deferred tax assets, net	6	88,166	123,838
Current tax assets net of provision for income tax		32,858	463,021
Prepaid expenses and other current assets		92,537	176,712
Total Current Assets		8,386,515	7,505,086
Non-Current Assets:
Property, plant and equipment, net	6C	139,866	1,001,511
Intangible assets, net	6D	1,488,448	47,730
Financial assets	6A	264,916	81,925
Deferred tax assets, net		18,828	3,202
Other non-current assets		164,477	173,071
Total Non-Current Assets		2,076,535	1,307,439
TOTAL ASSETS		10,463,050	8,812,525

LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Accounts payable		1,240,104	1,473,734
Accounts payable - related parties		1,018,822	1,078,831
Deferred revenues		350,344	88,215
Accrued payroll		150,493	-
Short-term note		400,000	-
Short-term loan - related parties		441,623	-
Current tax liability, net of tax assets		-	156,451
Other current liabilities		408,485	904,661

Total Current Liabilities		4,009,871		3,701,892

Non-Current Liabilities:
Long-term debt		-		-
Long- term provisions	6E	109,660		92,862
Total non-current liabilities		109,660		92,862
STOCKHOLDERS’ EQUITY		-		-
Preferred Stock, no par value, 10,000,000 shares authorized, no shares issued and outstanding	7	-		-
Common Stock, no par value, 50,000,000 shares authorized, 39,888,750 shares issued and outstanding	7	1,583,113		472,004
Retained earnings		4,938,474		4,249,737
Currency translation reserve		(200,371	)	281,015
Accumulated other comprehensive income		22,303		15,015
Total Stockholders’ Equity		6,343,519		5,017,771
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY		10,463,050		8,812,525

The accompanying Notes are an integral part of the Financial Statements

KRANEM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AS OF SEPTEMBER 30, 2011 (Unaudited)


		Three Months Ended				Nine Months Ended
	Note	30-Sep-11		30-Sep-10		30-Sep-11		30-Sep-10
		US $		US $		US $		US $
REVENUES
Income from operations		1,642,594		1,741,696		3,947,562		7,250,269
COST OF REVENUES		434,071		623,560		1,132,185		3,718,772
GROSS PROFIT		1,208,523		1,118,136		2,815,377		3,531,497
OPERATING EXPENSES
Research & development		252,223		247,838		761,614		789,446
Selling and marketing		124,193		91,565		278,899		268,658
General and administrative expenses		454,767		132,199		910,448		386,498
Total Operating Expenses		831,183		471,602		1,950,961		1,444,602
OPERATING INCOME		377,340		646,534		864,416		2,086,895
Finance costs		(31,761	)	(373	)	(77,498	)	(572	)
Non operating income		107,674		78,321		173,894		287,412
Income before Income Taxes		453,253		724,482		960,812		2,373,735
Tax expenses	6F	130,160		70,603		272,075		280,866
Net Income		323,093		653,879		688,737		2,092,869
Earnings per Equity share	6G
Basic		0.01		0.03		0.03		0.10
Weighted average number of equity shares used in computing earnings per equity share
Basic		39,888,750		21,335,625		29,749,107		21,335,625

The accompanying Notes are an integral part of the Financial Statements

KRANEM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
AS OF SEPTEMBER 30, 2011
(Unaudited)

	NINE MONTHS ENDED

	30-Sep-11		30-Sep-10
	US $		US $
Cash Flows from Operating Activities:
Net Income	688,737		2,092,869
Adjustments:
Depreciation and amortization	152,525		126,396
Loss/(Profit) on sale of property, plant and equipment	10,741		(1,960	)
Provision for taxation	262,092		297,459
Dividend income	-		(2,904	)-
Deferred taxes	9,983		(16,593	)
Fair value adjustments	(62,204	)	(29,898	)
Interest (Accrual) / Reversal on fixed deposits	(4,620	)	(2,235	)
Provision for gratuity and leave encashment	35,613		18,235
Amortization of prepaid rent	23,986		4,508
Gain on liabilities w/o in acquisition	(52,792	)	56,499

Changes in Asset / Liabilities
(Increase)/Decrease in other non current Assets	(2,009	)	304,946
(Increase)/Decrease in inventories	115,281		2,177,935
(Increase)/Decrease in trade receivables	(2,142,608	)	3,491,427
Increase/(Decrease) in tax assets	(14,827	)	(189,200	)
(Increase)/Decrease in financial assets	23,208		(8,974	)
(Increase)/Decrease in prepaid and other current Assets	(4,380	)	3,922,814
Increase/(Decrease) in long term provisions	4,570		(2,383	)
Increase/(Decrease) in trade payable	(68,082	)	(12,225,389	)
Increase/(Decrease) in deferred revenues	269,557		(808,050	)
Increase/(Decrease) in other current liabilities	182,555		(132,226	)
Net Cash from Operating Activities	(572,674	)	(926,724	)

Cash flows from Investing Activities:
Dividend income	-		2,966
Investments in fixed deposits placed with banks	-		(230,510	)
Withdrawal of fixed deposits placed with banks	-		1,599,892
Investment in mutual fund units	(1,097,324	)	(223,814	)

Redemption of mutual fund units	1,234,392		-
Proceeds from sale of fixed assets	100,784		1,960
Expenditure on property, plant and equipment	(21,945	)	(46,773	)
Acquisition of assets	(5,831,375	)	-
Net Cash from Investing Activities	(5,615,468	)	1,103,721

Cash flows from Financing Activities:
Increase/(Decrease) in short term loans	381,283		(405,798	)
Increase/(Decrease) in common shares	5,431,375		-
Net Cash from Financing Activities	5,812,658		(405,798	)

Net Increase / (decrease) in cash and cash equivalents during the period	(375,484	)	(228,801	)

Cash and cash equivalents at the beginning of the period	545,374		397,987

Effect of exchange rate changes on cash and cash equivalents	(45,921	)	17,815
Cash and Cash Equivalents at the end of the period	123,969		187,001

The accompanying Notes are an integral part of the Financial Statements

KRANEM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 – Basis of presentation

The interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by Kranem Corporation (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the audited financial statements of the Company for the period ended December 31, 2010 and notes thereto included in the Company’s current report on Form 8-K (Amendment No. 1) filed on July 29, 2011. The Company follows the same accounting policies in the preparation of interim reports.

Results of operations for the interim periods are not indicative of annual results.

Note 2 – History and organization of the Company

The Company was incorporated in the State of Colorado on April 18, 2002 under the name Kranem Corporation. The Company previously offered high-quality office and office supply products to businesses, educational institutions, government agencies and individuals through the Company’s website, www.learningwire.com. The Company operated its business under the “Learningwire” trade name, which is registered with the Colorado Secretary of State. However, the Company ceased its online operations in January 2006 and from that time until the consummation of the Share Exchange Agreement with Xalted Networks, Inc. described below, the Company did not engage in any active operations, other than its search for a privately owned corporation to merge with or acquire.

On May 13, 2011, the Company executed and closed transactions under a Share Exchange Agreement with Xalted Networks, Inc., or Xalted Networks, a Delaware holding company with an operating subsidiary in India. The transactions under the Share Exchange Agreement with Xalted Networks are accounted for as a reverse recapitalization whereby a private company exchanges shares with a non-operational public company resulting in a change in control and management. Accordingly, the historical financial data accompanying these financial statements are that of Xalted Networks, primarily its operating subsidiary in India. Since the closing of the Share Exchange Agreement, the Company has been engaged in the provision of advanced software solutions that enable companies and public organizations, including governments and law enforcement agencies, to capture, manage and analyze structured and unstructured data to enhance business and operational performance and address security threats. The two principal markets that our software solutions address are the telecom security market and the homeland security market. The Company includes law enforcement as part of the homeland security market. The Company’s current and past geographic focus is on India and the surrounding countries in Asia, Africa, and the Middle East.

The Company’s recapitalization with Xalted Networks and its operating subsidiary, Xalted Information Systems (Pvt.) Ltd., or Xalted Information, was accomplished by the forgiveness of $2,500,000 of debt issued by Xalted Network’s parent, Xalted Holding Corporation, or Xalted Holding, which we acquired from three note holders in exchange for the issuance to them of an aggregate of 14,958,280 shares of our common stock; the issuance to Xalted Holding of 11,634,220 shares of our common stock; and the cancellation of an aggregate of 14,687,500 outstanding shares of our common stock held by three individuals. As a result and immediately after the closing of, these transactions, the former Xalted Holding note holders held directly 45% of our issued and outstanding stock. Xalted Holding held directly 35% of our issued and outstanding common stock. The remaining 20% was held by the shareholders of Kranem Corporation of record immediately before the closing of the transactions. The share amounts in these financials reflect the amounts of shares held by the shareholders following the stock dividends issued on July 28, 2011.

