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: June 30, 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)

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

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.

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 June 30, 2012 is as follows:

Class of Securities	Shares Outstanding
Common Stock, no par value	39,959,338

EXPLANATORY NOTE

Kranem Corporation (the “Company”) is filing this Quarterly Report on Form 10-Q which includes a restatement of its Consolidated Statements of Operations and the Consolidated Statement of Cash Flows for both the three months and six months ended June 30, 2011. The Company is restating the Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2011, previously filed with the Securities and Exchange Commission on October 14, 2011 (the “First Amended Filing”).

For purposes of the restatement, and in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, each item of the Original Filing that was affected by the restatement has been amended and restated in its entirety in this filing.

KRANEM CORPORATION

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.	5
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	23
ITEM 4. CONTROLS AND PROCEDURES.	23

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.	24
ITEM 1A. RISK FACTORS.	25
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.	25
ITEM 4. MINE SAFETY DISCLOSURES	25
ITEM 5. OTHER INFORMATION.	25
ITEM 6. EXHIBITS.	25

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

KRANEM CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

		June 30,			December
		2012			31, 2011

ASSETS
Current Assets
Cash and cash equivalents	$	524,287		$	420,012
Financial assets		994,658			877,864
Accounts receivable, net of allowance for doubtful accounts		7,672,051			9,595,288
Accounts receivable - related parties		820,000			2,267,584
Inventories		393,155			207,345
Deferred tax assets, net		321,933			99,035
Current tax assets net of provision for income tax		289,792			-
Prepaid expenses and other current assets		391,862			260,473
Total Current Assets		11,407,738			13,727,601
Non-Current Assets
Property, plant and equipment, net		372,142			375,383
Intangible assets, net		3,965,786			4,420,902
Financial assets		212,384			400,112
Deferred tax assets, net		44,012			16,024
Other non-current assets		134,658			116,624
Total Non-Current Assets		4,728,982			5,329,045
TOTAL ASSETS	$	16,136,720		$	19,056,646

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	4,221,532		$	5,812,585
Accounts payable - related parties		1,358,549			1,110,383
Deferred revenue		49,907			-
Credit facilities		767,224			612,914
Short-term notes		2,440,158			1,700,000
Short-term notes - related parties		583,635			285,000
Convertible note, net of discount		109,814			-
Accrued payroll		660,002			370,979
Current tax liability, net of tax assets		-			78,041
Other current liabilities		709,948			863,009
Total Current Liabilities		10,900,769			10,832,911
Non-Current Liabilities
Deferred benefit obligations		115,707			121,867
Other non-current liabilities – related parties		-			16,144
Long-term notes		-			500,000
Long-term provisions		226,497			220,539
Total Non-Current Liabilities		342,204			858,550
Total Liabilities		11,242,973			11,691,461

STOCKHOLDERS' EQUITY
Preferred Stock, no par value, 10,000,000 shares authorized, no shares issued and outstanding		-			-
Common Stock, no par value, 50,000,000 shares authorized, 39,959,338 shares issued and outstanding		1,643,112			1,583,112
Additional paid-in-capital		968,333			126,350
Stock payable		1,220,000			1,220,000
Retained earnings		2,253,552			5,319,043
Accumulated other comprehensive income		(1,191,250	)		(883,320	)
Total Stockholders' Equity		4,893,747			7,365,185
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	16,136,719		$	19,056,646

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

KRANEM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2012		2011		2012		2011
	US $		US $		US $		US $
			(Restated)				(Restated)

