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

FORM 8-K/A
(Amendment No.1)

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of Earliest event Reported): May 12, 2011

KRANEM CORPORATION
(Exact name of registrant as specified in its charter)

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

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

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

2700 Cherry Creek South Drive #406, Denver, CO 80209
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[  ]   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ]   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)

[  ]   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))

[  ]   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))

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EXPLANATORY NOTE

On May 16, 2011, Kranem Corporation, or the Company, filed a Current Report on Form 8-K, or the Original Filing, with the Securities and Exchange Commission, or SEC, disclosing the consummation, on May 13, 2011, of a share exchange transaction with Xalted Holding Corporation, or Xalted Holding, a Delaware corporation, pursuant to which the Company acquired the wholly-owned subsidiary of Xalted Holding, Xalted Networks, Inc., a Delaware corporation, in exchange for the issuance to Xalted Holding of 2,326,844 newly issued shares of the Company’s common stock, and the cancellation of three convertible promissory notes issued by Xalted Holding in exchange for the issuance of shares of the Company’s common stock, to Imprenord ME, Empire Capital Partners, L.P. and Peter Richards, the holders of such notes.

The Company is filing this Current Report on Form 8-K/A: (1) to provide the unaudited financial statements of Xalted Information Systems (PVT.) Ltd. for the three months ended March 31, 2011; and (2) to amend the Original Filing in response to comments by the staff of the SEC in connection with its review of the Original Filing.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

In addition to historical information, this report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” below. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

USE OF CERTAIN DEFINED TERMS

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

• the “Company,” “we,” “us,” and “our” are to the combined business of Kranem Corporation, a Colorado corporation, and its consolidated subsidiaries, Xalted Networks and Xalted Information;

• “Xalted Holding” are to Xalted Holding Corporation, a Delaware corporation, formerly known as Xalted Networks, Inc., which changed its name to Xalted Holding Corporation on March 14, 2011;

• “Xalted” is the combination of Xalted Networks and Xalted Information;

• “Xalted Networks” are to Xalted Networks, Inc., a Delaware corporation, incorporated on March 14, 2011;

• “Xalted Information” are to Xalted Information Systems (Pvt.) Ltd., an Indian company;

• “India” are to the Republic of India;

• “SEC” are to the Securities and Exchange Commission;

• “Securities Act” are to the Securities Act of 1933, as amended;

• “Exchange Act” are to the Securities Exchange Act of 1934, as amended;

• “Rupees” and “Rs.” are to the legal currency of India; and

• “U.S. dollars,” “dollars” and “$” are to the legal currency of the United States.

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MARKET DATA AND FORECAST

Unless otherwise indicated, information in this current report on Form 8-K concerning economic conditions and our industry is based on information from independent industry analysts and publications, as well as our estimates. Except where otherwise noted, our estimates are derived from publicly available information released by third-party sources, as well as data from our internal research, and are based on such data and knowledge of our industry, which we believe to be reasonable.

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ITEM 1.01           ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

On May 12, 2011, we entered into an agreement, or the Share Exchange Agreement, pursuant to which we agreed to acquire Xalted Networks, a wholly-owned subsidiary of Xalted Holding, in exchange for $2,500,000, paid by cancellation of promissory notes originally issued by Xalted Holding in November 2010; the issuance to Xalted Holding of 2,326,844 shares of our common stock; and the cancellation of an aggregate of 2,937,500 outstanding shares of our common stock held by three individuals. These transactions are described more fully immediately below.

On May 13, 2011, we entered into Assignment of Note Agreements with the holders of three convertible promissory notes, or the Notes, originally issued by Xalted Holding in November 2010. The three holders were Imprenord ME ($1,750,000 principal amount), Empire Capital Partners, L.P. ($500,000 principal amount), and Peter J. Richards ($250,000 principal amount). Imprenord ME is a private equity fund organized in Dubai and was at the time of the issuance of the Notes, and still is, a 10.3% shareholder of Xalted Holding. Its investment decisions are made by Jeetendra Chauhan, the treasurer of Imprenord ME. Empire Capital Partners, L.P. is a limited partnership organized in Delaware and was at the time of the issuance of the Notes, and still is, a 15.7% sshareholder of Xalted Holding. It is controlled by, and its investment decisions are made by Empire GP, LLC, a Delaware limited liability company, Empire Capital Management, LLC, a Delaware limited liability company, Scott A. Fine and Peter J. Richards, none of whom were, or are, direct shareholders of Xalted Holding.

The holders of the Notes had originally signed the Assignment of Note Agreements in April 2011. The expiration dates under the Agreements were extended to permit us to countersign them on May 13, 2011 pursuant to an Extension of Assignment of Note Agreement, effective as of May 6, 2011, executed by Xalted Holding and each holder of the Notes. Pursuant to the Assignment of Note Agreements, we agreed to acquire the Notes in consideration for the issuance of 2,094,159 shares to Imprenord ME, 598,331 shares to Empire Capital Partners, LLC, and 299,166 shares to Peter J. Richards. The total number of shares issued in consideration for the Notes was 2,991,656, representing 45% of our issued and outstanding stock after the completion of all the transactions described in this section. The shares issued in exchange were in addition to the shares issued in the cancellation of the Notes. The agreements pursuant to which we acquired the Notes provided that the indebtedness of Xalted Holding represented by the Notes would be cancelled immediately upon the issuance of the shares to the Note holders.

Also on May 13, 2011, we entered into agreements to repurchase and cancel 2,205,000 shares of our common stock held by Stephen K. Smith, then our President, sole director and controlling shareholder; 180,000 shares of our common stock held by Michael Grove, then our Secretary, Treasurer and Principal Financial Officer; and 552,500 shares of our common stock held by Andrea Brady, who had no relationship with us other than as a shareholder, in each case in consideration for the payment of $10 in cash. The cancellation of these shares was agreed upon by the parties to arrive at the final ownership percentages for Xalted Holding and the Note holders without repurchasing or cancelling shares held by members of the public.

As a part of these transactions, the parties agreed that Michael Grove would resign from all positions held with us effective as of the closing of the transaction; Stephen K. Smith would resign from his position as our President effective as of the closing of the transaction, and as a member of our board of directors effective upon the tenth day following the mailing of a 14f-1 Notice to our shareholders, or June 4, 2011; Ajay Batheja would be appointed to our board of directors effective as of the closing; other individuals as might be designated by Xalted Holding would be appointed to our board effective upon the tenth day following the mailing of a 14f-1 Notice to our shareholders, or June 4, 2011; Ajay Batheja would be appointed as our Chief Executive officer effective as of the closing; and Edward Miller would be appointed as our Chief Financial Officer effective as of the closing. Ajay Batheja was then, and still is, a member of the board of directors and the CEO of Xalted Holding, and the CEO of Xalted Information. Edward Miller had no position with us, Xalted Holding or any affiliate of either prior to the closing. Since the closing, Luigi Caramico and V.R. Ranganath, both of whom are directors of Xalted Holding, have been appointed to our board of directors, effective as of the tenth day following the mailing of a 14f-1 Notice to our shareholders, or June 4, 2011. The security ownership of certain beneficial owners and management is set out below under Security Ownership of Certain Beneficial Owners and Management.

The foregoing description of the terms of the Share Exchange Agreement, Assignment of Note Agreements and Extension of Assignment of Note Agreement is qualified in its entirety by reference to the provisions of those Agreements, which are filed as Exhibits 2.1, 10.1 and 10.2, respectively, hereto.

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ITEM 2.01           COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS

On May 13, 2011, we completed the acquisition of the Notes and of Xalted Networks described in Item 1.01 above. These transactions resulted in a change of control of Kranem Corporation, which prior to the closing of the transactions was controlled by Stephen K. Smith. After the closing of the transactions, the holders of the Notes held directly 45% of our issued and outstanding stock and a further 9.1% indirectly through their combined shareholding of Xalted Holding, for total direct and indirect ownership interest of 54.1% . 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.

FORM 10 DISCLOSURE

As disclosed elsewhere in this report, we acquired Xalted Networks on May 13, 2011. Item 2.01(f) of Form 8-K states that if the registrant was a shell company, as we were immediately before the acquisition transaction disclosed under Item 2.01, then the registrant must disclose the information that would be required if the registrant were filing a general form for registration of securities on Form 10.

Accordingly, we are providing below the information that would be included in a Form 10 if we were to file a Form 10. Please note that the information provided below relates to the combined enterprises after the acquisition of Xalted Networks, except that information relating to periods prior to the date of the acquisition only relate to Xalted Networks unless otherwise specifically indicated.

DESCRIPTION OF BUSINESS

Business Overview

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.

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

In the telecom security market, we provide four software modules that address different aspects of the telecom security 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 security 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.

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

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

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

Our Corporate History and Background

Background and History of Kranem Corporation

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

Background and History of Xalted Networks and Xalted Information

Xalted Holding was originally established in Delaware in 1996 under the name “Xalted Holdings, Inc.” On October 1, 2004, that company acquired 100% of Xalted Information pursuant to a Share Exchange and Restricted Stock Purchase Agreement executed with the owners of Xalted Information, Rajendra Manikonda and Pratap (Bob) Kondamoori.

After discussions with the Reserve Bank of India, the Share Exchange and Restricted Stock Purchase Agreement was amended effective as of February 16, 2006, to rescind the transfer of 30% of that equity, so that Xalted Networks, Inc., now Xalted Holding, would hold 70% of Xalted Information directly and of record, and the remaining equity would be held 7.53% by Rajendra Manikonda and 22.47% by Pratap (Bob) Kondamoori. We refer to the 30% of the equity of Xalted Information which was the subject of the 2006 Amendment as the Rescinded Stock. The Amendment gave Xalted Networks, Inc., now Xalted Holding, an option to purchase the Rescinded Stock from its holders, or the Holders, for a total price of US$1.00; allowed the Holders to sell the Rescinded Stock only to Xalted Networks, Inc., now Xalted Holding; required the Holders to transfer to Xalted Networks, Inc., any dividends or other distributions of any kind, including any liquidation proceeds, received by them from Xalted Information; and gave to Xalted Networks, Inc., all voting rights associated with the Rescinded Stock.