Asset Purchase Agreement. On June 30, 2011, we entered into and consummated an Asset Purchase Agreement with Investco, a British Virgin Islands corporation, pursuant to which we acquired certain software, source code, intellectual property rights and other materials relating to the “Data Retention,” “Man in the Middle,” “Man in the Middle Detector” and “nCrypto” products and product families. We refer to these items as the Transferred Assets. We assumed no liabilities of Investco in connection with this transaction.

As consideration for the Transferred Assets, we issued to Investco 6,648,125 shares of our common stock, representing 20% of our then-issued and outstanding capital stock, and a one-year convertible promissory note, or the Note, in the principal amount of $400,000. The Note bears simple interest at the annual rate of five percent and is due and payable, together with accrued interest, on June 29, 2012 or earlier in the event of our insolvency or bankruptcy. The Note may be prepaid at any time without penalty. The Note is convertible at the option of the Note holder, in whole but not in part, into shares of our common stock, at the per share price paid by, and on the same terms and conditions extended to, the investors our next round of financing. The shares and the Note were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. We relied on these exemptions from registration based in part on representations made by Investco. The securities issuable upon conversion of the Note have not been registered under the Securities Act. The shares of common stock, the Note and the securities issuable upon any conversion of the Note, may not be offered or sold absent registration or an applicable exemption from registration requirements.

For more information on this transaction, please see our current report on Form 8-K filed with the SEC on July 7, 2011, which is incorporated herein by reference.

Note 3 - Significant Accounting Policies:

There have been no changes to the Company’s significant accounting policies from those described in Notes to the Financial Statements of the Company for the year ended December 31, 2010. These unaudited financial statements should be read in conjunction with such financial statements for the year ended December 31, 2010 filed in our current report on Form 8-K (Amendment No. 17) filed on July 29, 2011.

Note 4 - Recent Accounting Pronouncements:

The Company evaluated all recent accounting pronouncements issued and determined that the adoption of these pronouncements would not have a material effect on the financial position, results of operations or cash flows of the Company.

Note 5 - Use of estimates:

The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as on the date of the financial statements and the reported amount of revenues and expenses during the reported period. Examples of such estimates include: project completion dates, time and cost required to complete projects for purposes of revenue recognition and future revenue, expense and cash flow estimates for purposes of impairment analysis and loss contract evaluation, allowance for doubtful debts, obligations under employee benefit plans, valuation allowances on deferred tax assets, useful lives of premises and equipment (fixed assets) and income taxes. Actual results could differ materially from those estimates.

Note 6 - Other disclosures:

A. Financial Assets:

The components of financial assets are given hereunder:

	As at	As at
	September 30, 2011	December 31, 2010
	$	$
1. Financial Assets-Current
Interest free loan given to director (Note a)	426,773	430,298

Fixed deposits placed with banks with maturity less than one year (Note b) residual	20,844	25,558

Krishil TechPark Private Limited (Note c)	492,643	-
	940,260	455,856


2. Financial Assets-Non-Current
Fixed deposits placed with banks with residual maturity more than one year(Note d)	60,542	81,925

Krishil TechPark Private Limited (Note e)	204,374	-
	264,916	81,925
Total Financial Assets	1,205,176	537,781

Note a: The Company has given interest free loan to a director of Xalted Information and Xalted Networks, which is repayable in 2011. The Board of Directors of Xalted Information has decided that no further loan will be granted to any of the directors in the future.

Note b: Current Fixed Deposits amounting to $ 20,844 and $ 25,558 as on September 30, 2011 and December 31, 2010 respectively are placed with bank as margin for performance /financial guarantees given by the company, as such not considered as cash equivalents.

Note c: The amount due from Krishil Tech Park Private Limited is on account of sale of land which is recoverable by December 2011.

Note d: Entire amounts of non-current fixed deposits as on September 30, 2011 and December 31, 2010 are placed with Bank as margin for performance/ financial guarantees given by the company.

Note e: The amount due from Krishil Tech Park Private Limited is on account of sale of land which is recoverable after September 2012.

B. Accounts receivable, net of allowance for doubtful debts

Accounts receivables consists of:
	As at		As at
	September 30, 2011		December 31, 2010
	$		$
Accounts receivables
-From customer	3,579,373		3,900,247
-From Related Parties	1,389,866		-
Accrued Income (Refer Note a)	2,355,772		1,738,760
Total Accounts Receivables (Gross)	7,325,011		5,639,007
Less: Allowance for Doubtful Debts (Refer Note b)	(216,284	)	(216,284	)
Accounts Receivable, Net	7,108,727		5,422,723

Note a: Accrued income consists of amounts representing the recognized sales value of performance and such amounts that had not been billed and were not billable to customers as the respective milestones were not achieved at the date of the balance sheet.

Note b: The Company had billed a customer in Africa amounting to $ 216,284. In view of the uncertainty in realization of this amount from the customer, the Company as a prudent and conservative measure had made a provision in the books for the entire amount in the year ended December 31, 2009.

The Company through its subsidiary, Xalted Information, is exposed to foreign currency risk on its account receivables. Foreign currency risk is market risk due to effect of changes in foreign currency exchange rates. The contracts with some clients are typically priced in U.S. dollars which represents foreign exchange exposure. Net foreign currency receivable aggregated to $ 1,403,943 and $ 8,750 as at September 30, 2011 and December 31, 2010 respectively.

The allowance for doubtful debts are established at amounts considered to be appropriate based primarily upon Company’s past credit loss experience with the customers and an evaluation of potential losses on the outstanding receivable balances.

The activity in the allowance for doubtful accounts receivable is given below:

	For the	For the
	period ended,	period ended,
	September 30,	December 31,
	2011	2010
	$	$
As on beginning of the period	216,284	216,284
Additions	-	-
Deductions	-	-
As on the end of the period	216,284	216,284

C. Property, plant and equipment, net

Property, plant and equipment consist of:

	As at September 30,		As at December 31,
	2011		2010
	$		$

Computer & Peripherals	1,038,503		1,113,637
Communication Equipments	29,079		31,102
Electrical Equipments	127,968		137,752
Lab Equipment	71,788		78,388
Office Equipment	8,350		9,901
Motor Vehicle	16,841		63,730
Air Conditioner	70,253		76,712
Furniture and Fittings	87,597		95,652
Digital Loop Carriers	67,630		73,849
Leasehold improvements	31,054		33,909
Land	-		803,412
Total	1,549,063		2,518,044
Less: Accumulated Depreciation	(1,409,197	)	(1,516,533	)
Property, plant and equipment, net	139,866		1,001,511

D. Intangible Assets, net

The following table presents details of our total Intangible assets:

		Accumulated	Net carrying
As at September 30, 2011	Gross Cost	amortization	value
	$	$	$
Software	278,963	247,655	31,308
Software, IP – Acquired June 30, 2011
(Note a)	1,511,109	53,969	1,457,140


		Accumulated	Net carrying
As at December 31, 2010	Gross Cost	amortization	value
	$	$	$
Software	304,612	256,882	47,730

Note a, On June 30, 2011, we entered into and consummated an Asset Purchase Agreement, with Investco, a British Virgin Islands corporation, pursuant to which we acquired certain software, source code, intellectual property rights and other materials relating to the “Data Retention,” “Man in the Middle,” “Man in the Middle Detector” and “nCrypto” products and product families. We refer to these items as the Transferred Assets. We assumed no liabilities of Investco in connection with this transaction.


E. Long Term Provisions

Long Term Provisions consists of:

	As at	As at
	September 30, 2011	December 31, 2010
	$	$
Liability Accrual for Gratuity	46,002	51,110
Liability Accrual for Leave Encashment (Compensated Absences)	55,381	32,714
Provision for Warranty Expenses	8,277	9,038
Total	109,660	92,862

F. Income taxes

Income taxes consist of:

	For the	For the
	period ended	period ended
	September 30,	December 31,
	2011	2010
	$	$
Domestic Income Taxes
Current taxes	236,671	262,334
Earlier Years Taxes	25,420	37,111
Deferred taxes	9,984	(23,270	)
Aggregate Income taxes	272,075	276,175

Under Section 80-IC on the Indian Income Tax Act, 1961, Xalted Information is entitled to tax holidays for its Software units located at Himachal Pradesh. 100% tax holidays of profits are available for a period of first five consecutive fiscal years from the date of commencement of operations and 30% exemption of profits for the next five consecutive fiscal years respectively. These holidays expire in fiscal 2015 for the first unit and fiscal 2019 for the second unit.