REVENUES	1,331,945		1,013,041		3,254,228		2,304,968
COST OF REVENUES	1,436,441		384,463		3,173,982		698,114
GROSS PROFIT	(104,496	)	628,578		80,246		1,606,854
OPERATING EXPENSES
Research and development	133,158		244,309		305,199		509,391
Selling and marketing	282,113		85,858		1,343,781		154,706
General and administrative	801,995		332,548		1,534,371		448,799
Total Operating Expenses	1,217,266		662,715		3,183,354		1,112,896
OPERATING INCOME/(LOSS)	(1,321,762	)	(34,137		(3,103,354	)	493,958
Finance Costs	(218,019	)	(9,346	)	(278,942	)	(45,738	)
Non Operating Income	2,971		29,552		(77,510	)	60,922
Income (loss) before Income Taxes	(1,536,810	)	(13,931	)	(3,459,560	)	509,142
Tax Expenses	241,349		44,194		(394,070	)	141,915
Net Income/(Loss)	(1,295,461	)	(58,125	)	(3,065,490	)	367,227
Earnings per Equity share
Basic	0.03		0.00		(0.08	)	0.01
Diluted	0.03		0.00		(0.08	)	0.01
Weighted average number of equity shares used in computing earnings per equity share
Basic	39,959,338		27,819,066		39,928,094		24,595,255
Diluted	39,959,338		27,819,066		39,928,094		24,595,255

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

KRANEM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		SIX MONTHS ENDED
		June 30,			June 30,
		2012			2011
					(Restated)

Cash flows from Operating Activities
Net Income/(Loss)	$	(3,065,490	)	$	367,227
Adjustments to reconcile net income/(loss) to net cash from operating activities
Depreciation and amortization		397,352			74,837
Stock-based compensation		890,983			-
Loss/(Profit) on sale of property, plant and equipment		-			10,741
Provision for taxation		(172,886	)		137,053
Dividend income		-			(8,115	)
Deferred taxes		(13,699	)		4,862
Currency translation reserve		-			5,296
Financing cost		173,635			(845	)
Interest (Accrual)/reversal on fixed deposits		-			(6,507	)
Provision for gratuity and leave encashment		11,496			23,869
Amortization of debt discount on convertible notes		31,314			-
Amortization of prepaid rent		53,497			5,428
Changes in operating assets and liabilities
Financial assets		(43,556	)		2,033
Trade receivables		2,545,021			(914,187	)
Inventories		(195,766	)		44,679
Taxes assets		(240,057	)		5,406
Prepaid expenses and other current assets		(190,854	)		75,591
Other non-current assets		(24,330	)		(1,048	)
Accounts payable		(694,151	)		(360,733	)
Deferred revenues		49,907			327,897
Due to related party		375,059			-
Long-term provisions		(12,826	)		(5.922	)
Other non-current liabilities		(92,392	)		-
Other, net		(758	)		(51,831	)
Net Cash from Operating Activities		(218,481	)		(284,287	)

Cash flows from Investing Activities
Fixed deposits placed with banks		22,822			-
Investment in mutual fund units		-			(1,097,324	)
Redemption of mutual fund units		-			867,225
Proceeds from sale of fixed assets		-			100,784
Expenditures on property, plant and equipment		(3,551	)		(18,581	)
Net Cash from Investing Activities		19,271			(147,896	)

Cash flows from Financing Activities
Short-term loans		234,118			47,905
Convertible note		78,500			-
Issuance of common shares		-			-
Net Cash from Financing Activities		312,618			47,905

Translation effect of exchange rates		(9,133	)		-
Net change in cash and cash equivalents during the period		104,275			221,397

Cash and cash equivalents at the beginning of the period		420,012			545,374

Cash and cash equivalents at the end of the period	$	524,287		$	766,771

Supplemental Schedule of Non-Cash Investing and Financing Activities:
Non-Cash Investing and Financing Activities:
Acquisition of Investco, shares issued	$	-		$	1,111,108
Acquisition of Investco, note issued	$	-		$	400,000
Re-classification of accounts payable to related party accounts payable	$	321,579		$	-
Common stock issued for accounts payable	$	60,000		$	-

Supplemental Disclosure of Cash-Flow Information:

Net Cash Paid During the Period for:

Interest	$	-		$	-
Income Taxes	$	-		$	-

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

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.

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.

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.