In April 2005, additional equity of Xalted Information was issued to Rajendra Manikonda and Pratap (Bob) Kondamoori subject to the same terms as the Rescinded Stock.

Xalted Networks, Inc. changed its name to Xalted Holding Corporation on March 14, 2011. On March 16, 2011, Xalted Holding transferred its 45.87% record ownership of Xalted Information, the beneficial ownership of the remaining 54.13%, and all of its rights under the Share Exchange and Restricted Stock Purchase Agreement, as amended, to a new wholly-owned subsidiary, to which it had given its former name, Xalted Networks, Inc.

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Thus, as of the date our acquisition of Xalted Networks, that company held 45.87% of Xalted Information directly and of record, and the remaining equity was held 13.55% by Rajendra Manikonda and 40.58% by Pratap (Bob) Kondamoori for the benefit of Xalted Networks.

Acquisition of Xalted Networks

On May 13, 2011, we executed agreements to acquire three convertible promissory notes issued by Xalted Holding, or the Notes, in exchange for the issuance of 2,094,159 newly issued shares of our common stock to Imprenord ME, the holder of a Note in the principal amount of $1,750,000; 598,331 newly issued shares of our common stock to Empire Capital Partners, L.P., the holder of a Note in the principal amount of $500,000; and 299,166 newly issued shares of our common stock to Peter Richards, the holder of a Note in the principal amount of $250,000. On May 13, 2011, we acquired the wholly-owned subsidiary of Xalted Holding, Xalted Networks, in exchange for the issuance to Xalted Holding of 2,326,844 newly issued shares of our common stock and the cancellation of the Notes. On the same date, we entered into agreements to repurchase and cancel 2,205,000 shares of our common stock held by Stephen K. Smith, 180,000 shares of our common stock held by Michael Grove, and 552,500 shares of our common stock held by Andrea Brady, in each case in consideration for a nominal payment in cash. The cancellation of these shares was agreed upon by the parties to arrive at the final ownership percentages for Xalted Holding and the Note holders without repurchasing or cancelling shares held by members of the public. The shares issued Xalted Holding and to the holders of the Notes constituted 35% (Xalted Holding), 31.5% (Imprenord ME), 9% (Empire Capital Partners, L.P.) and 4.5% (Peter Richards), of our issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the transactions contemplated by the Share Exchange Agreement.

Upon the closing of the acquisition of Xalted Networks on May 13, 2011, Stephen K. Smith resigned from his position as our President, and as a member of our board of directors effective on June 4, 2011. Michael Grove resigned from all positions held with us effective as of the closing of the transaction. Ajay Batheja, a director and the CEO of Xalted Holding, and the CEO of Xalted Information, was appointed to our board of directors and as our Chief Executive Officer, and Edward Miller was appointed as our Chief Financial Officer, effective as of the closing. Luigi Caramico and V.R. Ranganath, both of whom are directors of Xalted Holding, were appointed to our board of directors effective as of June 4, 2011.

We now own all of the issued and outstanding capital stock of Xalted Networks. Xalted Networks is an investment holding company with no operations or liabilities, and together with its nominees, Pratap S. Kondamoori and Rajendra Manikonda, is the 100% owner of Xalted Information. As a result of the acquisition, we have assumed the business and operations of Xalted Networks and Xalted Information and we plan to change our name to “Xalted” to more accurately reflect our new business operations. See “Our Corporate Structure” below.

Our Corporate Structure

All of our business operations are conducted through Xalted Information, which is wholly owned by Xalted Networks and its nominees, Pratap (Bob) Kondamoori and Rajendra Manikonda. The chart below presents our current corporate structure.

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Our Industry

Telecom Security Solutions Market and Trends

We believe that the key trends driving demand for our telecom security solutions are:

Increasing revenue generation. Increasing the company’s revenue stream is the single greatest challenge in the telecom industry today. The telecom industry can improve most of its operating metrics by simply increasing revenue while controlling costs. The fastest method to increasing revenue is through its service and package offering to its users. The best possible revenue solution for the industry is to revise its service offering in such a manner, so that it requires minimal changes in the network but provides increased revenue generation. Inherently implied in this trend is that the existing revenue cannot be compromised, which is to say eliminate the potential for fraudulent use of the service providers network. To address this trend, Xalted has developed the two modules revenue maximization and revenue assurance.

Increased focus on productivity, operational performance and profitability. In today’s economy, companies are increasingly focused on improving productivity and increasing profitability by creating better-quality customer experiences and through achieving higher efficiencies across the enterprise. These objectives require organizations to better manage their customer, partner and employee relationships, analyze critical customer data, maximize the value of customer interactions and execute customer-focused business processes. Considering the high cost of acquiring new customers and the maturation of many industries, it is increasingly important to maximize revenue from the retention and continued satisfaction of current customers. Similarly, due to the high cost of upgrading the telecom network with new equipment and technologies is very expensive. Accordingly, the telecom industry would prefer to minimize capital costs while improving the overall performance of its network. The solution is have a system that can integrate new technologies and capabilities on top of the existing equipment and network capabilities or at a minimum replace the least amount of equipment possible for a new capability. To address the industry’s needs Xalted has developed its OSS/BSS software module. Within the OSS portion of the module exists tools that will allow the user to assess the networks capabilities in modifying legacy systems and equipment.

Heightened regulatory and compliance requirements and the need for dispute resolution. Compliance and regulatory pressures have increased for corporations and public organizations worldwide. These include both internal and external regulations, such as compliance and regulations that may be driven by accounting scandals (e.g., the Sarbanes-Oxley Act), security concerns (e.g., anti-money laundering legislation) and recent events in the financial industry (e.g., the increase in fraud attempts related to wire transfers). In addition, it is important to be able to eliminate and/or resolve communication disputes, such as between counterparties in a securities trade, in an efficient and definitive manner. Existing business intelligence and other IT solutions have addressed these growing challenges to some degree. However, institutions require improved solutions that not only provide better compliance and surveillance, but also more current, real-time information with increased operational visibility. Advanced FMS and OSS/BSS enable the reduction of the costs associated with ongoing compliance, improved customer service, while creating the required audit trail for regulatory purposes.

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Homeland Security Solutions Market and Trends

We believe that terrorism and organized crime, which includes drug trafficking, and other security threats, combined with an expanding range of communication and information media, are driving demand for innovative security solutions that collect, integrate, and analyze information from voice, video, and data communications, as well as from other sources, such as private and public databases. We believe that the key trends driving demand for our homeland security solutions are:

Increasing complexity of communications networks and growing network traffic. Law enforcement and certain other government agencies are typically given the authority to intercept communication transmissions to and from specified targets for the purpose of generating evidence. National security and intelligence agencies intercept communications, often in massive volumes, for the purpose of generating intelligence and supporting investigations. We believe that these agencies are seeking technically advanced solutions to help them to keep pace with increasingly complex communications networks and the growing amount of network traffic.

Improved ease of use, processing capabilities and reduced size of handheld communication devices. The advent of advanced handheld technology devices such as the iPhone and Blackberry have increased the communication capabilities of both terrorists and organized crime organizations. These new devices can send and receive telephone calls, text messages, emails, data files, pictures, and videos. These devices can browse the Internet, store data and provide GPS information. These handheld devices have only increased the complexities for the law enforcement community, intelligence and national security agencies. These organizations are looking for solutions to be able to track terrorists/criminals and their communication devices. Counter terrorist agencies and law enforcement organizations are looking for solutions that allow them to monitor multiple communication mediums, store and process the complexity of information that has been obtained into a useable source of information for fact based decision making.

Growing demand for advanced intelligence and investigative solutions. Investigations related to criminal and terrorist networks, drugs, financial crimes, and other illegal activities are highly complex and often involve collecting and analyzing information from multiple sources. We believe that law enforcement, national security, intelligence, and other government agencies are seeking advanced solutions that enable them to integrate and analyze information from multiple sources and collaborate more efficiently with various other agencies in order to unearth suspicious activity, optimize investigative workflows, and make investigations more effective.

Emerging needs for holistic situational awareness and event management. The number and variety of physical security sensors is growing substantially, with public and private organizations deploying security systems, such as surveillance cameras and access control and intrusion detection sensors. Organizations, municipalities and governmental entities are struggling to eliminate the number of information silos created by deployment of redundant security systems. These silos limit the control room operators’ ability to gain a cohesive and unified picture of situations. The lack of unified solutions undermines the ability to take decisive actions; furthermore, the lack of adequate tools for sharing information in real time between the various field security personnel, emergency forces and law enforcement agencies, among others, can substantially prolong response time and reduce the probability of successful event mitigation.

Increased urbanization raises rates of crime and risks of terror attacks. Increased urbanization in both developed and developing countries results in higher rates of various types of crime (such as robbery, theft, murder and other assaults) and greater fears of terror attacks in city centers and other metropolitan areas and systems (such as mass transit). These growing concerns are driving large-scale security projects in these areas, aiming at improving the security of the citizens. These large-scale projects include installation and implementation of wide-scale security systems, which better synchronize and correlate multimedia data sources in order to assist law enforcement officials to detect and prevent crimes and terror attacks and investigate quickly in order to apprehend the suspects.

Our Competitive Strengths

We anticipate that the following competitive strengths enable us to compete effectively and to capitalize on the growth of the telecom and homeland information security industries:

• We have established business relationships. We have established relationships with national and lower-level governments and law enforcement agencies, as well as major telecom companies. We have been working with the Government of India since 2006 to create homeland security solutions. As a result this collaboration, our InteliANALYZER solution was deployed in four metro areas in India. We also have established relationships with local and regional law enforcement agencies and bodies in India, such as the Anti-Terrorist Squads in Mumbai, Maharashtra and Goa, a special law enforcement task force in Uttarakand, and the Cyber Crime Division of Thane District Police. We have been able to build upon our established relationships in both the government and telecom sectors by obtaining introductions to potentially new customers/users of our products. In the government sector, as we roll-out our products to the state and local law enforcement agencies; we are opening new opportunities for additional product sales. In the telecom security sector, we have been providing OSS/BSS services to MTNL since 2004 and to BSNL since 2005. Other customers include Mcel, Nepal Telecom, Nepal Satellite Telecom, Telecom Italia and Hutchison 3G.