The components of net deferred tax asset are as follows:
	As at	As at
	September 30, 2011	December 31, 2010
	$	$
Deferred tax assets:
Employee benefits	-	-
Gratuity	14,926	10,867
Leave Encashment	17,968	16,977
Salaries Payable	-	-
Rent Payable	-	-
Provision for Doubtful Accounts	71,224	71,844
MAT credit available as per Income Tax Act, 1961	16,942	18,500
Accrued liabilities	-	22,058
Others	-	9,589
Fair Value of Director’s Loan	-	11,863
Fair Value of Receivables towards sale of land	-	-
Fair Value of Rental Deposits	-	-
Gross deferred tax assets	121,060	161,698
Less: Valuation allowance	-	-
Total deferred tax assets	121,060	161,698

Deferred tax liabilities:
Property, plant and equipment	14,066	26,688
Prepaid Rent	-	7,970
Total deferred tax liabilities	14,066	34,658
Net deferred income tax assets/(liabilities)	106,994	127,040

G. Earnings per share

Basic earnings per share and diluted earnings per share are computed on the basis of the weighted average number of shares outstanding.

The components of basic and diluted earnings per share were as follows:

	Nine months Period	Nine months Period
	January 1, 2011 to	January 1, 2010 to
	September 30, 2011	September 30, 2010
	$	$
Net income attributable to Kranem Corporation’s shareholders ($)	688,737	2,092,869
Average outstanding shares
Basic	29,749,107	21,335,625

Earnings per share
Basic ($)	0.03	0.10

H. Segmental reporting

SFAS 131, "Disclosure about Segments of an Enterprise and Related Information" establishes standards for the way that public business enterprises report information about business segments and related disclosures about products and services, geographical areas and major customers.

The Chief Executive Officer (CEO) of the Company has been identified as the Chief Operating Decision Maker (CODM) as defined by ASC Topic 280. The CEO of the Company evaluates the segments based on their revenue growth, operating income and return on capital employed. Management of the Company is of the view that it has only one business segment, i.e. Telecom Industry Solutions and hence the disclosure requirements as per SFAS 131 are not applicable to the Company.

Geographic segment

The revenues that are attributable to countries based on location of customers are as follows:

Nine months

Three months

Period January

Period July 1, 2011

Three months Period

Nine months Period

1, 2010 to

July 1, 2010 to

January 1, 2011 to

September 30,

September 30, 2011

September 30, 2010

September 30, 2011

2010

India

1,077,736

925,995

1,771,488

5,281,485

USA

26,181

756,979

1,578,166

1,707,193

Europe

400,000

Nepal

120,623

35,395

123,121

175,083

South Africa

18,054

23,327

74,787

86,508

Total

1,642,594

1,741,696

3,947,562

7,250,269

I. Related Party Transactions

List of related parties where control exists and related parties with whom transactions have taken place and relationships:

Sr
No.	Name of the Related Party	Relationship
1	Xalted Networks Inc	Wholly-owned subsidiary
2	Xalted Holding Corporation (formerly known as Xalted Networks Inc)	Entities over which directors of are able to exercise significant influence are Kranem Corp.
3	Sandalwood Partners	Entities over which directors are able to exercise significant influence
4	SEM India Systems Private Limited	Entities over which directors are able to exercise significant influence
5	Xalted Technologies Private Limited	Entities over which directors are able to exercise significant influence
6	Krishil TechPark Private Limited	Entities over which directors are able to exercise significant influence
7	Prabhas Consulting	Entities over which directors are able to exercise significant influence
8	Shri Pratap Kondamoori	Key managerial personnel
9	Shri Ajay Batheja	Key managerial personnel
10	B V Naidu	Key managerial personnel

Transactions with related parties during the three months period ended September 30, 2011.

			Entities over
			which Directors
			are able to		Key
Sr		Holding	exercise significant		Managerial
No	Nature of Transactions	Company	influence		Personnel	Total
		$	$		$	$
1	Revenue Transactions-
	-Service Fees	-	-		-	-
2	Fair value Adjustments-
	-Fair Value Income on interest free Loan to Director	-	-		17,428	17,428
	-Fair Value Income on amounts recoverable from Krishil TechPark Limited towards sale of Land	-	(20,257	)	-	(20,257	)
3	Loans and Advances given	160,000	-		-	160,000
4	Loans and Advances Repaid	-	2,881		-	2,881
5	Accounts Payable	-	9		-	9
6	Consultancy Charges	-	3,203		9,609	12,812
7	Sale of Land	-	-		-	-
8	Accounts Receivable	104,249	-		-	104,249

Transactions with related parties during the three months period ended September 30, 2010.

			Entities over
			which Directors
			are able to		Key
Sr		Holding	exercise significant		Managerial
No	Nature of Transactions	Company	influence		Personnel	Total
		$	$		$	$
1	Revenue Transactions-
	-Service Fees	-	730,445		-	730,445
2	Fair value Adjustments-
	-Fair Value Income on interest free Loan to Director	-	-		8,173	8,173
	-Fair Value Income on amounts recoverable from Krishil TechPark Limited towards sale of Land	-	-		-	-
3	Loans and Advances given	-	-		3,944	3,944
4	Loans and Advances Repaid	-	371,068		-	371,068
5	Accounts Payable	-	25,433		-	25,433
6	Consultancy Charges	-	-		9,860	9,860
8	Accounts Receivable	1,950,263	-		-	1,950,263

Transactions with related parties during the nine months period ended September 30, 2011.

			Entities over
			which Directors
			are able to	Key
Sr		Holding	exercise significant	Managerial
No	Nature of Transactions	Company	influence	Personnel	Total
		$	$	$	$
1	Revenue Transactions-
	-Service Fees	-	1,499,162	-	1,499,162
2	Fair value Adjustments-
	-Fair Value Income on interest free Loan to Director	-	-	34,969	34,969
	-Fair Value Income on amounts recoverable from	-	-	-	-
	Krishil TechPark Limited
	towards sale of Land
3	Loans and Advances given	160,000	80,595	-	240,595
4	Loans and Advances Repaid	-	192,167	-	192,167
5	Accounts Payable	-	57,375	-	57,375
6	Consultancy Charges	-	5,441	29,739	35,180
7	Sale of Land	-	782,473	-	782,473
8	Accounts Receivable	104,249	-	-	104,249

Transactions with related parties during the nine months period ended September 30, 2010.

			Entities over
			which Directors
			are able to	Key
Sr		Holding	exercise significant	Managerial
No	Nature of Transactions	Company	influence	Personnel	Total
		$	$	$	$
1	Revenue Transactions-
	-Service Fees	1,628,164	-	-	1,628,164
2	Fair value Adjustments-
	-Fair Value Income on interest free Loan to Director	-	-	23,953	23,953
3	Loans and Advances given	-	-	3,944	3,944
4	Loans and Advances Repaid	-	398,628	-	398,628
5	Accounts Payable	-	191,648	-	191,648
6	Consultancy Charges	-	-	29,472	29,472
7	Accounts Receivable	2,149,861	-	-	2,149,861

Closing Balance of Related Parties as at September 30, 2011


			Entities over
			which Directors
			are able to	Key
Sr		Holding	exercise significant	Managerial
No	Nature of Transactions	Company	influence	Personnel	Total
		$	$	$	$
1	Financial Assets	-	697,016	426,773	1,123,789
2	Other Current Assets	-	3,365	14,306	17,671
3	Accounts Payable	883,512	134,595	2,759	1,026,866
4	Accounts Receivable	-	1,389,866	-	1,389,866
5	Short-term Loan	-	281,623	-	281,623

Closing Balance of Related Parties as at September 30, 2010


			Entities over
			which Directors
			are able to	Key
Sr		Holding	exercise significant	Managerial
No	Nature of Transactions	Company	influence	Personnel	Total
		$	$	$	$
1	Financial Assets	-	-	402,505	402,505
2	Other Current Assets	-	3,685	11,638	15,323
3	Accounts Payable	922,289	185,579	-	1,107,868
4	Accounts Receivable	65,000	-	-	65,000
5	Short-term Loan	-	576,276	-	576,276

Disclosure in respect of material related party transactions three-month and nine-month period ended September 30, 2011 and September 30, 2010, respectively:

1.	Revenue transactions (Service fees) include Xalted Holding Corporation (formerly known as Xalted Networks Inc) $ Nil and $ 1,499,162 for the three-month and nine-month period ended September 30, 2011 respectively and $ 730,445 and $ 1,628,164 for three-month and nine-month period ended September 30, 2010 respectively.

