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: March 31, 2012

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

For the transition period from ____________ to _____________

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

560 S. Winchester Blvd., Suite 500
San Jose, CA 95128
(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 [   ]     No [X]

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.

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 June 30, 2012 is as follows:

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KRANEM CORPORATION

TABLE OF CONTENTS

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PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

KRANEM CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

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The accompanying notes are an integral part of these financial statements.

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KRANEM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

The accompanying notes are an integral part of these financial statements.

4

KRANEM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

The accompanying notes are an integral part of these financial statements.

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KRANEM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 – Organization and Basis of Presentation

The accompanying unaudited interim consolidated financial statements of Kranem Corporation (the “Company”) have been prepared in accordance with accounting principles generally accepted in the Unites States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report filed with the SEC on Form 10-K.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for the fiscal year ended December 31, 2011, as reported in the Company’s Annual Report on Form 10-K have been omitted.

Description of business

Kranem Corporation (hereinafter refer to as “Kranem”, “We” or “the Company”) was incorporated on April 18, 2002 in Colorado. The Company 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, we did not engage in any active operations, other than our search for a privately owned corporation to merge with or acquire. Xalted Networks Inc through its subsidiary Xalted Information Systems Pvt. Ltd. (hereinafter referred to as “Xalted”) provides 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. Xalted includes law enforcement as part of the homeland security market. Our current and past geographic focus is on India and the surrounding countries in Asia, Africa, and the Middle East.

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 have been 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 interim 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.

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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.

Investco 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 in 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.

Acquisition of Alfa Sistemi Telemedia Srl (“Alfa Sistemi”)

On November 30, 2011, we entered into a Stock Purchase Agreement (the “Alfa Sistemi Purchase Agreement”) to acquire 100% ownership of Alfa Sistemi, an Italian company, from Mr. Aldo Greco and Ms. Mario Fausto Greco, the owners of Alfa Sistemi, for (a) $800,000 in cash, payable on the later of (i) 6 months from the effective date of the Alfa Sistemi Purchase Agreement or (ii) the date of the Company’s next equity financing and (b) 200,000 shares of common stock to be issued as soon as practicable. Alfa Sistemi provides telecommunications equipment and services to various customers in Italy.

Acquisition of Adora ICT Srl (“Adora”)

On December 21, 2011, we entered into a Stock Purchase Agreement (“the Adora Purchase Agreement”) to acquire 100% ownership of Adora, an Italian company, from E-Company Srl and Ms. Cristina Carra, the owners of Adora. The effective date of this acquisition is November 1, 2011. Adora provides telecommunications equipment and services to various customers in Italy. The aggregate consideration, which we estimate to be no more than $2,500,000, is contingent on the 2011 final audited revenues of Adora. It is intended that 50% of the final purchase consideration will be payable in cash and 50% in shares of the Company’s common stock, payable in two equal installments. The first is due upon the delivery of Adora’s 2011 audited financials. The second, which is only payable if Adora’s 2012 revenues are at least equal to its 2011 revenues, would be payable upon the completion of the independent audit of Adora’s financial statements, expected to occur in early 2013. The value of the stock consideration, which is included in our balance sheet as Stock Payable, is based on the closing market price of our stock on the effective date of the Adora Purchase Agreement.

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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.

Homeland Information Security Solutions

In the homeland security sector, we have developed our Actionable Intelligence System, or InteliCENTER. InteliCENTER is a sophisticated data analytics and monitoring platform for intelligence agencies that acquires, correlates and analyzes large volumes of structured and unstructured data received from varied information sources (such as telecommunications service providers, internet service providers, government agencies and other information systems) and provides actionable intelligence to proactively counter criminal activities. Unstructured data includes cross-channel analysis of phone calls, internet sessions, email, chat, instant messaging, video captured by closed circuit cameras and radio communications.

InteliCENTER empowers intelligence agencies with strategic, operational and tactical information to bring out unforeseen intelligence, which can lead to proactive measures to thwart any criminal activity endangering public safety. It helps intelligence agencies to gain insight into data by analyzing the data patterns, uncovering the links within the data, discern relationships, monitor target movements, etc. InteliCENTER can be customized to a significant extent to cater to the requirements of clients.

Telecom Information Security Solutions

We provide integrated, end to end, flexible and multi-purpose OSS/BSS solutions to leading telecommunications companies (“Telecos”) and communication service providers worldwide, which accelerate the order to bill cycle, reduce integration costs and minimize error rates. Our solutions automate all processes from order to cash for any service, on any technology. They are designed to support multiple services and technologies, both existing and evolving, and also support new content-based service components. The scalable and integrated software solutions provided by the Company, communication service providers can maximize revenues despite a competitive business environment. With Xalted’s solution offerings, legacy systems can co-exist with new generation systems and benefit from markedly reduced capital expenditures without compromise on service quality standards.

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Note 2 -Short-Term Borrowings

(a)        Credit Facilities:

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Note 3 - Earnings per share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted net income per share includes the effect of the potential shares outstanding, including dilutive warrants, stock options outstanding, using the treasury stock method.