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• We have developed highly scalable advanced solutions. We believe that the data capture, retention, and retrieval system that we have developed is one of the fastest, most secure, and scalable systems in the world. This system was initially developed to track the demanding requirements of wireless telecom operators, including Telecom Italia, Fastweb and Albacom (British telecom) for their billing systems. Because it was built with linear scalability in mind, with high retrieval rates, it turned out to be the perfect platform to supply the increasingly complex needs of Government clients, whose data needs are demanding.

• We have a broad portfolio of information security solutions. We have worked closely with our customers over the past three years and developed twenty-eight proprietary, configurable modules that deliver “out of the box” value for customers. Our solutions can be deployed stand-alone or collectively as part of a large-scale system to address the needs of our clients that require advanced, comprehensive solutions. Our homeland security solutions are designed to handle massive amounts of unstructured and structured information from different sources (including fixed and mobile networks, IP networks, and the Internet), can quickly make sense of complex scenarios and generate evidence and intelligence. These highly specialized, unique, domain expertise-filled modules have helped our clients foil or mitigate over ten terrorist plans in last two years.

Our Growth Strategy

We are committed to enhancing profitability and cash flows through the following strategies:

• We plan to continue our penetration of the homeland information security market in India. We believe that our current penetration of the homeland information security market in India is less than 1% of its total market opportunity. Given our established business relationships, advanced product offerings and proven track record, we expect sustained growth in this market. We are currently negotiating an incremental $30 million agreement with the Government that we expect to close in the second half of 2011.

• We plan to continue to expand our market presence outside of India. We intend to continue expanding our existing relationships outside of India while creating new ones. We are currently in discussions with key agencies and governments in Nigeria, Sri Lanka, Nepal, and Oman to expand our homeland security business. We also plan to leverage our current relationships in other areas such as Italy and the Middle East to develop significant customer relationships over time.

• We plan to augment our organic grown with strategic acquisitions. We examine acquisition opportunities regularly as a means to add technology, increase our geographic presence or expand into adjacent markets. We hope to complete one such acquisition in the second half of 2011. Among our potential acquisition targets are a company with a complementary code base, which we believe will immediately add functionality to our platform and provide us with new customers and new channel partners. We are also looking at three other potential acquisition candidates that could provide the Company with both new products as well as new customers. All these potential acquisition targets are in the early stages of discussions.

Our Products

Telecom Information Security Solutions

We provide integrated, end to end, flexible and multi-purpose OSS/BSS solutions to telecom companies, 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.

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Following is a summary of our telecom security solutions:

Product		Purpose
Revenue Maximization		Revenue Maximization is an software solution that addresses the challenges faced by Communication Service Providers (“CSP”) at various stages in the development of their revenue-generation value proposition. Revenue Maximization empowers CSPs with real-time dynamic market information while designing new services and products, it also enables them with tools like market simulator and scenario modeling to predict and control the revenue outcome.
Revenue Assurance		Revenue Assurance is a flexible Revenue Assurance System, that allows traffic to be monitored, highlighting “anomalies”, which could indicate an incorrect use of service(s), providing a flexible environment for the control of suspicious events, and allowing an automatic interruption of specific services to be implemented, should a particular set of conditions arise.
Fraud Management		Fraud Management delivers a suite of fraud management solutions that empowers telcos to identify, capture and prevent fraudulent activities across their manifold of service offerings. Xalted’s fraud detection solutions are proven and benefiting our customers with powerful controls that ensure real-time monitoring, customer profiling and a comprehensive analysis across an extensive range of environments.
OSS/BSS		OSS/BSS software solutions reduce the time-to-market for new services while helping service providers control development and deployment costs. Xalted offers a complete suite of OSS/BSS solutions for managing complex networks ranging from Legacy systems to today’s next-generation services.

For the fiscal years ended December 31, 2010 and 2009, approximately 69.9% and 53.7%, respectively, of our revenues were generated from sales of our telecom security solutions.

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.

InteliCENTER was the Company’s first product to address the homeland security market needs. Since the development of InteliCENTER, we have developed three additional modules based upon the request of our customers.

Product		Purpose
InteliCENTER		InteliCENTER provides Law Enforcement and Intelligence Agencies with proactive monitoring of communication, transaction and events across domains, and draws intelligence from the information allowing authorities the ability to act in a timely manner. They also need to put proper strategies and processes in place to predict and prevent these criminal activities. InteliCENTER provides both the strategic and operational information required through real-time tactical analysis; thereby, empowering decision-makers with key data points to allow them to intelligently formulate their strategy to a given threat.

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For the fiscal years ended December 31, 2010 and 2009, approximately 30.1% and 46.3%, respectively, of our revenues were generated from sales of our homeland security solutions.

Customer Service and Support

We offer a range of customer services, including implementation, training, consulting and maintenance to help our customers maximize their return on investment in our solutions. For the fiscal years ended December 31, 2010 and 2009, the fees that the Company received were less than 1% of total revenues. While we did double our customer service and support fees from 2009 to 2010; the fees are well below that of our competition and an area that we would like to significantly improve the revenue generation going forward.

Our solutions are implemented and installed by business units within our Indian subsidiary, which we sometimes refer to as our service organizations. Our implementation services include project management, system installation, and commissioning, including integrating our applications with our customers’ environments and third-party solutions. In some cases, we have agreements with third parties, such as IBM and Mahindra Satyam, a major Indian technology company, to act as suppliers or subcontractors on projects in which they are a prime or superior contractor. On occasion we certify their personnel to sell, install and support the software we provide. Customer training is provided at the customer site, at our training centers, or remotely through webinars. Our consulting services are designed to enable our customers to maximize the value of our solutions in their own environments.

We offer a range of customer maintenance support programs to our customers and resellers, including phone, Web, and email access to technical personnel up to 24 hours a day, 7 days a week. Our support programs are designed to ensure long-term, successful use of our solutions. We believe that customer support is critical to retaining and expanding our customer base. Our solutions are sold with a warranty of generally one year for hardware and 90 days for software. In addition, customers are typically provided the option to purchase maintenance plans that provide a range of services, such as telephone support, advanced replacement, upgrades when and if available, and on-site repair or replacement.

Our Customers

We sell our products In India and internationally. Historically, a small number of customers have accounted for a substantial portion of our revenue. Due to nondisclosure agreements with certain key customers, we cannot disclose the exact percentages that their sales would impact the Company As we target new markets, we expect that our customer composition as well as the identity and concentration of our top customers will change from period to period.

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In the years ended December 31, 2010 and 2009, we derived approximately 67.7% and 75.2% of our revenue, respectively, from Indian customers, and approximately 32.3% and 24.8% of our revenue, respectively, from international customers.

For the year ended December 31, 2010, approximately 30% of our business was generated from contracts with various governments, including national, state, and lower-level government agencies. Some of the customer engagements on which we work require us to have the necessary security credentials or to participate in the project through an approved legal entity. In addition, because of the unique nature of the terms and conditions associated with government contracts generally, our government contracts may be subject to renegotiation or termination at the election of the government customer.

Three customers accounted for 89% of our revenues in 2010. Ericsson India Pvt. Ltd. accounted for 32% of our revenue in 2010. Our parent corporation in 2010, Xalted Networks, Inc., now known as Xalted Holding Corporation, accounted for 27% of our revenue in 2010. This revenue was derived from an intercompany license of software provided to L.M. Ericsson AB or one of its affiliates under a contract with our parent corporation; that contract is not expected to generate significant revenue in 2011. An agency of the government of India accounted for 30% of our revenue in 2010. That contract, including the identification of the specific agency which is a party to it, may not be disclosed by us by order of that agency, based on the national security interests of India.

For a more detailed discussion of the risks associated with our government customers, see “Risk Factors—Risks Related to Our Business—We are dependent on contracts with governments for a significant portion of our revenue and these contracts also expose us to additional business risks and compliance obligations” and “—Indian and foreign governments could refuse to buy our homeland security solutions or could deactivate our security clearances in their countries thereby restricting or eliminating our ability to sell these solutions in those countries and perhaps influence other countries by such a decision.”

Sales and Marketing

We sell our software and services primarily through our direct sales teams and a small portion through our indirect channel, consisting mostly of resellers.

Each of our solutions is sold by trained, dedicated, regionally organized direct and indirect sales teams. Our direct sales teams are focused on large and mid-sized customers and, in many cases, co-sell with our sales agents. Our indirect sales teams are focused on developing and supporting relationships with our indirect channels, which provide us with broader market coverage, including access to their customer base, integration services, and presence in certain geographies and vertical markets. Our sales teams are supported by our internal implementation and installation specialists, who, during the sales process, determine customer requirements and develop technical responses to those requirements. While we sell directly and indirectly in both of our segments, sales of our telecom security solutions are primarily direct, and sales of our homeland security solutions is exclusively direct.

Research and Development

We continue to enhance the features and performance of our existing software solutions and to introduce new solutions through extensive software development activities, including the development of new software modules and features, as well as enhancements and customer requests to the Company’s existing software offering. We also offer consulting services, which allows us to evaluate and determine our customers’ needs and customize our software to meet those needs. In some instances, our customers will identify particular requirements that they have and we will customize our products to meet the particular requirements of our customers. We believe that our future success depends on a number of factors, which include our ability to:

• identify and respond to emerging technological trends in our target markets;

• develop and maintain competitive solutions that meet our customers’ changing needs and requirements;

• enhance our existing products by adding features and functionality to meet specific customer needs or differentiate our products from those of our competitors;

• constantly evaluate external opportunities to accelerate our product offering through key acquisitions of businesses, business units and technology licenses; and

• attract, recruit, and retain highly skilled and experienced employees.