2.	Fair value income include director’s loan (Pratap Kondamoori): $ 17,428 and $ 34,969 for the three-month and nine-month period ended September 30, 2011 respectively and $ 8,173 and $ 23,953/- three-month and nine- month period ended September 30, 2010.

3.	Consultancy charges include Ajay Batheja: $ 9,609 and $ 29,739 for the three-month and nine-month period ended September 30, 2011 respectively and $ 9,860 and $ 29,472 for the three-month and nine-month period ended September 30, 2010 respectively.

4.	Consultancy Charges include Prabhas Consulting: $ 3,203 and $ 5,441 for the three-month and nine-month period ended September 30, 2011 respectively.

J. Contingencies and commitments

Contingencies

The Indian Income Tax Assessing Officer has raised a demand for additional Tax liability for A.Y. 06-07, AY 07- 08 and AY 08-09. Xalted Information is contesting the order of denial of bad debts for A.Y. 06-07 and section 10A benefits claimed by Xalted Information in 07-08 and 08-09 under the Income Tax Act, 1961. The estimated contingency amounts to $ 272,075 as of September 30, 2011. The management believes that Xalted Information has strong merits for this petition and hence it will not have material adverse affect on the Company’s results of operations, liquidity or financial position and has filed an Appeal to the Commissioner of Income Tax.

Legal Proceedings

(a)	Xalted Information has an ongoing dispute with one of their customers in Africa in view of the SOW (Statement of Work) changing at regular intervals and new requirements being added regularly against what has been agreed as per contract. The Company had received a notice from the customer about the cancellation of the contract almost more than 9 months back and has not heard from them thereafter. In view of the uncertainty in realization of the amount of $ 216,284 due from this customer, the Company as a prudent and conservative measure had made a provision in the books for the entire amount of $ 216,284.

(b)	Arasor Corporation. In April 2010, a petition was filed against Xalted Information in the High Court of Karnataka at Bangalore by Arasor Corporation or Arasor, a Delaware company. The High Court is the principal court of original jurisdiction in the Indian state of Karnataka, sitting in the city of Bangalore. The petition sought an order under Sections 433 and 434 of the Companies Act of 1956 for the winding up of Xalted Information, based on allegations that Xalted Information did not pay for communications equipment sold and shipped by Arasor. We maintain the Company never received the equipment which is alleged to have been shipped to us. This type of claim, and the type of relief sought, is not unusual in India.

	The petition was heard by a single judge, sometimes also called a “Single Bench Judge,” in the High Court in Karnataka. Any judicial panel comprised of two judges in a given court is referred to in India as a “Division Bench.” The Single-Bench Judge found sufficient evidence to hold a hearing on Arasor’s complaint to “wind- up” Xalted Information on November 10, 2010. On December 14, 2010, Xalted Information filed an appeal of that decision before a Division Bench of the same High Court. On January 19, 2011, the two-judge Division Bench stayed the November 10, 2010 order of the Single Bench Judge and all further proceedings in the action filed by Arasor, pending the appeal.

After submission of written arguments, a hearing on the appeal was conducted in March 2011, a further hearing was set for June 9, 2011, and the earlier stay was continued during the pendency of the appeal. In June 2011, Xalted Information filed an additional application with the two-judge Division Bench to request dismissal of the claims against it on the basis that Arasor’s corporate status was “void” in Delaware and “forfeited” in California, and that Arasor therefore was without corporate power and authority to maintain or prosecute the action. On October 15, 2011, the Division Bench heard the appeal filed by Xalted Information and set aside the order of admission of the petition. The Division Bench Court determined that the order passed by the Single Judge Court did not fully take into consideration the defenses presented by Xalted Information and remanded the matter back to the Single Bench Judge to hear the evidence of both parties again, as to whether there was sufficient evidence to admit the petition for trial. The Divisional Bench Court also ruled that Xalted Information is permitted to raise all defenses, including the defense of the non-existence of Arasor Corporation.

The Company’s India counsel has informed us they believe Xalted Information has a reasonably strong legal position and a good chance of success in persuading the Single Bench Judge to refuse to admit the winding-up petition. If Xalted Information is not successful in that effort, it may appeal the admission of the petition to the Division Bench and, if necessary, to the Supreme Court. Should those appeals fail, the petition would be finally admitted and the matter would proceed to trial before the Single Bench Judge. Again, Xalted Information would have the opportunity to contest the claims made by Arasor. In the event of an adverse decision, Xalted Information would be entitled to appeal that decision to the Division Bench and, if necessary, to the Supreme Court. If all appeals were to fail, Xalted Information would be subject to judicial liquidation in India if it is unable to pay the amount of the judgment.

Note 7 – Stockholders’ Equity:

The Company is authorized to issue 50,000,000 shares of its common stock, with no par value, and up to 10,000,000 shares of its preferred stock, with no par value.

On May 13, 2011, the Company consummated a Share Exchange Agreement with Xalted Networks and its operating subsidiary, Xalted Information, through the issuance of common shares in the Company which has been accounted for as a reverse recapitalization. As part of the recapitalization, $2,500,000 of debt issued by Xalted Network’s parent, Xalted Holding was forgiven. The Company acquired the debt from three note holders in exchange for the issuance to them of an aggregate of 14,958,280 shares of our common stock. The other part of the recapitalization was the issuance to Xalted Holding of 11,634,220 shares of our common stock; and the cancellation of an aggregate of 14,687,500 outstanding shares of our common stock held by three individuals. As a result of, and immediately after the closing of the recapitalization, the former Xalted Holding note holders held directly 45% of our issued and outstanding stock. Xalted Holding held directly 35% of our issued and outstanding common stock. The remaining 20% was held by the shareholders of Kranem Corporation of record immediately before the closing of the transactions.

On June 30, 2011, we entered into and consummated an Asset Purchase Agreement with Investco, a British Virgin Islands corporation, pursuant to which we acquired certain software, source code, intellectual property rights and other materials relating to the “Data Retention,” “Man in the Middle,” “Man in the Middle Detector” and “nCrypto” products and product families. We refer to these items as the Transferred Assets. We assumed no liabilities of Investco in connection with this transaction. As consideration for the Transferred Assets, we issued to Investco 6,648,125 shares of our common stock, representing 20% of our then-issued and outstanding capital stock, and a one-year convertible promissory note, or the Note, in the principal amount of $400,000. For more information on this transaction, please see our current report on Form 8-K filed with the SEC on July 7, 2011, which is incorporated herein by reference.

As of the close of business of September 30, 2011, the Company had a total of 39,888,750 common shares outstanding. There were no preferred shares of the Company outstanding. The Company has not paid any cash dividends on common stock. There is no current anticipation of paying cash dividends in the future.

Note 8 – Subsequent Events:

Reclassification of the Transactions. On October 4, 2011, after consultation with our independent auditor, De Joya Griffith & Co. LLC, and other financial and legal advisors, our Board of Directors adopted resolutions to reclassify the Transactions as a recapitalization, also commonly referred to as a reverse merger, rather than a stock acquisition transaction. Concurrent with this quarterly report on Form 10-Q, we are filing a current report on Form 8-K to report the reclassification of the Transactions.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning any projections of earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: the impact of the global economic environment on the Company’s customer base (particularly telecom and law enforcement agencies) and the resulting uncertainties; changes in technology and market requirements; decline in demand for the Company’s products; inability to timely develop and introduce new software, services and applications; difficulties or delays in absorbing and integrating acquired operations, technologies and personnel; loss of market share; pressure on pricing resulting from competition; and inability to maintain certain marketing and distribution arrangements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and except as required by federal securities laws, we disclaim any obligation to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

Use of Terms

Except where the context otherwise requires and for the purposes of this report only, references to:

the “Company,” “we,” “us,” and “our” are to the combined business of Kranem Corporation, a Colorado corporation, and its consolidated subsidiaries, Xalted Networks and Xalted Information;
“Xalted Holding” are to Xalted Holding Corporation, a Delaware corporation, formerly known as Xalted Networks, Inc., which changed its name to Xalted Holding Corporation on March 14, 2011;
“Xalted” is the combination of Xalted Networks and Xalted Information;
“Xalted Networks” are to Xalted Networks, Inc., a Delaware corporation, incorporated on March 14, 2011;
“Xalted Information” are to Xalted Information Systems (Pvt.) Ltd., an Indian company;
“India” are to the Republic of India;
“SEC” are to the Securities and Exchange Commission;
“Securities Act” are to the Securities Act of 1933, as amended;
“Exchange Act” are to the Securities Exchange Act of 1934, as amended;
“Rupees” and “Rs.” are to the legal currency of India; and
“U.S. dollars,” “dollars” and “$” are to the legal currency of the United States.