Note 2 -Short-Term Borrowings

(a) Credit Facilities:

		June 30,		December 31,
		2012		2011
		Loan Amount		Loan Amount
Alfa Sistemi has a credit agreement with Banca Popolare di Milano providing a €140,000 (Euros) secured revolving credit facility that is collateralized by €190,000 in assets. Advances under the credit agreement accrue interest at a rate of 8%. The credit agreement requires the Company to comply with certain covenants. The Company was in compliance with all covenants as of June 30, 2012.	$	-	$	143,411
Alfa Sistemi has a credit agreement with Banca Popolare di Milano providing a €650,000 (Euros) secured revolving credit facility that is collateralized by accounts receivable. Advances under the credit agreement accrue interest at a rate that varies monthly based upon the Bank’s borrowing rate. Recently the interest rate has been in the 5% to 6% range. The credit agreement requires the Company to comply with certain covenants. The Company was in compliance with all covenants as of June 30, 2012.		576,143		371,501
Alfa Sistemi has a credit agreement with Monte dei Paschi di Siena providing a €90,000 (Euros) secured revolving credit facility that is collateralized by €100,000 in assets. Advances under the credit agreement accrue interest at a rate of 9.3%. The credit agreement requires the Company to comply with certain covenants. The Company was in compliance with all covenants as of June 30, 2012.		108,352		58,717
Alfa Sistemi has a credit agreement with Credito Bergamasco providing a €20,000 (Euros) unsecured revolving credit facility. Advances under the credit agreement accrue interest at a rate that varies monthly based upon the Bank’s borrowing rate and other factors. Recently the interest rate has been in the 12.5% to 13.4% range. The credit agreement requires the Company to comply with certain covenants. The Company was in compliance with all covenants as of June 30, 2012.		25,027		24,151
Adora has a factoring agreement with Banca Popolare di Milano providing a €50,000 (Euros) secured factoring facility that is collateralized by the invoices being factored. Advances under the factoring agreement are charged a factoring rate of 6.25%. The credit agreement requires the Company to comply with certain covenants. The Company was in compliance with all covenants as of June 30, 2012.		50,562		-
Alfa Sistemi’s credit card accounts used for the purchase of supplies and components. No interest is charged because monthly outstanding balances must be paid in full.		7,140		15,134
Total Owing on Credit Facilities	$	767,224	$	612,914

(b) Short-Term Notes Payable:

		June 30,		December 31,
		2012		2011
		Principal		Principal
5% unsecured convertible note payable to Investco in the original amount of $400,000, due December 29, 2012 for both the principal and any accrued interest. Prepayments are allowed and interest accrues monthly. The conversion option allows the Holder to convert the unpaid principal and interest into common shares at the same rate as the Company’s next financing round.	$	400,000	$	400,000
Secured note payable to the shareholders of Alfa Sistemi Telemedia (“Alfa Sistemi”) in the original amount of $800,000. The due date is based upon the later of the completion of a capital raise by the Company or six (6) months from the effective date (November 1, 2011). The note is collateralized by the shares in Alfa Sistemi Telemedia.		800,000		800,000
Two notes of $1,000,000 each issued to the owners of Adora ICT ("Adora") as payment in full for Adora’s acquisition. Both notes are secured by Adora’s ownership shares and are payable 50% in cash and 50% in Company shares valued at $1.10 per share, the Company’s stock closing price as of the Adora acquisition date of November 1, 2011. The value of the stock components of these two notes is included in Stock Payable in the accompanying consolidated balance sheet. The first note is due at the earlier of the completion of a sufficient equity capital raise by the Company or November 1, 2012; accordingly the $500,000 cash component of this first note is classified as current debt.		500,000
The second note is due only if Adora’s 2012 revenues will equal or exceed its 2011 revenues, as evidenced by the independent audit of Adora’s financial statements, which is expected to be completed in the first quarter of 2013. Accordingly, the $500,000 cash component of this second note is classified as long-term debt. In case Adora’s 2012 revenues do not equal or exceed its 2011 revenues, this note will become null and void.		500,000		500,000
8% convertible note payable in the original amount of $78,500 to Asher Enterprises, Inc. due on November 1, 2012, principal and interest payable on the due date. The "Variable Conversion Price" shall mean 60% multiplied by the Market Price (representing a discount rate of 40%). "Market Price" means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower via facsimile. The originally issued discount was calculated at $55,488 as of June 30, 2012 unamortized debt discount was $44,101. Prepayments are allowed 90 days prior to the due date and interest accrues monthly.		109,814		-
Note Payable		240,158		-
Total short-term notes	$	2,549,972	$	1,700,000
6.0% unsecured note payable in the original amount of $110,000 to Xalted Holding Corporation due on October 16, 2012, principal and interest payable on the due date. Prepayments are allowed and interest accrues monthly.	$	35,000	$	35,000
7.0% unsecured convertible note payable in the original amount of $250,000 to Empire Capital Partners due March 19, 2012, principal and interest payable on the due date. Prepayments are allowed and interest accrues monthly. Empire Capital Partners informed the Company on June 27, 2012 that they wish to convert this note into shares of the Company in accordance with the conversion terms of the note. The note fully amortized the $176,635 of originally issued discount as of June 30, 2012.		423,635		250,000
6.0% unsecured note payable in the original amount of $90,000 to Xalted Holding Corporation due on January 16, 2013, principal and interest payable on the due date. Prepayments are allowed and interest accrues monthly.		90,000		-
6.0% unsecured note payable in the original amount of $35,000 to Xalted Holding Corporation due on April 16, 2013, principal and interest payable on the due date. Prepayments are allowed and interest accrues monthly.		35,000		-
Total short term notes - related party	$	583,635	$	285,000