The following table reconciles the components of the basic net income per share calculations to diluted net income per share:

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Note 4 - Segment 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 Kranem has only one business vertical, i.e. Telecom Industry 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:

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Note 5 - Contingencies and commitments

Contingencies

Legal Proceedings

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Note 6 - Warrants

On February 19, 2012, the Company awarded an aggregate of 1,970,000 warrants to members of its management team, board of directors, and certain advisors, immediately vested and exercisable. The warrants have an exercise price of $0.10 and expire on February 19, 2017. These warrants were valued at $0.40 each using the Black-Scholes option pricing model based on the following assumptions: 5 years life expectancy; risk free interest rate of 5%; no dividends; and expected volatility of 378%. The aggregate value was charged to stock-based compensation expense.

The following is a summary of all the Company’s stock warrants as of March 31, 2012 and changes during the three months ended on that date:

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Note 7 - Stock Options

The Company’s Stock Option Plan (the “Plan”) provides for the grant of up to 2,000,000 (net of options previously exercised) shares of its common stock to key employees. Currently there are 299,000 stock options available for grant. The Plan provides for both incentive stock options and non-qualified stock options. Stock option grants generally vest over a four-year period from either the employee’s hire date for new employees or the stock option grant date. No options were granted during the prior fiscal years ended December 31, 2010. During the fiscal years ended December 31, 2011 and December 31, 2010, no options were exercised and only in 2011 were options granted in the amount of 1,701,000.

On February 21, 2012, the Company granted 275,000 options that will vest over a four year period to certain management of the Company with an exercise price of $0.45. The total fair value of these options at the date of grant was estimated to be $0.45 per share and was determined using the Black-Scholes option pricing model with an expected life of 10 years, a risk free interest rate of 5.0%, a dividend yield of 0% and expected volatility of 378% and was recorded as a stock based compensation expense.

The following is a summary of all the Company’s stock options as of March 31, 2012 and changes during the three months ended on that date:

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Note 8 - Stockholders’ Equity

Common Stock

The authorized common stock of the Company consists of 50,000,000 shares of common stock with no par value and 10,000,000 shares of blank check preferred stock. As of March 31, 2012, the Company had 39,959,338 common shares and no preferred shares issued and outstanding.

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. For accounting purposes due to the reverse merger the statement of equity reflects a recapitalization of shares issue as 6,648,125 shares, which represents the shares holder base of Kranem that remains outstanding

On June 30, 2011, the Company issued 6,648,125 shares of restricted common stock valued at $0.1393 per share, or $1,111,108, for the acquisition of Investco Intellectual Property.

On November 1, 2011, the Company agreed to issue 200,000 shares of restricted common stock valued at $1.10 per share or $220,000 for the purchase of Alfa Sistemi. This stock was recognized as stock payable at March 31, 2012.

On November 1, 2011, the Company agreed to issue two tranches of 500,000 shares of restricted common stock valued at $1.00 per share for a total value of $1,000,000 for the purchase of Adora. This stock was recognized as stock payable at March 31, 2012.

On March 21, 2012, the Company issued 70,588 shares of restricted common stock valued at $0.85 per share, or $60,000, for services.

Common to Preferred Stock Exchange Agreement

On November 21, 2011, we entered into a Common to Preferred Stock Exchange Agreement, or the Exchange Agreement, with certain of our investors to convert their common stock into the Series A convertible preferred stock at a ratio of one share of Series A Convertible Stock for each 100 shares of common stock. The Exchange Agreement allows the investors to convert their Series A convertible preferred stock back into common stock at their option, subject to the then availability of sufficient authorized shares of common stock, at the original ratio set forth under the Agreement. The foregoing description of the terms of the Exchange Agreement is qualified in its entirety by reference to the Current Report on Form 8-K filed on November 22, 2011. As of March 31, 2012, no shares have been converted.

Note 9 - Subsequent Events

(a) Empire Capital Convertible Note. On June 28, 2012, the Company was notified by Empire Capital of its intention to convert both the accrued interest and principal on its Convertible Note to shares of the Company. As Empire Capital had executed the Share Exchange Agreement, it also agreed to receive Preferred shares in the Company. The combined interest and principal equaled $260,452, which is equivalent to 10,852.17 Preferred shares based upon the conversion formula.

(b) Investco. On June 29, 2012, the Company and Investco agreed to extend the term on the $400,000 Convertible Note for an additional six (6) months to December 29, 2012, under the same terms and conditions.

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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, Xalted Information, Alfa Sistemi and Adora;
• “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 to 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;
• “Italy” are to the Republic of Italy;
• “Adora” are to Adora ICT Srl, or Adora, an Italian company;

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• “Alfa Sistemi” are to Alfa Sistemi Telemedia Srl, an Italian company;
• “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;;
• “Euros” and “€” are to the legal currency of the European Union;
• “U.S. dollars,” “dollars” and “$” are to the legal currency of the United States.

Overview of Our Business

Through our operating subsidiaries, Xalted Information, Alfa Sistemi and Adora, 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 elsewhere in Southeast Asia, and some countries in Africa, Europe, and the Middle East.

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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 sometimes delivered 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 delivery, installation and/or performance benchmarks, and a final payment after commissioning, testing and acceptance by the customer.