Our Company History

We were incorporated in the State of Colorado on April 18, 2002 under the name Kranem Corporation. We previously offered high-quality office and office supply products to businesses, educational institutions, government agencies and individuals through our website, www.learningwire.com. We operated our business under our “Learningwire” trade name, which is registered with the Colorado Secretary of State. However, we ceased our online operations in January 2006 and from that time until the acquisition of Xalted Networks described below, we did not engage in any active operations, other than our search for a privately owned corporation to merge with or acquire.

On May 12-13, 2011, we entered into a Share Exchange Agreement and related agreements pursuant to which we agreed to acquire Xalted Networks and its operating subsidiary, Xalted Information, in exchange for the issuance of 35% of our outstanding stock to Xalted Holding, the parent corporation of Xalted Networks, the issuance of 45% of our outstanding stock to three investors and convertible note holders of Xalted Holding, the forgiveness of $2,500,000 of Xalted Holding debt which we acquired from the note holders, and the cancellation of 14,687,500 outstanding shares of our common stock held by three individuals. These transactions (the “Transactions”) resulted in a change of control of Kranem Corporation. We originally accounted for the Transactions using purchase method of accounting, but on October 4, 2011, our board of directors determined to account for the Transactions as a reverse recapitalization.

Changes to our board of directors and management

As a part of the Transactions, Michael Grove resigned from all positions held with us effective as of the closing of the Transactions; Stephen K. Smith resigned from his position as our President effective as of the closing of the Transactions, and as a member of our board of directors effective upon the tenth day following the mailing of a 14f-1 Notice to our shareholders, or June 4, 2011; Ajay Batheja was appointed to our board of directors effective as of the closing; other individuals designated by Xalted Holding were appointed to our board effective on June 4, 2011; Ajay Batheja was also appointed as our Chief Executive officer, or CEO, effective as of the closing; and Edward Miller was appointed as our Chief Financial Officer effective as of the closing. Ajay Batheja was then, and still is, a member of the board of directors and the CEO of Xalted Holding, and the CEO of Xalted Information. Edward Miller had no position with us, Xalted Holding or any affiliate of either prior to the closing. Since the closing, Luigi Caramico and V.R. Ranganath, both of whom are directors of Xalted Holding, have been appointed to our board of directors, effective on June 4, 2011.

Recent Developments

Overview of Our Business

Through our operating subsidiary, Xalted Information, we provide advanced software solutions that enable companies and public organizations, including governments and law enforcement agencies, to capture, manage and analyze structured and unstructured data to enhance business and operational performance and address security threats. We have one business segment: telecom market solutions. The two principal markets that our software solutions address are the telecom market and the homeland security market. We include law enforcement as part of the homeland security market. Our current and past geographic focus is on India and the surrounding countries in Asia and some countries in Africa and the Middle East.

Our software products are developed internally. In some cases we incorporate software licensed from Oracle Corporation, BMC Corporation or other third-party suppliers specified by our customers. Our software is licensed to our customers and is not integrated with hardware products at the time of sale.

In the telecom market, we provide four software modules that address different aspects of the telecom market: revenue maximization, revenue assurance, fraud management and OSS/BSS (short for operations support systems and business support systems). The revenue maximization module allows a telecom service provider to identify trends in the usage of various services provided, so that it can tailor its service offering to maximize revenue. Revenue assurance locates potential users that are trying to use portions of the telecom service provider’s system capabilities without being a valid user of those services. The software module identifies illegal users, allowing the telecom service provider to take appropriate measures, generally comprised of locking the user out of a specific service or service package within the service network. The fraud management system module, or FMS, identifies a larger scale attempted use of the telecom service provider’s network by an individual or individuals who are not valid network users. The operations support systems, or OSS, and business support systems, or BSS, are business management tools that allow a telecom service provider to develop and deploy a new service offering more rapidly. The module automatically accounts for potential equipment limitations in the roll-out of a new service offering. The term OSS is commonly used to describe network systems dealing with the telecom network itself, as well as supporting processes such as maintaining network inventory, provisioning services, configuring network components and managing faults.

Our telecom customers include major telecom companies and organizations in India, such as Bharat Sanchar Nigam Ltd., or BSNL, Mahanagar Telephone Nigam Limited, or MTNL, and the Centre for Development of Telematics, or CDOT, the telecom technology development center of the government of India. BSNL is India’s oldest and largest communications service provider and one of its largest cellular service providers. It has footprints throughout India, except for the metropolitan cities of Mumbai and New Delhi, which are managed by MTNL. Telecom customers outside of India include Mozambique Cellular, or Mcel, Nepal Telecom, Nepal Satellite Telecom, Telecom Italia and Hutchison 3G.

In the homeland security market, our security solutions are used by governments and law enforcement agencies in their efforts to protect people and property and combat terrorism and crime. Our homeland security customers include the national government of India and local and regional law enforcement agencies and bodies in India, such as the Anti-Terrorist Squads in Mumbai, Maharashtra and Goa, the STF or special task force in Uttarakand, and the Cyber Crime division of the Thane District Police.

Our sales consist of licenses of software, as well as, in some cases, service fees for installation, commissioning, testing, training and/or ongoing technical support for our software modules. The terms of our licenses with our customers vary widely, but typically include progress payments based on performance benchmarks and a final payment after commissioning, testing and acceptance by the customer.

Our corporate headquarters are located in Menlo Park, CA. We also have two operational centers in India. The telecom security operations group is located in Bangaluru, India. The homeland security operations are located in Mumbai, India. The Company’s sales offices are located in Delhi, India.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

Information technology spending. We are heavily dependent on our customers’ decisions with regard to spending on information technology. As a general proposition, spending in this area is considered important by our customers, including our government customers, but can be affected adversely by changes in national, regional and global economic conditions.
Product offering and pricing. Our business depends, in large part, on our ability to successfully introduce new products, services and technologies to consumers, the frequency of such introductions, the level of consumer acceptance, and the related impact on the demand for existing products, services and technologies. We strive to offer new products to address changing consumer tastes and preferences and intend to maintain competitive pricing in order to gain additional market share and revenue growth.
Market acceptance of our homeland security solutions. Our homeland security solutions are in an early market stage where the value of our products and services is still in the process of gaining market acceptance. We believe that our future growth depends in part on the continued and increasing acceptance of the value of our homeland security solutions.
Global and regional security concerns. Much of our business consists of providing software solutions to government and private agencies to deal with security and law enforcement concerns, including domestic and international terrorism. To the extent our customers are located in regions around the world where crime, terrorism and other national security concerns are on the rise, we would anticipate an increased demand for our products and services.
Political instability. In many regions of the world, political instability is accompanied by heightened concerns relating to domestic and international security. To the extent our customers are located in these regions, we would anticipate an increased demand for our products.

Taxation

Kranem Corporation and Xalted Networks are subject to United States taxes. No provision for income taxes in the United States has been made as these companies have no income taxable in the United States.

In India the corporate income tax rate for an Indian company is a flat rate of 30%. For companies with a gross revenue in excess of Rs. 10,000,000 (approximately $226,400), there is a 5% surcharge. There is also an education fee of 3%, which is applied to both the corporate tax and surcharge. The combination of these three corporate taxation items produces an effective tax rate for Indian companies with gross revenue in excess of Rs. 10,000,000 of 32.5% . Due to the various tax holidays enjoyed by Xalted Information, it is currently paying a corporate tax rate of approximately 12%. However, the current tax rate will begin to increase during 2011 as the first of the tax holidays begins to expire. Based on the Indian corporate tax rate and the distribution of income among our business units, we believe that our average tax rate across all our Indian business units will rise gradually from about 20% in 2011 to 30% in 2019.

Xalted Information has ongoing disputes with Indian income tax authorities relating to tax treatment of certain items. These mainly include disallowed expenses, tax treatment of certain expenses claimed by Xalted Information as deductions, and computation of, or eligibility for certain tax incentives or allowances. Xalted Information is contesting the Income Tax Officer’s order for the denial of Section 10A benefits claimed by it under the Indian Income Tax Act, 1961. The estimated contingency amounts to $224,949 as of December 31, 2010 and $141,592 as on December 31, 2009. We believe Xalted Information has strong merits for this petition and hence we anticipate that it will not have the material adverse affect on Xalted Information’s results of operations, liquidity or financial position.