Note 3 - Earnings per share

Basic earnings per share are 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:

		Six Months Ended June 30,
		2012			2011

Net earnings/(loss)	$	(3,065,490	)	$	367,227
Weighted average common shares outstanding assuming no exercise of outstanding warrants and options		39,928,094			28,333,743
Dilutive warrants and stock options using the treasury stock method.		-			-
Dilutive common shares outstanding		39,928,094			28,333,743

Basic earnings/(loss) per common share	$	(0.08	)	$	0.01
Diluted earnings/(loss) per common share	$	(0.08	)	$	0.01

Number of anti-dilutive warrants (2,470,000) and stock options (1,976,000) not included in the calculation of dilutive earnings/(loss) per share		4,446,000			-

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:

		Six Months Ended June 30,
		2012		2011

Italy	$	3,025,374	$	-
India		129,238		693,752
Nepal		99,616		2,499
South Africa		-		56,732
United States		-		1,553,985
Total	$	3,254,228	$	2,304,968

Note 5 - Contingencies and commitments

Contingencies

(a)

The Income Tax Assessing Officer has raised a demand for additional Tax liability for (AY) 07-08 and AY 08- 09. The Company has made additional provision for Income Tax Demand Liability in respect of AY 2008- 09 of $ 95,998. The Company is contesting the order of denial of section 10Aof the India tax code benefits claimed by the Company in AY 07-08 and AY 08-09 under the Income Tax Act, 1961. The estimated contingency amounts to $120,156 as of June 30, 2012. Management believes that it has strong merits for this petition and hence it will not have the material adverse effect on Xalted’s results of operations, liquidity or financial position and has filed an Appeal to the Commissioner of Income Tax in India.

Legal Proceedings

(a)	The Company 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 8 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)	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 an aggregate of $4.5 million. The Company maintains that it never received the equipment which is alleged to have been shipped to them. 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 panel 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. Xalted Information has petitioned the Single Bench Judge to hear the case as soon as possible. Arasor Corporation has requested a delay in the hearing, which the Singe Bench Judge granted until June 2012. A hearing was held during the last week of June 2012 before the Single Bench Judge. The Single Bench Judge stated that he would render his written decision by the end of July 2012. The Single Bench Judge at the end of July 2012, then requested additional documentation in the matter and has stated that he will render his written decision by the end of August 2012.

	The Company’s India lawyers have informed the Management that they believe the Company has a strong legal position and a good chance of success in the proceedings which will take place before the Single Bench Judge. However, if Xalted Information is 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 Xalted Information lose the trial, Xalted Information 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 trail 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. The Company’s India Lawyers have also informed the management that there is no loss contingency required, as the legal claim is not for payment of money but for the “winding- up of the Company”. The management team of the Company has determined based upon the merits of its legal case that the likelihood of a loss is remote and no financial reserve is required.