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To support these efforts, we make significant investments in research and development every year. In the years ended December 31, 2010 and 2009, we spent $1,002,980 and $999,050, respectively, on research and development. The cost of this research and development was built into the fees we charged our customers and to that extent was borne directly by our customers. We allocate our research and development resources in response to market research and customer demand for additional features and solutions. Our development strategy involves rolling out initial releases of our products and adding features over time. We incorporate product feedback received from our customers into our product development process. While our products are developed internally, in some cases, we also acquire or license technologies, products, and applications from third parties based on timing and cost considerations, and incorporate those in our products. We are not materially dependent on any such third party products or applications.

Intellectual Property

Our success depends, in part, on our ability to maintain and protect our proprietary technology and to conduct our business without infringing on the proprietary rights of others. We rely primarily on a combination of proprietary technology and trade secrets, as well as employee and third-party confidentiality agreements, to safeguard our intellectual property. Some of the software modules which we develop internally and license to our customers incorporate third-party software licensed from Oracle Corporation and BMC Software for that purpose. We are not materially dependent on the software from either vendor. If our customer prefers an alternative vendor, or if we were to determine for any reason to use the software of another vendor, we could do so without a material impact on our business.

We license certain software, technology, and related rights for use in the marketing of our software. We believe that our rights under such licenses and other agreements are sufficient for the marketing of our products and, in the case of licenses, extend for periods at least equal to the estimated useful lives of the related technology and know-how.

Our licenses are designed to prohibit unauthorized use, copying, and disclosure of our software technology. When we license our software to customers, we require license agreements containing restrictions and confidentiality terms customary in the industry in order to protect our proprietary rights in the software. These agreements generally warrant that the software and propriety hardware will materially comply with written documentation and assert that we own or have sufficient rights in the software we distribute and have not violated the intellectual property rights of others. We license our products in a format that does not permit users to change the software code.

We protect our trade secrets through confidentiality provisions of the employment contracts we enter into with our employees. In addition, our software engineers and programmers are generally divided into different project groups, each of which generally handles only a portion of the project software. As a result, no one software engineer or programmer generally has access to the entire design process and documentation for a particular product.

We cannot give any assurance that the protection afforded for our intellectual property will be adequate. It may be possible for third parties to obtain and use, without our consent, intellectual property that we own or are licensed to use. Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business. We may also be subject to litigation involving claims of patent infringement or violation of other intellectual property rights of third parties. See “Risk Factors—Risks Related to Our Business—Our intellectual property may not be adequately protected,” “—Our products may infringe or may be alleged to infringe on the intellectual property rights of others, which could lead to costly disputes or disruptions for us and may require us to indemnify our customers and resellers for any damages they suffer” and —Reliance on or loss of third-party licensing agreements could materially adversely affect our business, financial condition, and results of operations.”

Our Competition

We face strong competition in all of our markets, and we expect that competition will persist and intensify. Our primary competitors are i2 Limited (U.K.), Narus, Inc., Verint Systems Inc., NICE Systems Ltd. (Israel), Septier Communication Ltd. (Israel), SS8 Networks, Inc., Visual Analytics Inc., and many smaller companies, which can vary across regions. Some of our competitors have superior brand recognition and greater financial resources than we do, which may enable them to increase their market share at our expense. Furthermore, we expect that competition will increase as other established and emerging companies enter markets and as new products, services, and technologies are introduced.

We believe that we compete principally on the basis of:

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• product performance and functionality;
• product quality and reliability;
• breadth of product portfolio and interoperability;
• high-quality customer service and support;
• specific industry knowledge, vision, and experience; and
• price.

We believe that our success depends primarily on our ability to provide technologically advanced and cost-effective solutions and services. We expect that competition will increase as other established and emerging companies enter our market and as new products, services, and technologies are introduced. In recent years, there has also been significant consolidation among our competitors, which has improved the competitive position of several of these companies and enabled new competitors to emerge in all of our markets. See “Risk Factors—Risks Related to Our Business—Intense competition in our markets and competitors with greater resources than us may limit our market share, profitability, and growth” for a more detailed discussion of the competitive risks we face.

Employees

As of December 31, 2010, we had 151 employees, all of whom were full-time employees. The following table sets forth our employees by function.

	Function		Number of Employees
	Senior Management		5
	Research and Development		116
	Sales and Marketing		9
	Human Resource & Administration		19
	Accounting		3
	TOTAL		151

We maintain a satisfactory working relationship with our employees, and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations. None of our employees is represented by a labor union.

Regulation

Because most of our operations are in India, we are subject to national and local laws in India. This section summarizes the major regulations relating to our business.

Employment, Health and Safety Laws

We are subject to various labor, health and safety laws which govern the terms of employment of the our employees, their working conditions, the benefits available to them and the general relationship between our management and such employees. These include:

Industrial Disputes Act, 1947 (“IDA”)

The IDA seeks to preempt industrial tensions in an establishment and provide the mechanics of dispute resolution, collective bargaining and the investigation and settlement of industrial disputes between unions and companies. While the IDA provides for the voluntary reference of disputes to arbitration, it also empowers the appropriate government agency to refer disputes for compulsory adjudication and prohibit strikes and lock-outs during the pendency of conciliation proceedings before a board of conciliation or adjudication proceedings before a labor court.

Contract Labor (Regulation and Abolition) Act, 1970 (“CLRA”)

The CLRA was enacted to regulate the employment of contract labor. The CLRA applies to every establishment in which 20 or more persons are employed or were employed on any day of the preceding 12 months as contract labor. The CLRA vests the responsibility on the principal employer of an establishment to register as an establishment that engages contract labor. Likewise, every contractor to whom the CLRA applies must obtain a license and may not undertake or execute any work through contract laborers except in accordance with the license issued.

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To ensure the welfare and health of contract labor, the CLRA imposes certain obligations on the contractor in relation to establishment of canteens, rest rooms, drinking water, washing facilities, first aid and other facilities and payment of wages. However, in the event the contractor fails to provide these amenities, the principal employer is under an obligation to provide these facilities within a prescribed time period.

Employee State Insurance Act, 1948 (“ESIA”)

The ESIA requires the provision of certain benefits to employees or their beneficiaries in the event of sickness, maternity, disability or employment injury. Every factory or establishment to which the ESIA applies is required to be registered in the manner prescribed under the ESIA. Every employee, including casual and temporary employees, whether employed directly or through a contractor, who is in receipt of wages up to Rs. 6,500 per month, is entitled to be insured under the ESIA. The ESIA contemplates the payment of a contribution by the principal employer and each employee to the Employee State Insurance Corporation.

Payment of Wages Act, 1936 (“PWA”)

The PWA regulates the payment of wages to certain classes of employed persons and makes every employer responsible for the payment of wages to persons employed by such employer. No deductions are permitted from, nor is any fine permitted to be levied on, wages earned by a person employed except as provided under the PWA.

Minimum Wages Act, 1948 (“MWA”)

The MWA provides for a minimum wage payable by employers to employees. Under the MWA, every employer is required to pay the minimum wage to all employees, whether for skilled, unskilled, manual or clerical work, in accordance with the minimum rates of wages that have been fixed and revised under the MWA. Workers are to be paid for overtime at overtime rates stipulated by the appropriate government. Contravention of the provisions of this legislation may result in imprisonment up to six months, a fine up to Rs. 500 or both.

Workmen’s Compensation Act, 1923 (“WCA”)

The WCA makes every employer liable to pay compensation if injury, disability or death is caused to a workman (including those employed through a contractor) due to an accident arising out of or in the course of his employment. If the employer fails to pay the compensation due under the WCA within one month from the date it falls due, the commissioner may direct the employer to pay the compensation amount along with interest and impose a penalty for non-payment.

Payment of Gratuity Act, 1972 (“PGA”)

Under the PGA, an employee who has been in continuous service for a period of five years is eligible for gratuity upon retirement or resignation. The entitlement to gratuity in the event of superannuation or death or disablement due to accident or disease, will not be contingent on an employee having completed five years of continuous service. The maximum amount of gratuity payable must not exceed Rs. 350,000.

An employee is said to be in “continuous service” for a certain period notwithstanding that his service has been interrupted during that period by sickness, accident, leave, absence without leave, lay-off, strike, lock-out or cessation of work not due to the fault to of the employee. The employee is also deemed to be in continuous service if the employee has worked (in an establishment that works for at least six days in a week) for at least 240 days in a period of 12 months or 120 days in a period of six months immediately preceding the date of reckoning.

Payment of Bonus Act, 1965 (“PBA”)

The PBA provides for the payment of a minimum annual bonus to all employees regardless of whether the employer has made a profit or a loss in the accounting year in which the bonus is payable. Under the PBA, every employer is bound to pay to every employee, in respect of the relevant accounting year, a minimum bonus equal to 8.33% of the salary or wage earned by the employee during the accounting year or Rs. 100, whichever is higher. If the allocable surplus, as defined in the PBA, available to an employer in any accounting year exceeds the aggregate amount of minimum bonus payable to the employees, the employer is bound to pay bonuses at a higher rate which is in proportion to the salary or wage earned by the employee and the allocable surplus during the accounting year, subject to a maximum of 20% of such salary or wage.

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Contravention of the provisions of the PBA by a company will be punishable by imprisonment for up to six months or a fine of up to Rs. 1,000, or both, against persons in charge of, and responsible to the company for, the conduct of the business of the company at the time of contravention.

Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“EPFA”)

The EPFA creates provident funds for the benefit of employees in factories and other establishments. Contributions are required to be made by employers and employees to a provident fund and pension fund established and maintained by the Government of India. The employer is responsible for deducting employees’ contributions from the wages of employees and remitting the employees’ as well as its own contributions to the relevant fund. The EPFA empowers the Government of India to frame various funds such as the “Employees Provident Fund Scheme,” the “Employees Deposit-linked Insurance Scheme” and the “Employees Family Pension Scheme.”