Results of Operations

Three and Nine Months Ended September 30, 2011 and 2010

We recorded net income of $323,093 and $688,737 for the three and nine months ended September 30, 2011, respectively, compared to net income of $653,879 for the three months ended September 30, 2010 and $2,092,869 for the nine months ended September 30, 2010. On a basic and diluted per share basis, net income was $0.01 and $0.03 for the three and nine months ended September 30, 2011, respectively, compared to net income of $0.03 and $0.10 for the three and nine months ended September 30, 2010, respectively. We may incur net losses in future periods due to future spending and fluctuations in our business, and we may not achieve or maintain sustained profitability in the future.

Revenues

Comparison of the Three- and Nine-Month Periods Ending September 30, 2011 and 2010

		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,
		2011		2010		2011		2010

Revenue	$	1,642,594	$	1,741,696	$	3,947,562	$	7,250,269
Cost of Revenue		434,071		623,560		1,132,185		3,718,772
Gross Profit		1,208,523		1,118,136		2,815,377		3,531,497
Operating Expenses		831,183		471,602		1,950,961		1,444,602
Operating Income/(Loss)		377,340		646,534		864,416		2,086,895
Other Income/(Expense)		75,913		77,948		96,396		286,840
Income before Income Taxes		453,253		724,482		960,812		2,373,735
Income Taxes		130,160		70,603		272,075		280,866
Income after Taxes		323,093		653,879		688,737		2,092,869

Revenues. We generate revenues from sales of our integrated information security products and through the related after-sales services. Our revenues were $1,642,594 and $3,947,562 for the three and nine months ended September 30, 2011, respectively, compared to $1,741,696 and $7,250,269 for the three and nine months ended September 30, 2010, respectively. The decline in revenue was primarily due to the timing of attaining specific revenue/project milestones associated with our customer contracts.

Cost of revenue. Our cost of revenue primarily consists of the purchase of third party software and deployment costs. Our cost of revenue was $434,071 and $1,132,185 for the three and nine months ended September 30, 2011, respectively, compared to $623,560 and $3,718,772 for the three and nine months ended September 30, 2010, respectively. Cost of revenue decreased $189,489 for the three months ended September 30, 2011, compared to the three months ended September 30, 2010. Cost of revenue decreased $2,586,587 for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010. These decreases were predominately due to the reduced revenue levels in the 3rd quarter and thefirst nine months of 2011 versus the corresponding periods of 2010.

Gross profit and gross margin. Our gross profit is equal to the difference between our revenues and our cost of revenue. Our gross profit was $1,208,523 and $2,815,377 for the three and nine months ended September 30, 2011, respectively, compared to $1,118,136 and $3,531,497 for the three and nine months ended September 30, 2010, respectively. Our gross profit increased $90,387 for the three months ended September 30, 2011, compared to the three months ended September 30, 2010. Our gross profit decreased $716,120 for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010. The decrease in the gross margin was directly attributed to the lower revenue for both the 3^rdquarter and the first nine months of 2011 versus 2010.

Selling and marketing expenses. Our selling and marketing expenses consist primarily of compensation and benefits to our sales and marketing staffs, business travels after-sale support, transportation costs and other sales related costs. Our selling and marketing expenses were $124,193 and $278,899 for the three and nine months ended September 30, 2011, respectively, compared to $91,565 and $268,658 for the three and nine months ended September 30, 2010, respectively. Our selling and marketing expenses increased by $32,628 for the three months ended September 30, 2011, compared to the three months ended September 30, 2010. Our selling and marketing expenses increased by $10,241 for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010. The increase is attributed to higher travel costs as the Company pursues potential new contracts during 2011.

General and administrative expenses. General and administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional advisor fees, audit fees and other expenses incurred in connection with general operations. Our general and administrative expenses were $454,767 and $910,448 for the three and six months ended September 30, 2011, respectively, compared to $132,199 and $386,498 for the three and nine months ended September 30, 2010, respectively. Our general and administrative expenses increased by $322,568 for the three months ended September 30, 2011, compared to the three months ended September 30, 2010; and increased by $523,950, for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010. The increase in the general and administrative expenses is almost entirely associated with the recapitalization that completed on May 13, 2011.

Total other income (expenses). We had $75,913 in total other income in the three months ended September 30, 2011, as compared to $77,948 in total other income in the three months ended September 30, 2010; and had $96,396 in total other income in the nine months ended September 30, 2011, as compared to $286,840 in total other income in the nine months ended September 30, 2010.

Income before income taxes. Our income before income taxes decreased by $271,229 to $453,253 for the three months ended September 30, 2011, compared to $724,482 for the three months ended September 30, 2010. Our income before income taxes decreased by $1,412,923 to $960,812 for the nine months ended September 30, 2011, compared to $2,373,735 for the nine months ended September 30, 2010. Our lower income before income taxes is attributed to the lower revenue levels for 2011 through September 30, 2011.

Income tax expense. Income tax expense increased by $59,557 to $130,160 for the three months ended September 30, 2011, compared to $70,603 for the three months ended September 30, 2010. Income tax expense decreased by $8,791 to $272,075 for the nine months ended September 30, 2011, compared to $280,866 for the nine months ended September 30, 2010. The increase in the 3rd quarter income tax expense was associated with the expiration of certain tax advantages in India. The decrease in income tax expense for the first nine months of 2011 versus 2010 was associated with the decrease in revenue and operating profit during the period; however, the decrease was less than expected due to the increase in the Company’s tax rate at its Indian subsidiary, Xalted Information.

Net income. As a result of the factors described above, net income decreased by $330,786 to $323,093 for the three months ended September 30, 2011, compared to $653,879 for the three months ended September 30, 2010. Net income decreased by $1,404,132 to $688,737 for the nine months ended September 30, 2011, compared to $2,092,869 for the nine months ended September 30, 2010.

Liquidity and Capital Resources

As of September 30, 2011, we had cash and cash equivalents of $123,969, compared to $545,374 as of December 31, 2010. In addition, we had other financial assets available for sale of $0.00 at September 30, 2011, compared to $172,538 at December 31, 2010. To date, we have financed our operations primarily through cash flows from operations, augmented by equity contributions by our stockholders. As of September 30, 2011, $124,069 of cash and cash equivalents were held in India. We do not anticipate the need to repatriate any material amounts of the cash, cash equivalents and financial assets to the United States, but to the extent amounts are repatriated, we would become subject to tax in the United States on such amounts.

The following table sets forth a summary of our cash flows for the periods indicated:

Cash Flow

		As of September 30,
		2011			2010
Net cash provided by (used in) operating activities	$	(572,674	)	$	(926,724	)
Net cash provided by (used in) investing activities		(5,615,468	)		1,103,721
Net cash provided by (used in) financing activities		5,812,658			(405,798	)
Effect of exchange rate changes on cash balance		(45,921	)		17,815
Net increase in cash and cash equivalents		(375,484	)		(228,801	)
Cash and cash equivalents at beginning of the period		545,374			397,987
Cash and cash equivalents at end of the period		123,969			187,001

Operating Activities

The Company currently has $3,009,058 and $2,728,869 of accounts receivable that have been outstanding for more than a year as on September 30, 2011 and December 31, 2010, respectively, out of which $216,284 and $216,284 is covered by the allowance for doubtful accounts as on September 30, 2011 and December 31, 2010, respectively. Our accounts receivable in India are entirely from customers which are government agencies or government-owned entities. The age of our receivables is not unusual in government-related commercial transactions in India, although it would be unusual in purely private situations. We do not anticipate the age of these receivables and this pattern in government contracting in India to have an adverse impact on our growth because we have taken these patterns into account in our forward planning.

Net cash provided by operating activities was ($572,674) in the nine months ended September 30, 2011, as compared to ($926,724) in the nine months ended September 30, 2010. The increase in net cash used by the operating activities was mainly due to the Company’s sale of the final portion of its hardware business in the 1^st quarter of 2010.

Investing Activities

Net cash used in investing activities was ($5,615,468) in the nine months ended September 30, 2011, as compared to net cash provided by in investing activities of $1,103,721 in the nine months ended September 30, 2010. The decrease in net cash from investing activities in 2011 is attributed to the recapitalization of the Company on May 13, 2011.