(c)	In November 2011, a civil lawsuit was filed against both Kranem Corporation and Xalted Networks, in the Superior Court of California, Santa Clara County, by Empirix, Inc., a Delaware company, in the amount of $316,625. The lawsuit alleges that Xalted Networks purchased monitoring surveillance and analysis technology and products from Mutina Technology S.R.L., an Italian company that is 100% owned by Empirix, Inc. We maintain that Xalted Networks, which was formed on March 14, 2011, and Kranem Corporation, which was part of a recapitalization in May 2011, could not have entered into a contractual relationship with Mutina Technology S.R.L. on August 17, 2009, as the Companies either did not exist or were dormant.

	On January 5, 2012, both Kranem and Xalted Networks filed a Notice of Demurrer in the Superior Court of California, Santa Clara County, to have the civil action against both Kranem and Xalted Networks be dismissed based upon the fact that the Companies did not exist at the time that the contractual arrangement allegedly occurred. The hearing to determine the Notice of Demurrer occurred June 5, 2012 and the Judge later issued his decision on June 21, 2012. The Judge denied the Motion of Demurrer. Discovery has begun in the case.

	The Company’s California counsel has informed us that he believes both Kranem and Xalted Networks has a strong legal position and a good chance of success. If Xalted Networks is not successful in that effort, it may appeal the lawsuit to the California Courts of Appeal and the California Supreme Court. Should those appeals fail, both Kranem and Xalted Networks would be subject to a court action and would have to pay the amount of $316,625.01 and it could have a material adverse effect on our business, as no liability has been accounted for on the books of either Kranem or Xalted Networks, Inc.

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 in the amount of $788,000.

The following is a summary of all the Company’s stock warrants as of June 30, 2012 and changes during the three months ended on that date:

				Weighted -
	Number		Weighted -	Average
	of		Average	Remaining
	Warrants		Exercise Price	Life (Years)

Outstanding at December 31, 2011	500,000	$	0.40	4.23
Granted	1,970,00	$	0.10	4.65
Exercised	-	$	-	-
Cancelled	-	$	-	-
Outstanding at June 30, 2012	2,470,000	$	0.16	4.59
Exercisable at June 30, 2012	2,470,000	$	0.16	4.59

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. The six month period ended June 30, 2012 reflected $49,000 of stock based compensation expense recognized for these options in the current period.

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 total value of $137,500 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 in the amount of 11,458 for the six month period ended June 30, 2012.

The following is a summary of all the Company’s stock options as of June 30, 2012 and changes during the three months ended on that date:

				Weighted-
			Weighted -	Average
	Number		Average	Remaining
	of Options		Exercise Price	Life (Years)

Outstanding at December 31, 2011	1,701,000	$	0.20	9.17
Granted	275,000	$	0.45	9.67
Exercised	-	$	-	-
Cancelled	-	$	-	-
Outstanding at June 30, 2012	1,976,000	$	0.23	9.41
Exercisable at June 30, 2012	-	$	-	-

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 June 30, 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’s 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 June 30, 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 June 30, 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 June 30, 2012, no shares have been converted.

Note 9 - Subsequent Events

On August 8, 2012, the Company’s Indian subsidiary, Xalted Information Systems, received signed purchase orders from ZTE Corporation in the amount of approximately $4.7 million for software and equipment in conjunction with the first phase of the BSNL telecommunications expansion project. The purchase orders request that the software and equipment be delivered and invoiced by September 30, 2012. The Company will be issuing a press release in the near term pertaining to this significant order.

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;
“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.

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.

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.

Results of Operations (unaudited)

Three and Six Months Ended June 30, 2012 and 2011

We recorded net loss of $1,295,461 and net loss of $3,065,490 for the three and six months ended June 30, 2012, respectively, compared to net loss of $58,125 for the three months ended June 30, 2011 and net income of $367,227 for the six months ended June 30, 2011. On a basic and diluted per share basis, net loss was $0.03 and net loss of $0.08 for the three and six months ended June 30, 2012, respectively, compared to net loss of $0.00 and net income of $0.01 for the three and six months ended June 30, 2011, 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.