Other Regulations

Land Acquisition Act, 1894 (“Land Acquisition Act”)

As per the provisions of the Land Acquisition Act, the central government or appropriate state government is empowered to acquire any land from private persons for ‘public purpose’ subject to payment of compensation to the persons from whom the land is so acquired. The Land Acquisition Act further prescribes the manner in which such acquisition may be made by the central government or the appropriate state government. Additionally, any person having an interest in such land has the right to object to such proposed acquisition.

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Special Note Regarding Forward Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.

RISKS RELATED TO OUR BUSINESS

Our business is impacted by changes in general economic conditions and information technology spending in particular.

Our business is subject to risks arising from adverse changes in India and global economic conditions. Slowdowns or recessions around the world may cause companies and governments to delay, reduce, or even cancel planned spending. Customers who are facing business challenges or liquidity issues are also more likely to delay purchase decisions or cancel orders, as well as to delay or default on payments. If customers significantly reduce their spending with us or significantly delay or fail to make payments to us, our business, results of operations, and financial condition would be materially adversely affected. Moreover, as a result of recent economic conditions, like many companies, we engaged in significant cost-saving measures over the last two years. We cannot assure you that these measures will not negatively impact our ability to execute on our objectives and grow in the future, particularly if we are not able to invest in our business as a result of a protracted economic downturn.

If the pace of spending by the governments and security organizations is slower than anticipated, our homeland security business will likely be adversely affected.

The market for our homeland security solutions is highly dependent on the spending cycle and spending scope of the Government of India, as well as local, state and municipal governments and security organizations in international markets. We cannot be sure that the spending cycle will materialize as we expect and that we will be positioned to benefit from the potential opportunities, especially in light of the current unfavorable economic and market conditions.

Intense competition in our markets and competitors with greater resources than us may limit our market share, profitability, and growth.

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We face aggressive competition from numerous and varied competitors in all of our markets, making it difficult to maintain market share, remain profitable, and grow. Even if we are able to maintain or increase our market share for a particular product, revenue or profitability could decline due to pricing pressures, increased competition from other types of products, or because the product is in a maturing industry.

Our competitors may be able to more quickly develop or adapt to new or emerging technologies, better respond to changes in customer requirements or preferences, or devote greater resources to the development, promotion, and sale of their products. Some of our competitors have, in relation to us, longer operating histories, larger customer bases, longer standing relationships with customers, greater name recognition, and significantly greater financial, technical, marketing, customer service, public relations, distribution, or other resources. Some of our competitors are also significantly larger than us and some of these companies have increased their presence in our markets in recent years through internal development, partnerships, and acquisitions. There has also been significant consolidation among our competitors, which has improved the competitive position of several of these companies and enabled new competitors to emerge in all of our markets. In addition, we may face competition from solutions developed internally by our customers. To the extent we cannot compete effectively, our market share and, therefore, results of operations, could be materially adversely affected.

Because price and related terms are key considerations for many of our customers, we may have to accept less-favorable payment terms, lower the prices of our products and services, and/or reduce our cost structure, including reducing headcount or investment in research and development, in order to remain competitive. Certain of our competitors have become increasingly aggressive in their pricing strategy, particularly in markets where they are trying to establish a foothold. If we are forced to take these kinds of actions to maintain market share, our revenue and profitability may suffer or we may adversely impact our longer-term ability to execute or compete.

In order to grow at the pace expected by management, we will require additional capital to support our long-term business plan. If we are unable to obtain additional capital in future years, we may be unable to proceed with our long-term business plan, and we may be forced to curtail or cease our operations.

We will require additional working capital to support our long-term business plan, which includes identifying suitable targets for horizontal or vertical mergers or acquisitions, so as to enhance the overall productivity and benefit from economies of scale. We expect to pursue acquisitions of, or investments in, businesses and assets in new markets, either within or outside the telecom security industry, that complement or expand our existing business. Our working capital requirements and the cash flow provided by future operating activities, if any, will vary greatly from quarter to quarter, depending on the volume of business during the period and payment terms with our customers. We may not be able to obtain adequate levels of additional financing, whether through equity financing, debt financing or other sources. Additional financings could result in significant dilution to our earnings per share or the issuance of securities with rights superior to our current outstanding securities. In addition, we may grant registration rights to investors purchasing our equity or debt securities in the future. If we are unable to raise additional financing, we may be unable to implement our long-term business plan, develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures on a timely basis, if at all. In addition, a lack of additional financing could force us to substantially curtail or cease operations.

Our liquidity may be materially adversely affected by continuing constraints in the capital markets.

We must have sufficient sources of liquidity to fund our working capital requirements, service our outstanding indebtedness and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not be able to pursue promising business opportunities. The principal sources of our liquidity are funds generated from operating activities, available cash and cash equivalents, and borrowings under credit facilities and other debt financings. For the past several quarters, global financial markets have experienced diminished liquidity, constrained credit availability and volatility in securities prices. If our sources of liquidity do not satisfy our requirements, we may have to seek additional financing. The future availability of financing will depend on a variety of factors, such as economic and market conditions, the availability of credit and our credit ratings, as well as the possibility that lenders could develop a negative perception of us or the retail industry generally. If required, we may not be able to obtain additional financing, on favorable terms, or at all.

Our business could be materially adversely affected as a result of the risks associated with acquisitions and investments. In particular, we may not succeed in making additional acquisitions or be effective in integrating such acquisitions.

As part of our growth strategy, we have made and expect to continue to make acquisitions. We frequently evaluate the tactical or strategic opportunities available related to complementary businesses, products or technologies. The process of integrating an acquired company’s business into our operations and/or of investing in new technologies, may result in unforeseen operating difficulties and large expenditures and may absorb significant management attention that would otherwise be available for the ongoing development of our business, and which may result in the loss of key customers and/or personnel and expose us to unanticipated liabilities.

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Other risks commonly encountered with acquisitions include the effect of the acquisition on our financial and strategic position and reputation, the failure of the acquired business to further our strategies, the inability to successfully integrate or commercialize acquired technologies and achieve expected synergies or economies of scale on a timely basis, and the potential impairment of acquired assets. Further, we may not be able to retain the key employees that may be necessary to operate the business we acquire, and, we may not be able to timely attract new skilled employees and management to replace them. From time to time, we may also need to acquire complementary technologies, whether to execute our strategies or in order to comply with customer needs. There are no assurances that we will be able to acquire or successfully integrate an acquired company, business or technology, or successfully leverage such complementary technology in the market.

Moreover, there can be no assurance that the anticipated benefits of any acquisition or investment will be realized. Future acquisitions or investments could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, and amortization expenses related to intangible assets, any of which could have a material adverse effect on our operating results and financial condition. There can be no assurance that we will be successful in making additional acquisitions or effective in integrating such acquisitions into our existing business. We may also compete with others to acquire companies, and such competition may result in decreased availability of, or increased prices for, suitable acquisition candidates. In addition, for possible commercial and economic considerations, we may not be able to consummate acquisitions that we have identified as crucial to the implementation of our strategy. We may not be able to obtain the necessary regulatory approvals, including those of competition authorities and foreign investment authorities, in countries where we seek to consummate acquisitions. For those and other reasons, we may ultimately fail to consummate an acquisition, even if we announce that we plan to acquire a company.

The industry in which we operate is characterized by rapid technological changes and evolving industry standards, and if we cannot anticipate and react to such changes our results may suffer.

The markets for our products are characterized by rapidly changing technology and evolving industry standards. The introduction of products embodying new technology and the emergence of new industry standards can exert pricing pressure on existing products and/or can render our existing products obsolete and unmarketable. It is critical to our success that, in all of our markets, we are able to:

• anticipate and respond to changes in technology and industry standards;
• successfully develop and introduce new, enhanced, and competitive products which meet our customers’ changing needs; and
• deliver these new and enhanced products on a timely basis while adhering to our high quality standards.

We may not be able to successfully develop new products or introduce new applications for existing products. In addition, new products and applications that we introduce may not achieve market acceptance. If we are unable to introduce new products that address the needs of our customers or that achieve market acceptance, there may be a material adverse impact on our revenue and on our financial results.

Because many of our solutions are sophisticated, we must invest greater resources in sales and installation processes with greater risk of loss if we are not successful.

In many cases, it is necessary for us to educate our potential customers about the benefits and value of our solutions because many of our solutions are not simple, mass-market items with which customers are already familiar. In addition, many of our solutions are sophisticated and may not be readily usable by customers without our assistance in training, system integration, and configuration. The greater need to work with and educate customers as part of the sales process and, after completion of a sale, during the installation process for many of our products, increases the time and difficulty of completing transactions, makes it more difficult to efficiently deploy limited resources, and creates risk that we will have invested in an opportunity that ultimately does not come to fruition. If we are unable to demonstrate the benefits and value of our solutions to customers and efficiently convert our sales leads into successful sales and installations, our results may be adversely affected.

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Many of our sales are made by competitive bid, which often requires us to expend significant resources, which we may not recoup.

Many of our sales, particularly in larger installations, are made by competitive bid. Successfully competing in competitive bidding situations subjects us to risks associated with the frequent need to bid on programs in advance of the completion of their design, which may result in unforeseen technological difficulties and cost overruns, as well as making substantial investments of time and money in research and development and marketing activities for contracts that may not be awarded to us. If we do not ultimately win a bid, we may obtain little or no benefit from these expenditures and may not be able to recoup these costs on future projects.

Even where we are not involved in a competitive bidding process, due to the intense competition in our markets and increasing customer demand for shorter delivery periods, we must in some cases begin the implementation of a project before the corresponding order has been finalized, increasing the risk that we will have to write off expenses associated with potential orders that do not come to fruition.

The nature of our business and our varying business models may impact and make it difficult for us to predict our operating results.

It is difficult for us to forecast the timing of revenue from product sales because customers often need a significant amount of time to evaluate our products before a purchase, and sales are dependent on budgetary and, in the case of government customers, other bureaucratic processes. The period between initial customer contact and a purchase by a customer may vary from as little as a few weeks to more than a year. During the evaluation period, customers may defer or scale down proposed orders for various reasons, including:

• changes in budgets and purchasing priorities;
• reductions in need to upgrade existing systems;
• deferrals in anticipation of enhanced or new products;
• introduction of new products by our competitors; or
• lower prices offered by our competitors.