Financing Activities

Net cash provided by investing activities was $5,812,658 in the nine months ended September 30, 2011, as compared to ($405,798) in the nine months ended September 30, 2010. The increase in net cash from financing activities in 2011 is attributed to an increase in capital contributions as a result of the recapitalization of the Company on May 13, 2011.

Loan Commitments

The Company does not have any loan commitments, except for a one-year convertible promissory amount in the principal amount of $400,000, held by Investco, a British Virgin Islands company, having a maturity date of June 29, 2012 and two short-term promissory notes in the total amount of $160,000, held by Xalted Holding. The first promissory note in the amount of $50,000 has a maturity date of July 14, 2012 and the second promissory note in the amount of $110,000 has a maturity date of October 16, 2012.

We anticipate that our cash on hand and cash flow from operations will meet our present ongoing cash needs. The Company may require additional cash resources, including loans, to meet its working capital needs for the next 12 months; should the Company decide to pursue a potential acquisition. We may, however, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to ramp up our marketing efforts and increase brand awareness, or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

Obligations under Material Contracts

We have no other long term debt, capital or operating lease or fixed purchase obligations.

Inflation

Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in our industry and continually maintain effective cost control in operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Seasonality

Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introduction.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:

Basis of preparation: The financial statements of Xalted are prepared in accordance with Generally Accepted Accounting Principles in the United States (“US GAAP”). The financial statements are presented in United States Dollars ($). The financial statements are prepared for the quarter ended September 30, 2011 with comparatives for the previous calendar year (2010). The purpose of preparation of these financial statements is for submission to the parent company for consolidation purpose.

Use of estimates: The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as on the date of the financial statements and the reported amount of revenues and expenses during the reported period. Examples of such estimates include: project completion dates, time and cost required to complete projects for purposes of revenue recognition and future revenue, expense and cash flow estimates for purposes of impairment analysis and loss contract evaluation, allowance for doubtful debts, obligations under employee benefit plans, valuation allowances on deferred tax assets, useful lives of premises and equipment (fixed assets) and income taxes. Actual results could differ materially from those estimates.

Foreign Currency

Initial measurement: The transactions in foreign currency are recorded in functional currency at the exchange rates between foreign currency and functional currency prevailing as on the date of the transactions.

Subsequent measurement: foreign currency monetary assets and liabilities are translated into functional currency at year end exchange rates. Gains or losses resulting from foreign exchange transactions are recorded in the Statements of Comprehensive Income (Loss) within other income (expense), net.

As the functional currency of the company is Indian Rupee (Rs), to present the financial statement in United States Dollars ($), the results and financial position are translated as follows:

Assets and liabilities except equity and retained earnings are translated at the closing exchange rate at the date of the Balance Sheet.
Income and expenditure for each income statement are translated at quarterly average exchange rate during each period.
Equities are translated at the rate of date of acquisition.

All resulting exchange differences are recognized as a component of equity.

Revenue recognition: Revenue from software services consist of revenues earned from services performed either on a time-and-material basis or under fixed price contracts. Revenues earned from services performed on a “time and material” basis are recognized as services are performed on the basis of billable time spent by employees working on the project, priced at the contracted rate. Revenue from Software development on fixed-price, where there is no uncertainty as to the measurement or collectability of consideration that will be derived on completion of the contract, is recognized as per the percentage of completion method as determined based on the certification of the Technical Head of the respective project. Revenue recognition using the percentage of-completion method in conformity with ASC Topic 605, is based on the guidance in ASC Topic 985, Software Revenue Recognition, to account for revenues under fixed price arrangements for software development and related services. Losses on such contracts are recognized when probable. Revenues in excess of billings are recognized as accrued income in the balance sheet; to the extent billings are in excess of revenues recognized, the excess is reported as deferred revenues in the balance sheet.

In accordance with ASC Topic 605, “Income Statement Characterization of reimbursements received for “Out-of-Pocket” Expenses Incurred”, Xalted accounts for reimbursements for out-of-pocket expenses incurred as revenues in the Statement of Income.

All revenues are recognized only when collectability of the resulting receivable is reasonably assured, and are reported net of discounts and indirect and service taxes.

Deferred revenue includes payments that have been received and recorded prior to performance.

Cost of revenues and R&D, selling, general and administrative expenses: Cost of revenues primarily include the compensation cost of technical staff, consultancy charges, depreciation and amortization on dedicated assets and system software, application software costs, travel costs, data communication expenses and other attributable expenses incurred that are related to the generation of revenue. R&D, selling, general and administrative expenses generally include the compensation costs of software development, sales, management and administrative personnel, travel costs, advertising, professional charges, rent, repairs, electricity, office maintenance expenses and other general expenses not attributable to cost of revenues.

Cash and cash equivalents: We consider investments in highly liquid instruments that are purchased with remaining maturities, of three months or less to be cash equivalents. Cash and claims to cash that are restricted as to withdrawal or use in the ordinary course of business is classified separately under other current and non-current assets.

Fair value of financial instruments: Effective April 1, 2009, Xalted Information adopted ASC Topic 820 limited to financial assets and liabilities, which primarily relate to its investments. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consists of the following three levels:

Level 1- Inputs are quoted prices in active markets for identical assets or liabilities.

Level 2- Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.

Level 3- Inputs which are unobservable reflecting internal assumptions are used in pricing assets or liabilities.

Accounts receivable: Accounts receivable represent the Company’s trade receivables, net of the allowance for doubtful accounts. The allowance for doubtful accounts represents the Company’s best estimate of receivables that are doubtful of recovery based on a specific identification basis. The Company currently has $3,009,058 and $2,728,869 of accounts receivable that have been outstanding for more than a year as on September 30, 2011 and December 31, 2010, respectively, out of which $216,284 and $216,284 is covered by the allowance for doubtful accounts as on September 30, 2011 and December 31, 2010, respectively.

Inventories: Inventories are work in progress, which are valued based on the percentage of work completed/consumption. Cost includes cost of hardware/software, related employees costs and overhead costs up to the date of financial statement. Premises, equipment and depreciation: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives. The estimated useful lives of assets are as follows:

	Estimated Useful Life
Computer & Peripherals	3 to 5 years
Communication Equipments	3 to 7 years
Lab Equipment	5 to 10 years
Office Equipment	5 years
Motor Vehicle	6 years
Air Conditioner	7 years
Furniture and Fittings	10 years
Digital Loop Carriers	3 years
Leasehold improvements	Shorter of Lease period or estimated useful life

Intangible assets: We amortize intangible assets over their estimated useful life on a straight-line basis unless such life is deemed indefinite. The intangible asset of the Company is comprised of software that is for internal use. Software product development costs are expensed as incurred unless technical and commercial feasibility of the project is demonstrated, future economic benefits are probable, we have the intention and ability to complete and use or sell the software and the costs can be measured reliably. The costs which can be capitalized include the cost of material, direct labor, overhead costs that are directly attributable to preparing the asset for its intended use. Research and development costs and software development costs incurred under contractual arrangements with customers are accounted as cost of sales. Amortization of internal use software begins when the software is placed in use and continues on the straight-line method generally over a life of five years.

Amortizable intangible assets are amortized over their estimated useful lives in proportion to the economic benefits consumed in each period. The estimated useful life of the intangible assets is 5 to 7 years.

Impairment of long-lived assets: Long-lived assets and assets group, including certain identifiable intangible assets, to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Such assets are considered to be impaired if the carrying amount of the assets is higher than the future undiscounted net cash flows expected to be generated from the assets. The impairment amount to be recognized is measured by the amount by which the carrying value of the assets exceeds its fair value. Assets held-for-sale is reported at the lower of the carrying value or the fair value less costs to sell. However, based on the above exercise no adjustment on account of impairment is required.

Investments: We classify investments in mutual funds with readily determinable fair market values as available-for-sale securities and record them at fair value. Accordingly, such securities are carried at fair value. Realized gains and losses and decline in value considered to be other-than-temporary are included in other income. The cost of securities sold is determined on the first-in-first-out (FIFO) method. Interest and dividends on securities classified as available-for-sale are included in other income. We do not have any securities classified as trading.

Borrowing cost: Borrowing costs directly attributable to the acquisition of qualifying asset are capitalized, till the asset is put to use, as part of the cost of the asset. Other borrowing costs are recognized as an expense in the period in which they are incurred.

Income taxes: Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year.