Our corporate headquarters are located in San Jose, California. 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. We also have two operating subsidiaries in Rome, Italy.

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.

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• 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.

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Results of Operations (unaudited)

Revenue. We generate revenues from the sale of our integrated information security products and through the related after-sales services. Our revenues were $1,922,283 for the three months ended March 31, 2012 compared to $1,291,927 for the three months ended March 31, 2011, respectively. The increase in revenue was primarily due to the two acquisitions in Italy while the Company’s core business saw a decline in revenue due to our not attaining certain customer milestones associated with our customer contracts during the reporting period.

Cost of revenue. Our cost of revenue primarily consists of the purchase of third party software, third party hardware and deployment costs. Our cost of revenue was $1,737,541 for the three months ended March 31, 2012, compared to $313,651 for the three months ended March 31, 2011. Cost of revenue increased $1,423,890 for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. The increased costs were predominately due to the reduced revenue levels in the core software business and an increase in the revenue associated with the Italian business units, which have a higher cost basis for their revenue.

Gross profit and gross margin. Our gross profit was $184,742 for the three months ended March 31, 2012, compared to $978,276 for the three months ended March 31, 201, respectively. Our gross profit decreased by $793,534 for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. The decrease in the gross margin was directly attributed to the lower revenue in the Company’s core business in India and the two acquisitions in Italy, which traditionally have a lower gross margin.

Selling and marketing expenses. Our selling and marketing expenses consist primarily of compensation and benefits to our sales and marketing staffs, business travels for after-sale support, transportation costs and other sales related costs. Our selling and marketing expenses were $1,061,667 for the three months ended March 31, 2012, compared to $68,848 for the three months ended March 31, 2011. Our selling and marketing expenses increased by $992,819 for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. The increase in expenses is predominately attributed to the acquisition in the latter part of 2011 of the two companies in Italy.

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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 $735,688 for the three months ended March 31, 2012, compared to $125,578 for the three months ended March 31, 2011. Our general and administrative expenses increased by $609,912 for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. The increase in the general and administrative expenses is associated with the combination of the recapitalization that completed on May 13, 2011, the two acquisitions in Italy and the expensing of equity based compensation awarded in February 2012.

Income before income taxes. Our income before income taxes decreased by $2,439,605 to ($1,925,859) for the three months ended March 31, 2012, compared to $513,746 for the three months ended March 31, 2011. Our lower income before income taxes is attributed to the combination of lower than anticipated revenue levels for 1st Quarter 2012, the increase in the general and administrative expenses is associated with the combination of the recapitalization that completed on May 13, 2011, the two acquisitions in Italy, and the expensing of equity based compensation awarded in February 2012.

Liquidity and Capital Resources

As of March 31, 2012, we had cash and cash equivalents of $532,947, compared to $420,012 as of December 31, 2011. To date, we have financed our operations primarily through cash flows from operations, augmented by equity contributions and short-term loans by our stockholders. As of March 31, 2012, $377,962 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.

We anticipate that will require additional cash resources, including loans, to meet our working capital needs for the next 12 months. In addition, we may 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. In order to acquire these resources, 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. Any issuance of stock will require approval by a note holder prior to issuance. 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.

Operating Activities

The Company has $2,920,152 of accounts receivable that have been outstanding for more than a year as on March 31, 2012, of which $216,284 is covered by an allowance for doubtful accounts. Our accounts receivable in India are entirely from 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 ($659,053) in the three months ended March 31, 2012, as compared to $485,703 in the three months ended March 31, 2011. The decrease in net cash provided by the operating activities was mainly due to the Company’s profitability associated with its operations in India during the 1st quarter of 2011.

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Financing Activities

Net cash provided by financing activities was $736,842 in the three months ended March 31, 2012, as compared to $ 0 in the three months ended March 31, 2011. The increase in cash provided by financing activities is attributed to an increase in short-term loans and advances from related parties.

Loan Commitments

As of March 31, 2012, the Company has loan commitments, which include 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, a short-term promissory note to Xalted Holding in the remaining principal amount of $35,000, with a maturity date of October 16, 2012, a short-term convertible promissory note to Empire Capital Partners, L.P. in the principle amount of $250,000 with a maturity date of March 19, 2012, a short-term convertible note to Asher Enterprises, Inc. in the principle amount of $78,500 with a maturity date of November 1, 2012 and promissory note to the shareholders of Alfa Sistemi Telemedia Srl. in the principle amount of $800,000 due upon the completion of a capital increase. Empire Capital Partners, L.P. has chosen to convert their loan into shares in the Company. There will promissory due to the owners of Adora ICT Srl. in the principle amount of approximately $500,000. The exact amount of the Adora promissory note will not be known until full year’s audit of Adora’s 2011 financial performance is completed.

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 March 31, 2012. Based upon this evaluation, Mr. Batheja and Mr. Miller determined that, as of March 31, 2012, 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.

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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.

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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.

There were no unregistered sales of equity securities during the fiscal quarter ended March 31, 2012, which were not previously reported on a Current Report on Form 8-K.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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:

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(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

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SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

EXHIBIT INDEX

(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