In addition, we have historically derived a significant portion of our revenue from contracts for large system installations with major customers and we continue to emphasize sales to larger customers in our product development and marketing strategies. The timing and scope of these opportunities are difficult to forecast, and the pricing and margins may vary substantially from transaction to transaction. As a result, our future operating results may be volatile and vary significantly from period to period.

Contracts for large installations are often with government agencies, state-owned companies and large industrial concerns and are awarded after published requests for proposals, or tenders, and the submission of written bids. The requests for proposals generally set out qualifications which must be satisfied by all bidders, determined on the basis of technical qualification submissions. If a bidder is determined to be qualified, then a subsequent bid is submitted including price and other terms of performance. Competing bids are examined and evaluated by the prospective customer and a winning bidder is chosen. The time required for this process varies but can take several months and even years on larger projects. Once work is commenced, the customer generally is invoiced according to contractual milestones, with the final payment due after commissioning, testing and acceptance by the customer.

All of our contracts with government customers are fully funded. While we have no single customer that is material to our total revenue, we do have many significant customers. The deferral or loss of one or more significant orders or customers or a delay in an expected implementation of such an order could materially adversely affect our segment operating results.

Under applicable accounting standards and guidance, revenue for some of our software and hardware transactions is recognized at the time of delivery, while revenue from other software and hardware transactions is required to be deferred over a period of years. To a large extent, this depends on the terms we offer to customers and resellers, including terms relating to pricing, future deliverables, and post-contract customer support . As a result, it is difficult for us to accurately predict at the outset of a given period how much of our future revenue will be recognized within that period and how much will be required to be deferred over a longer period.

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We base our current and future expense levels on our internal operating plans and sales forecasts, and our operating costs are, to a large extent, fixed. As a result, we may not be able to sufficiently reduce our operating costs in any period to compensate for an unexpected near-term shortfall in revenue.

Due to our rapid growth in recent years, our past results may not be indicative of our future performance so evaluating our business and prospects may be difficult.

Our business has grown and evolved rapidly in the past two years as demonstrated by our growth in sales revenue from approximately $5.3 million in 2009 to $7.9 million in 2010. We may not be able to achieve similar growth in future periods, and our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects. Therefore, you should not rely on our past results or our historical rate of growth as an indication of our future performance.

Our products may contain undetected defects which could impair their market acceptance and may result in customer claims for substantial damages if our products fail to perform properly.

Our products are complex and involve sophisticated technology that performs critical functions to highly demanding standards. Our existing and future products may develop operational problems. In addition, new products or new versions of existing products may contain undetected defects or errors. If we do not discover such defects, errors, or other operational problems until after a product has been released and used by the customer, we may incur significant costs to correct such defects, errors, or other operational problems, including product liability claims or other contract liabilities to customers. In addition, defects or errors in our products may result in claims for substantial damages and questions regarding the integrity of the products, which could cause adverse publicity and impair their market acceptance.

If the regulatory environment does not evolve as expected or does not favor our products, our results may suffer.

The regulatory environment relating to our solutions is still evolving and, in the homeland security market in particular, has been driven to a significant extent by legislative and regulatory actions, such as standards established by ETSI in Europe, as well as initiatives to strengthen security for critical infrastructure, such as airports. These actions and initiatives are evolving and are at all times subject to change based on factors beyond our control, such as political climate, budgets, and even current events. While we attempt to anticipate these actions and initiatives through our product offerings and refinements thereto, we cannot assure you that we will be successful in these efforts, that our competitors will not do so more successfully than us, or that changes in these actions or initiatives or the underlying factors which affect them will not occur which will reduce or eliminate this demand. If any of the foregoing should occur, or if our markets do not grow as anticipated for any other reason, our results may suffer. In addition, changes to these actions or initiatives, including changes to technical requirements, may require us to modify or redesign our products in order to maintain compliance, which may subject us to significant additional expense.

Conversely, as the telecommunications industry continues to evolve, state, federal, and foreign governments (including supranational government organizations such as the European Union) and industry associations may increasingly regulate the monitoring of telecommunications and telephone or internet monitoring and recording products such as ours. We believe that increases in regulation could come in a number of forms, including increased regulations regarding privacy or protection of personal information such as social security numbers, credit card information, and employment records. The adoption of these types of regulations or changes to existing regulations could cause a decline in the use of our solutions or could result in increased expense for us if we must modify our solutions to comply with these regulations. Moreover, these types of regulations could subject our customers or us to liability. Whether or not these kinds of regulations are adopted, if we do not adequately address the privacy concerns of consumers, companies may be hesitant to use our solutions. If any of these events occur, our business could be materially adversely affected.

Because we have significant foreign operations, we are subject to geopolitical and other risks that could materially adversely affect our business.

We have significant operations in foreign countries. The countries in which we have our most significant foreign operations include India, Nepal and Mozambique, and we intend to continue to expand our operations internationally. We believe our business may suffer if we are unable to successfully expand into new regions, as well as maintain and expand existing foreign operations. Our foreign operations are, and any future foreign expansion will be, subject to a variety of risks, many of which are beyond our control, including risks associated with:

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• foreign currency fluctuations;

• political, security, and economic instability in foreign countries;

• changes in and compliance with local laws and regulations, including export control laws, tax laws, labor laws, employee benefits, customs requirements, currency restrictions, and other requirements;

• differences in tax regimes and potentially adverse tax consequences of operating in foreign countries;

• customizing products for foreign countries;

• legal uncertainties regarding liability and intellectual property rights;

• hiring and retaining qualified foreign employees; and

• difficulty in accounts receivable collection and extended collection periods.

Any or all of these factors could materially affect our business or results of operations.

We are dependent on contracts with governments for a significant portion of our revenue and these contracts also expose us to additional business risks and compliance obligations.

For the year ended December 31, 2010, approximately 30.4% of our business was generated from contracts with various governments, including federal, state, and lower-level government agencies. We expect that government contracts will continue to be a significant source of our revenue for the foreseeable future. Our business generated from government contracts may be materially adversely affected if:

• our reputation or relationship with government agencies is impaired;

• we are suspended or otherwise prohibited from contracting with the Indian or foreign government or any significant law enforcement agency;

• levels of government expenditures and authorizations for law enforcement and security related programs decrease or shift to programs in areas where we do not provide products and services;

• we are prevented from entering into new government contracts or extending existing government contracts based on violations or suspected violations of laws or regulations, including those related to procurement;

• we are not granted security clearances that are required to sell our products to Indian or foreign governments or such security clearances are deactivated;

• there is a change in government procurement procedures; or

• there is a change in political climate that adversely affects our existing or prospective relationships or

• there is a change in strategy and all software is to be developed internally by government personnel.

In addition, we must comply with Indian and foreign laws and regulations relating to the formation, administration, and performance of government contracts. These laws and regulations affect how we do business with government agencies and may impose added costs on our business. Our government contracts may contain, or under applicable law may be deemed to contain, provisions not typically found in private commercial contracts, including provisions enabling the government party to:

• terminate or cancel existing contracts for convenience;

• suspend us from doing business with a foreign government or prevent us from selling our products in certain countries;

• audit and object to our contract-related costs and expenses, including allocated indirect costs; and

• unilaterally change contract terms and conditions, including warranty provisions, schedule, quantities, and scope of work, in advance of our agreement on corresponding pricing adjustments.

The effect of these provisions may significantly increase our cost to perform the contract or defer our ability to recognize revenue from such contracts. In some cases, this may mean that we must begin recording expenses on a contract in advance of being able to recognize the corresponding revenue. If a government customer terminates a contract with us for convenience, we may not recover our incurred or committed costs, receive any settlement of expenses, or earn a profit on work completed prior to the termination. If a government customer terminates a contract for default, we may not recover these amounts, and, in addition, we may be liable for any costs incurred by the government customer in procuring undelivered items and services from another source. Further, an agency within a government may share information regarding our termination with other agencies. As a result, our ongoing or prospective relationships with other government agencies could be impaired.

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If our subcontractors fail to perform their contractual obligations, our ability to provide services and products to our customers, as well as our ability to obtain future business, may be harmed.

Many of our contracts involve subcontracts with other companies upon which we rely to perform a portion of the services that we must provide to our customers. There is a risk that we may have disputes with our subcontractors, including disputes regarding the quality and timeliness of work performed by those subcontractors. A failure by one or more of our subcontractors to satisfactorily perform the agreed-upon services may materially and adversely impact our ability to perform our obligations to our customers, could expose us to liability and could have a material adverse effect on our ability to compete for future contracts and orders.

We rely on a limited number of suppliers and manufacturers, and if these relationships are interrupted, we may not be able to obtain substitute suppliers or manufacturers on favorable terms or at all.

We rely on non-affiliated suppliers for certain components which may be critical to our products, including both hardware and software, and on manufacturers of assemblies that are incorporated into our products. While we endeavor to use larger, more established suppliers and manufacturers wherever possible, in some cases, these providers may be smaller, more early-stage companies, particularly with respect to suppliers of new technologies we may incorporate into our products that we have not developed internally. Although we do have agreements in place with most of these providers, which include appropriate protections such as source code escrows where needed, these agreements are generally not long-term and these contractual protections offer limited practical benefits to us in the event our relationship with a key provider is interrupted. If these suppliers or manufacturers experience financial, operational, manufacturing capacity, or quality assurance difficulties, or cease production and sale of the products we buy from them entirely, or there is any other disruption in our relationships with these suppliers or manufacturers, we will be required to locate alternative sources of supply or manufacturing, to internally develop the applicable technologies, to redesign our products to accommodate an alternative technology, or to remove certain features from our products. This could increase the costs of, and create delays in, delivering our products or reduce the functionality of our products, which could adversely affect our business and financial results.

Certain provisions in agreements that we have entered into may expose us to liability that is not limited in amount by the terms of the contract.