Current income taxes: The current income tax expense includes Indian income taxes payable for Xalted Information after taking credit for benefits available for operations in Software Technology Parks (or STPs) and export earnings, and after offsetting benefits under tax avoidance treaties for foreign taxes payable in overseas jurisdictions. Current income tax payable is computed in accordance with the tax laws applicable in India. The amounts paid are generally available for offset as tax credits in India towards the income tax liability.

Payments of advance taxes and income taxes payable in the same tax jurisdictions are offset.

Deferred income taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of assets and liabilities and their respective tax bases, operating loss carry forwards and tax credits. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period of change.

Uncertain tax positions are recognized using the more likely-than-not threshold determined solely based on technical merits that the tax positions will sustain upon examination. Tax positions that meet the recognition threshold are measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement with relevant taxing authority that has full knowledge of all relevant information.

Earnings per share: In accordance with the provisions of ASC Topic 260, “Earnings per Share”, basic earnings per share are computed by dividing net income attributable to our shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share are computed on the basis of the weighted average number of common and dilutive common equivalent shares outstanding during the period.

Cash flow statement: The cash flow statement has been drawn up in accordance with the indirect method, classifying cash flows as cash flows from operating, investing and financing activities. The effect of currency translation has been given to various items of cash flow statement. The difference between the net cash flow and the change in cash and cash equivalents in the balance sheet due to exchange rate differences are disclosed separately as part of the reconciliation of the net cash flow and the balance sheet change in cash and cash equivalents.

Employment benefits:

Provident fund: In accordance with Indian law, all employees are entitled to receive benefits under the Provident Fund, which is a defined contribution plan. Both the employee and the employer make monthly contributions to the plan at a predetermined rate (presently 12%) of the employees’ basic salary. Xalted has no further obligations under the plan beyond its monthly contributions. These contributions are made to fund administered and managed by the government of India. Xalted’s monthly contributions are charged to income in the period it is incurred.

Employees state insurance fund: In addition to the above benefit, all employees in India who are drawing gross salary of less than Rs. 15,000 per month are entitled to receive benefit under employee state insurance fund scheme. The employer makes contribution to the scheme at a predetermined rate (presently 4.75%) of employee’s gross salary. Xalted has no further obligations under the scheme beyond its monthly contributions. These contributions are made to fund administered and managed by the Government of India. Xalted Information’s monthly contributions are charged to income in the year it is incurred.

Gratuity plan: In addition to the above benefits, Xalted Information provides for a gratuity obligation, a defined benefit retirement plan (the “Gratuity Plan”) covering all its employees in India. The Gratuity Plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee’s salary, and the years of employment with Xalted Information. Xalted Information provides for the Gratuity Plan on the basis of actuarial valuation. Xalted makes yearly contributions under the gratuity plan administered and managed by the Life Insurance Corporation of India or LIC. Gratuity payable is recognized in the balance sheet. Gratuity payable is measured as the difference between the fair value of plan assets with LIC and the projected benefit obligation at December 31, the measurement date. (Gains)/losses arise as a result of differences between actual experience and assumptions or as a result of changes in actuarial assumptions. These are recognized as and when they arise. Net periodic gratuity cost is recorded in the statement of income and includes service cost, interest cost, and return on plan assets. Actuarial gains/losses are recognized in other comprehensive income statement.

Leave encashment: The Company has other long term employee benefits in the nature of leave encashment (Compensated Absences). The liability in respect of leave encashment is provided for on the basis of actuarial valuation made at end of the calendar year, as the said schemes meet the requirement of relevant ASC.

Dividends: Final dividend on the common stock is recorded as a liability on the date of declaration by the stockholders. Interim dividends are recorded as a liability on the date of declaration by the board of directors.

Warranty costs: The Company provides for the estimated costs of fulfilling their obligations for contracts under warranties at the time the related revenue is recognized. The Company regularly evaluates the estimates to assess the adequacy of the recorded warranty liabilities and adjust the amount as necessary.

Recent Accounting Pronouncements

The Company has evaluated all the recent accounting pronouncements issued and has concluded that none of them will have a material impact on the Company’s financial position, results of operations or cash-flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer, Ajay Batheja, and Chief Financial Officer, Edward Miller, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2011. Based upon this evaluation, Mr. Batheja and Mr. Miller determined that, as of September 30, 2011, our disclosure controls and procedures were not effective due to a material weakness, as defined in Public Company Accounting Oversight Board Standard No. 5, in our internal control over financial reporting. This deficiency consisted primarily of inadequate staffing and supervision that could lead to the untimely identification and resolution of accounting and disclosure matters and failure to perform timely and effective reviews.

Changes in Internal Control Over Financial Reporting.

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

In April 2010, a petition was filed against Xalted Information in the High Court of Karnataka at Bangalore by Arasor Corporation (“Arasor”), a Delaware company. The High Court is the principal court of original jurisdiction in the Indian state of Karnataka, sitting in the city of Bangalore. The petition sought an order under Sections 433 and 434 of the Companies Act of 1956 for the winding up of Xalted Information, based on allegations that Xalted Information did not pay for communications equipment sold and shipped by Arasor. We maintain the Company never received the equipment which is alleged to have been shipped to us. This type of claim, and the type of relief sought, is not unusual in India.

The petition was heard by a single judge, sometimes also called a “Single Bench Judge,” in the High Court in Karnataka. Any judicial panel comprised of two judges in a given court is referred to in India as a “Division Bench.” The Single-Bench Judge found sufficient evidence to hold a hearing on Arasor’s complaint to “wind-up” Xalted Information Systems on November 10, 2010. On December 14, 2010, Xalted Information filed an appeal of that decision before a Division Bench of the same High Court. On January 19, 2011, the two-judge Division Bench stayed the November 10, 2010 order of the Single Bench Judge and all further proceedings in the action filed by Arasor, pending the appeal.

After submission of written arguments, a hearing on the appeal was conducted in March 2011, a further hearing was set for June 9, 2011, and the earlier stay was continued during the pendency of the appeal. In June 2011, Xalted Information filed an additional application with the two-judge panel to request dismissal of the claims against it on the basis that Arasor’s corporate status was “void” in Delaware and “forfeited” in California, and that Arasor therefore was without corporate power and authority to maintain or prosecute the action. On October 15, 2011, the Division Bench heard the appeal filed by Xalted Information and set aside the order of admission of the petition. The Division Bench Court determined that the order passed by the Single Judge Court did not fully take into consideration the defenses presented by Xalted Information and remanded the matter back to the Single Bench Judge to hear the evidence of both parties again, as to whether there was sufficient evidence to admit the petition for trial. The Divisional Bench Court also ruled that Xalted Information is permitted to raise all defenses, including the defense of the non-existence of Arasor Corporation.

The Company’s India counsel have informed us that they believe Xalted Inforamtion has a reasonably strong legal position and a good chance of success in the proceedings which will take place before the Single Bench Judge. However, if we are unsuccessful in the proceedings before the Single Bench Judge, The Single Bench Judge decision can be appealed to the Divisional Bench and, if necessary, to the Supreme Court. Should the appeals fail, there will be a trial before the Single Bench Judge on the Arasor “winding up” petition. Should we lose the trial, we would appeal the decision to the Divisional Bench and, if required, appeal the trial decision before the Supreme Court, Should Xalted Information fail in the hearing, the trial and its appeals. Xalted Information would be subject to judicial liquidation in India, if Xalted Information is unable to pay the amount of the judgment.

We are currently not aware of any other legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS.

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Please see our current report on Form 8-K, filed with the SEC on July 7, 2011, which is incorporated herein by reference in its entirety.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. (Removed and Reserved).

ITEM 5. OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the period covered by this report, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6. EXHIBITS.

Except as noted below, the following exhibits are filed as part of this report or incorporated by reference:

Exhibit No.	Description
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(1)	Statement of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2(1)	Statement of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 (2)	The following materials from Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010, (ii) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010 (unaudited), (iii) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (unaudited) and (iv) Notes to the Consolidated Financial Statements

(1) In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

(2) In accordance with Rule 406T of Regulation S-T, the information furnished in these exhibits will not be deemed "filed" for purposes of Section 18 of the Exchange Act. Such exhibits will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this Amendment No. 2report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 21, 2011	KRANEM CORPORATION

	By:	/s/ Ajay Batheja
		Ajay Batheja, Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Edward Miller
		Edward Miller, Chief Financial Officer
		(Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(1)	Statement of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2(1)	Statement of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 (2)	The following materials from Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010, (ii) Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010 (unaudited), (iii) Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (unaudited) and (iv) Notes to the Consolidated Financial Statements

Attached files

Stock widget

Investing forum

KRANEM CORP Reports