Comparison of the Three- and Six-Month Periods Ending June 30, 2012 and 2011

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011

Revenue	1,331,945		1,013,041		3,254,228		2,304,968
Cost of Revenue	1,436,441		384,463		3,173,982		698,114
Gross Profit	(104,496	)	628,578		80,246		1,606,854
Operating Expenses	1,217,266		662,715		3,183,354		1,112,896
Operating Income/(Loss)	(1,321,762	)	(34,137	)	(3,103,108	)	493,958
Other Income/(Expense)	(215,048	)	20,206		(356,452	)	15,184
Income (loss) before Income Taxes	(1,536,810	)	(13,931	)	(3,459,560	)	509,142

Revenues. We generate revenues from sales of our integrated information security products and through the related after-sales services. Our revenues were $1,331,945 and $3,254,228 for the three and six months ended June 30, 2012, respectively, compared to $1,013,041 and $2,304,968 for the three and six months ended June 30, 2011, respectively. The increase in revenue was primarily due to the combination of timing of attaining specific revenue/project milestones associated with our customer contracts and the revenue generated by the Company’s two Italian acquisitions.

Cost of revenue. Our cost of revenue primarily consists of the purchase of third party software and deployment costs. Our cost of revenue was $1,436,441 and $3,173,982 for the three and six months ended June 30, 2012, respectively, compared to $384,463 and $698,114 for the three and six months ended June 30, 2011, respectively. Cost of revenue increased by $1,051,978 for the three months ended June 30, 2012, compared to the three months ended June 30, 2011. Cost of revenue increased by $2,475,868 for the six months ended June 30, 2012, compared to the six months ended June 30, 2011. These increases were due to the combination of increased revenue levels in the 2^nd quarter and the 1^st half of 2012 versus the corresponding periods of 2011, and the higher cost of revenue associated with the Company’s new Italian operations.

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 $(104,496) and $80,246 for the three and six months ended June 30, 2012, respectively, compared to $628,578 and $1,606,854 for the three and six months ended June 30, 2011, respectively. Our gross profit decreased by $733,074 for the three months ended June 30, 2012, compared to the three months ended June 30, 2011. Our gross profit decreased by $1,526,608 for the six months ended June 30, 2012, compared to the six months ended June 30, 2011. The decrease in the gross margin was directly attributed to the higher cost of revenue associated with the Company’s Italian operations.

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 $282,113 and $1,343,781 for the three and six months ended June 30, 2012, respectively, compared to $85,858 and $154,706 for the three and six months ended June 30, 2011, respectively. Our selling and marketing expenses increased by $196,255 for the three months ended June 30, 2012, compared to the three months ended June 30, 2011. Our selling and marketing expenses increased by $1,189,075 for the six months ended June 30, 2012, compared to the six months ended June 30, 2011. The increase in the 6 month period was heavily attributed to the issuance warrants and to a lesser extent to an increase in sales personnel and increased travel costs.

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 $801,995 and $1,534,371 for the three and six months ended June 30, 2012, respectively, compared to $332,548 and $448,799 for the three and six months ended June 30, 2011, respectively. Our general and administrative expenses increased by $469,447 for the three months ended June 30, 2012, compared to the three months ended June 30, 2011; and increased by $1,085,572, for the six months ended June 30, 2012, compared to the six months ended June 30, 2011. The increase in the general and administrative expenses is associated with a combination of events: the recapitalization completed in May 2011, the issuance of stock options and warrants to management and employees, and the addition of two subsidiaries in Italy. The largest single contributor to the increased costs was the issuance of the stock options and warrants.

Income (Loss) before income taxes. Our income/(loss) before income taxes decreased by $1,735,437 to ($1,536,810) for the three months ended June 30, 2012, compared to $(13,931) for the three months ended June 30, 2011. Our income before income taxes decreased by $3,978,702 to $(3,469,560) for the six months ended June 30, 2012, compared to $509,142 for the six months ended June 30, 2011. Our lower income before income taxes is attributed to the increased cost of revenues and the increased operating costs associated with the issuance of stock options and warrants in 2012.