Certain contract provisions, principally confidentiality and indemnification obligations in certain of our license agreements, could expose us to risks of loss that, in some cases, are not limited to a specified maximum amount. For example, under certain customer agreements, the “Limitation of Liability” section did not apply to damages with respect to breach of the following articles: warranty, product liability and infringement indemnification or if the defaulting party has been acting with gross negligence or with willful misconduct. Thus, we may be liable for damages for special, indirect, incidental, punitive or consequential damages. In addition, our liability is not capped at a fixed amount, such as the value of the contract. Hence, our liabilities may be measured by the actual and/or indirect losses of the claimant(s), rather than limited by dollar amount. Even where we are able to negotiate limitation of liability provisions, these provisions may not always be enforced depending on the facts and circumstances of the case at hand. If we or our products fail to perform to the standards required by our contracts, we could be subject to uncapped liability for which we may or may not have adequate insurance and our business, financial condition, and results of operations could be materially adversely affected.

Our results of operations could materially deteriorate if we fail to attract, develop and retain qualified employees.

Our performance is dependent on attracting and retaining qualified employees who are able to meet the wants and needs of our customers. We believe our competitive advantage is providing unique solutions for each individual customer, which requires us to have highly trained and engaged employees. Our success depends in part upon our ability to attract, develop and retain a sufficient number of qualified employees, including sales, service and administrative personnel. There is often intense competition to recruit highly skilled employees in the technology industry and the turnover rate is high. An inability to attract and retain highly qualified employees may have an adverse effect on our ability to develop new products and enhancements for existing products and to successfully market such products. Further, if we are unable to attract and retain qualified employees, on reasonable economic and other terms or at all, our ability to grow could be impaired, our ability to timely report our financial results could be adversely affected, and our operations and financial results could be materially adversely affected.

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Our business depends substantially on the continuing efforts of our senior executives and other key personnel, and our business may be severely disrupted if we lost their services.

Our future success heavily depends on the continued service of our senior executives and other key employees. In particular, we rely on the expertise, experience, and business contacts of Ajay Batheja, Chairman, Chief Executive Officer and President; A.C. Narang, Vice President Government Strategy of Xalted Information; Luigi Caramico, Vice President Corporate Strategy; and Kamini Rupani, Vice President Marketing of Xalted Information. If one or more of our senior executives are unable or unwilling to continue to work for us in their present positions, we may have to spend a considerable amount of time and resources searching, recruiting, and integrating the replacements into our operations, which would substantially divert management’s attention from our business and severely disrupt our business. This may also adversely affect our ability to execute our business strategy. Moreover, if any of our senior executives joins a competitor or forms a competing company, we may lose customers, suppliers and key employees.

We may not be able to receive or retain the necessary licenses or authorizations required for us to export some of our products that we develop or manufacture in specific countries.

We are required to obtain export licenses or qualify for other authorizations from India to export some of the products that we develop in the country and, in any event, are required to comply with applicable export control laws of each country generally. There can be no assurance that we will be successful in obtaining or maintaining the licenses and other authorizations required to export our products from applicable government authorities. In addition, export laws and regulations are revised from time to time and can be extremely complex in their application; if we are found not to have complied with applicable export control laws, we may be fined or penalized by, among other things, having our ability to obtain export licenses curtailed or eliminated, possibly for an extended period of time. Our failure to receive or maintain any required export licenses or authorizations or our penalization for failure to comply with applicable export control laws would hinder our ability to sell our products and could materially adversely affect our business, financial condition, and results of operations.

Indian and foreign governments could refuse to buy our homeland security solutions or could deactivate our security clearances in their countries thereby restricting or eliminating our ability to sell these solutions in those countries and perhaps influenced other countries by such a decision.

We maintain security clearances in India and other countries in connection with the development, marketing, sale, and support of our homeland security solutions. These clearances are reviewed from time to time by the applicable government agencies in these countries and, following these reviews, our security clearances are either maintained or deactivated. Our security clearances can be deactivated for many reasons, including that the clearing agencies in some countries may object to the fact that we do business in certain other countries. In the event that our security clearances are deactivated in any particular country, we would lose the ability to sell our homeland security solutions in that country for projects that require security clearances. Additionally, any inability to obtain or maintain security clearances in a particular country may affect our ability to sell our homeland security solutions in that country generally (even for non-secure projects). Any inability to obtain or maintain clearances can materially adversely affect our results of operations.

Whether or not we are able to maintain our security clearances, law enforcement and intelligence agencies in certain countries may decline to purchase homeland security solutions if they were not developed or manufactured in that country. As a result, because our homeland security solutions are developed or manufactured in whole or in part in India, there may be certain countries where some or all of the law enforcement and intelligence agencies are unwilling to purchase our homeland security solutions. If we are unable to sell our homeland security solutions in certain countries for this reason, our results of operations could be materially adversely affected.

The mishandling or even the perception of mishandling of sensitive information could harm our business.

Our products are in some cases used by customers to compile and analyze highly sensitive or confidential information and data, including in some cases, information or data used in intelligence gathering or law enforcement activities. Customers are also increasingly focused on the security of our products. While our customers’ use of our products in no way affords us access to the customer’s sensitive or confidential information or data, we may come into contact with such information or data when we perform services or support functions for our customers. We have implemented policies and procedures to help ensure the proper handling of such information and data, including background screening of services personnel, non-disclosure agreements, access rules, and controls on our information technology systems. We also work to ensure the security of our products, including through the use of encryption, access rights, and other customary security features. However, these measures are designed to mitigate the risks associated with handling or processing sensitive data and cannot safeguard against all risks at all times. The improper handling of sensitive data, or even the perception of such mishandling or other security lapses or risks by us or our products, whether or not valid, could reduce demand for our products or otherwise expose us to financial or reputational harm.

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Our intellectual property may not be adequately protected.

We have not filed any patent applications on our technology, and there can be no assurance that we will file any patent, trademark, or copyright applications, that any future applications will be approved, that any existing or future patents, trademarks or copyrights will adequately protect our intellectual property or that any existing or future patents, trademarks, or copyrights will not be challenged by third parties. Our intellectual property rights may not be successfully asserted in the future or may be invalidated, designed around, or challenged.

In order to safeguard our unpatented proprietary know-how, source code, trade secrets, and technology, we rely primarily upon trade secret protection and non-disclosure provisions in agreements with employees and other third parties having access to our confidential information. There can be no assurance that these measures will adequately protect us from improper disclosure or misappropriation of our proprietary information.

Preventing unauthorized use or infringement of our intellectual property rights is difficult. The laws of certain countries do not protect our proprietary rights to the same extent as the laws of India. Therefore, in certain jurisdictions we may be unable to protect our intellectual property adequately against unauthorized third-party use or infringement, which could adversely affect our competitive position.

Our products may infringe or may be alleged to infringe on the intellectual property rights of others, which could lead to costly disputes or disruptions for us and may require us to indemnify our customers and resellers for any damages they suffer.

The technology industry is characterized by frequent allegations of intellectual property infringement. Any allegation of infringement against us could be time consuming and expensive to defend or resolve, result in substantial diversion of management resources, cause product shipment delays, or force us to enter into royalty or license agreements. If patent holders or other holders of intellectual property initiate legal proceedings against us, we may be forced into protracted and costly litigation, regardless of the merits of these claims. We may not be successful in defending such litigation, in part due to the complex technical issues and inherent uncertainties in intellectual property litigation, and may not be able to procure any required royalty or license agreements on terms acceptable to us, or at all. Third parties may also assert infringement claims against our customers. Subject to certain limitations, we generally indemnify our customers and resellers with respect to infringement by our products of the proprietary rights of third parties. These claims may require us to initiate or defend protracted and costly litigation, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages, be required to obtain licenses for the products our customers use, or incur significant expenses in developing non-infringing alternatives. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using or, in the case of resellers, stop selling our products.

Reliance on or loss of third-party licensing agreements could materially adversely affect our business, financial condition, and results of operations.

While most of our products are developed internally, we also purchase technology, license intellectual property rights, and oversee third-party development and localization of certain products or components. If we lose or are unable to maintain licenses or distribution rights, we could incur additional costs or experience unexpected delays until an alternative solution can be internally developed or licensed from another third party and integrated into our products or we may be forced to redesign our products or remove certain features from our products. We rely on a limited number of suppliers and manufacturers, and if these relationships are interrupted, we may not be able to obtain substitute suppliers or manufacturers on favorable terms or at all” above for additional information. Additionally, when purchasing or licensing products and services from third parties, we endeavor to negotiate appropriate warranties, indemnities, and other protections. We cannot assure you, however, that all such third-party contracts contain adequate protections or that all such third parties will be able to provide the protections we have negotiated. To the extent we are not able to negotiate adequate protections from these third parties or these third parties are unwilling or unable to provide the protections we have negotiated, our business, financial condition, and results of operations could be materially adversely affected.

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Use of free or open source software could expose our products to unintended restrictions and could materially adversely affect our business, financial condition, and results of operations.

Some of our products contain free or open source software and we anticipate making use of open source software in the future. Open source software is generally covered by license agreements that permit the user to use, copy, modify, and distribute the software without cost, provided that the users and modifiers abide by certain licensing requirements. The original developers of the open source software generally provide no warranties on such software or protections in the event the open source software infringes a third party’s intellectual property rights. Although we endeavor to monitor the use of open source software in our product development, we cannot assure you that past, present, or future products will not contain open source software elements that impose unfavorable licensing restrictions or other requirements on our products. In addition, the terms of many open source software licenses have not yet been interpreted by Indian or foreign courts and as a result there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on products that use such software. The introduction of certain kinds of open source software into our products or a court decision construing an open source software license in an unexpected way could require us to seek licenses from third parties in order to continue offering affected products, to re-engineer affected products, to discontinue sales of affected products, or to release all or portions of the source code of affected products under the terms of the applicable open source software licenses. Any of these developments could materially adversely affect our business, financial condition, and results of operations.

We have no insurance coverage in India, and any business disruption or litigation we experience may result in our incurring substantial costs and the diversion of resources.