Net income/(Loss). As a result of the factors described above, net income/(loss) decreased by $1,237,336 to ($1,295,461) for the three months ended June 30, 2012, compared to $(58,125) for the three months ended June 30, 2011. Net income/(loss) decreased by $3,432,717 to $(3,065,490) for the six months ended June 30, 2012, compared to $367,227 for the six months ended June 30, 2011.

Liquidity and Capital Resources

As of June 30, 2012, we had cash and cash equivalents of $524,287, 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 June 30, 2012, $411,327 of cash and cash equivalents were held in Italy. 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 $2,773,093 of accounts receivable that have been outstanding for more than a year as on June 30, 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 ($218,481) in the six months ended June 30, 2012, as compared to ($264,267) in the six months ended June 30, 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 half of 2011.

Financing Activities

Net cash provided by financing activities was $312,618 in the six months ended June 30, 2012, as compared to $47,905 in the six months ended June 30, 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 June 30, 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 promissory note to Xalted Holding in the principle amount of $90,000 with a maturity date of January 16, 2013, a short-term promissory note to Xalted Holding in the principle amount of $35,000 with a maturity date of April 16, 2013, 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 June 30, 2012. Based upon this evaluation, Mr. Batheja and Mr. Miller determined that, as of June 30, 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.

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.

(a)	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 an aggregate amount of $4.5 million 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. Xalted Information has petitioned the Single Bench Judge to hear the case as soon as possible. Arasor Corporation has requested a delay in the hearing, which the Singe Bench Judge granted until June 2012. A hearing was held during the last week of June 2012 before the Single Bench Judge. The Single Bench Judge stated that he would render his written decision by the end of July 2012. The Single Bench Judge at the end of July 2012, then requested additional documentation in the matter and has stated that he will render his written decision by the end of August 2012.

	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 of 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. If liquidation of the company were to be carried out, we would lose most of our operating assets, which would have a material adverse effect on our business.

(b)	In November 2011, a civil lawsuit was filed against both Kranem Corporation and Xalted Networks, in the Superior Court of California, Santa Clara County, by Empirix, Inc., a Delaware company, in the amount of $316,625. The lawsuit alleges that Xalted Networks purchased monitoring surveillance and analysis technology and products from Mutina Technology S.R.L., an Italian company that is 100% owned by Empirix, Inc. We maintain that Xalted Networks, which was formed on March 14, 2011, and Kranem Corporation, which was part of a recapitalization in May 2011, could not have entered into a contractual relationship with Mutina Technology S.R.L. on August 17, 2009, as the Companies either did not exist or were dormant.

	On January 5, 2012, both Kranem and Xalted Networks filed a Notice of Demurrer in the Superior Court of California, Santa Clara County, to have the civil action against both Kranem and Xalted Networks be dismissed based upon the fact that the Companies did not exist at the time that the contractual arrangement allegedly occurred. The hearing to determine the Notice of Demurrer occurred June 5, 2012 and the Judge later issued his decision on June 21, 2012. The Judge denied the Motion of Demurrer. Discovery has begun in the case.

	The Company’s California counsel has informed us that he believes both Kranem and Xalted Networks has a strong legal position and a good chance of success. If Xalted Networks is not successful in that effort, it may appeal the lawsuit to the California Courts of Appeal and the California Supreme Court. Should those appeals fail, both Kranem and Xalted Networks would be subject to a court action and would have to pay the amount of $316,625.01 and it could have a material adverse effect on our business, as no liability has been accounted for on the books of either Kranem or Xalted Networks, Inc.

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 June 30, 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:

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 June 30, 2012, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011, (ii) Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2012 and 2011 (unaudited), (iii) Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (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 Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 23, 2012	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 June 30, 2012, formatted in Extensible Business Reporting Language (XBRL) includes: (i) Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011, (ii) Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2012 and 2011 (unaudited), (iii) Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (unaudited) and (iv) Notes to the Consolidated Financial Statements

KRANEM CORP 10-Q