Insurance companies in India offer limited business interruption and liability insurance. While business interruption insurance is available to a limited extent in India, we have determined that the risks of disruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms had made it economically impractical for us to have such insurance. As a result, we do not have any business liability, disruption or litigation insurance coverage for our operations in India. Any business disruption or litigation may result in our incurring substantial costs and the diversion of resources.

We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors. If we are unable to receive a positive attestation from our independent auditors with respect to our internal controls when we are required under applicable laws, investors and others may lose confidence in the reliability of our financial statements which could affect the trading price of our common stock.

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC adopted rules requiring public companies to include a report of management on their internal controls over financial reporting in their annual reports. In addition, the independent registered public accounting firm auditing the financial statements of a company that is not a non-accelerated filer or smaller reporting company under Rule 12b-2 of the Exchange Act must also attest to the operating effectiveness of the company’s internal controls. Since we just completed the acquisition of Xalted Networks on May 13, 2011, we have not evaluated Xalted Networks and its consolidated subsidiaries’ internal control systems in order to allow our management to report on our internal controls on a consolidated basis as required by these requirements of SOX 404. Under current law, we will be required to complete such evaluation and include the report of management in our annual report for the fiscal year ending December 31, 2012.

We can provide no assurance that our management will conclude that our internal controls over financial reporting are effective, or that our independent registered public accounting firm will issue a positive opinion on our internal controls over financial reporting when we are required under applicable laws. Failure to achieve and maintain an effective internal control environment could result in our not being able to accurately report our financial results, prevent or detect fraud or provide timely and reliable financial and other information pursuant to the reporting obligations we have as a public company, which could have a material adverse effect on our business, financial condition and results of operations. Further, it could cause our investors to lose confidence in the information we report, which could adversely affect the price of our stock price.

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Xalted Information is involved in litigation in India which, if successful, could result in a material adverse effect on our business, operations and prospects.

On or about March 3, 2010, Arasor Corporation, or Arasor, a California corporation no longer in good standing, filed a petition in the High Court of Karnataka at Bangalore (the relevant court of original jurisdiction in India) seeking the winding up of Xalted Information based on alleged breaches of contract and other claims. The petition was admitted by a Single Bench Judge of that Court. The lower court’s action was appealed by Xalted Information to a Two Bench Judge in the Karnataka High Court, which stayed the operation of the lower court’s order. A further hearing in the case is anticipated in the summer of 2011. At that hearing, Xalted Information will seek the dismissal of all claims against it not only based on a substantive defense to the allegations made in Arasor’s petition, but as a threshold matter based on the fact that because Arasor is no longer in good standing in California, it no longer has legal authority to prosecute or defend any litigation. Because of the inherent uncertainties involved in any litigation, however, we cannot assure you that our defenses will be successful or that the claims against Xalted Information will be dismissed. If the claims are not dismissed and there is eventually a judgment entered against Xalted Information, it could have a material adverse effect on our business, operations and prospects.

RISKS RELATED TO DOING BUSINESS IN INDIA

A substantial portion of our assets and operations are located in India, and we are subject to regulatory, economic and political uncertainties in India.

Our principal operating subsidiary is incorporated in India, and a majority of our assets and our professionals are located in India. In the early 1990s, India experienced significant inflation, low growth in gross domestic product and shortages of foreign currency reserves. The Indian government, however, has exercised and continues to exercise significant influence over many aspects of the Indian economy. India’s government has provided significant tax incentives and relaxed certain regulatory restrictions in order to encourage investment in specified sectors of the economy, including the telecom and homeland information security industries. Certain of those programs, which have benefited us, include tax holidays, liberalized import and export duties and preferential rules on foreign investment and repatriation. We cannot assure you that liberalization policies will continue. Various factors, such as changes in the current government, could trigger significant changes in India’s economic liberalization and deregulation policies and disrupt business and economic conditions in India generally and our business in particular.

In addition, the Government of India is considering introducing a reservation policy to the private sector in India, pursuant to which all private sector companies operating in India, including our subsidiary, would be required to reserve a certain percentage of jobs for the economically underprivileged population in the states where such companies are incorporated. If this policy is adopted, our ability to hire employees of our choice may be affected due to restrictions on our pool of potential employees and competition for these professionals.

Our financial performance may be adversely affected by general economic conditions and economic and fiscal policy in India, including changes in exchange rates and controls, interest rates and taxation policies, as well as social stability and political, economic or diplomatic developments affecting India in the future. In particular, India has experienced significant economic growth over the last several years, but faces major challenges in sustaining that growth in the years ahead. These challenges include the need for substantial infrastructure development and improving access to healthcare and education. Our ability to recruit, train and retain qualified employees, develop and operate our operations centers, and attract and retain clients could be adversely affected if India does not successfully meet these challenges.

Currency fluctuations among the Indian Rupee and the U.S. dollar could have a material adverse effect on our results of operations.

A substantial portion of our revenues are denominated in Rupees. We report our financial results in U.S. dollars. The exchange rates among the Rupee and the U.S. dollar have changed substantially in recent years and may fluctuate substantially in the future. The average Rupee/US. Dollar exchange rate in 2010 was approximately 45.7159 (based on the Bloomberg Composite Rate), representing depreciation of the Rupee of 5.48% compared to the average exchange rate in 2009. We do not currently engage in any formal currency hedging of our Rupee/US. Dollar foreign currency exposures, and our results of operations may be adversely affected if the Rupee fluctuates significantly against the U.S. dollar. We are subject to legal restrictions on hedging activities as well as the convertibility of currencies in India. This could limit our ability to use cash generated in one country in another country.

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Our financial condition could be negatively affected if the Government of India reduces or withdraws tax benefits and other incentives currently provided to companies within our industry, or if the same are not available for other reasons.

Under the Income-Tax Act, 1961 of India, we have benefited from holidays from Indian corporate income taxes. We applied for and received tax holidays covering our telecom security business and our homeland security business. Both tax holidays were approved by the Government and run for a period of 10 years. The company also has a 10 year tax holiday for starting a new company in India in 2001. As a result, our service operations have to date been subject to relatively lower tax liabilities. We incurred minimal income tax expense in 2010 as a result of the tax holidays, compared to approximately $480,000 that we would have additionally incurred if the tax holidays had not been available for that period (without accounting for double taxation treaty set-offs). Our current tax holidays expire in 2011, 2015 and 2019. Consequently, our tax expense will materially increase in 2012 with the first tax holiday expiring and our after-tax profitability will be materially reduced.

In May 2007, the Government of India adopted the Indian Finance Act, 2007, with effect from April 1, 2007, that imposed a minimum alternative tax, or MAT, on Indian companies that have book profits but no tax profit which could be for various reasons, including tax holidays, tax deductions or significant depreciation. Any MAT paid by us can be carried forward for a maximum period of ten years and can be used as a credit against corporate income taxes payable by us after expiration of the tax holiday, subject to the satisfaction of certain conditions.

If more stringent labor laws or other industry standards in India become applicable to us, our profitability may be adversely affected.

India has stringent labor legislation that protects the interests of workers, including legislation that sets forth detailed procedures for dispute resolution and employee removal and legislation that imposes financial obligations on employers upon retrenchment. In addition, we are subject to certain industry standards regarding our employees, particularly with regard to overtime and transportation of employees. Our employees may also in the future form unions. If these labor laws or industry standards become more stringent or are more strictly enforced, or if our employees unionize, it may become difficult for us to maintain flexible human resource policies, discharge employees or downsize, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

The Government of India has recently focused on the occupational health and safety concerns experienced by workers in the outsourcing industry. The introduction of legislation imposing restrictions on working hours or conditions of professionals in the outsourcing industry could have an adverse effect on our business, results of operations and financial condition.

Investors may have difficulty effecting service of process or enforcing judgments obtained in the United States against our subsidiary in India or our executive officers.

Our primary operating subsidiary and the majority of our operating assets are located in India. As a result, you may be unable to effect service of process upon our affiliates who reside in India outside their jurisdiction of residence. In addition, you may be unable to enforce against these persons outside the jurisdiction of their residence judgments obtained in courts of the United States, including judgments predicated solely upon the federal securities laws of the United States.

Sections 44A and Section 13 of the Indian Civil Procedure Code, 1908, or the Civil Code, govern recognition and enforcement of foreign judgments. Section 44A of the Civil Code provides for recognition and enforcement of a foreign judgment without having to file an original suit in India, provided such judgments have been rendered by courts in a country or territory outside India which the Government of India has declared to be a reciprocating territory. We have been advised by our Indian counsel that the United States and India do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than certain arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not it is predicated upon the federal securities laws of the United States, would not be enforceable in India as such.

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However, if the party in whose favor such final judgment is rendered brings a new suit in a competent court in India based on a final judgment that has been obtained in the United States, Section 13 of the Civil Code provides that the foreign judgment will be conclusive as to certain matters. The suit must be brought in India within three years of the date of the foreign judgment. It is unlikely, however, that a court in India would award damages on the same basis as a court in the United States if an action is brought in India. It is also unlikely that an Indian court would enforce judgments obtained in the United States if it viewed the amount of damages awarded as excessive or inconsistent with Indian practice.

Terrorist attacks and other acts of violence involving India could adversely affect the financial markets, result in a loss of client confidence and adversely affect our business, results of operations and financial condition.

Terrorist attacks and other acts of violence or war may adversely affect worldwide financial markets and could potentially lead to economic recession. Such events could precipitate sudden significant changes in regional and global economic conditions and cycles, as well as pose risks to our people and to our operations centers. At the same time, an increased level of terrorism and other acts of violence could lead to increased demand for our products. If India were to become engaged in armed hostilities, however, particularly hostilities that were protracted or involved the threat or use of nuclear weapons, we might not be able to continue to operate. Our insurance policies may not insure us against losses and interruptions caused by terrorist attacks and other acts of violence or war.

An outbreak of an infectious disease or any other serious public health concerns in Asia or elsewhere could have a material adverse effect on our business and results of operations.

The outbreak of an infectious disease in Asia or elsewhere or any other serious public health concerns could have a negative impact on the economies, financial markets and business activities in the countries in which our end markets are located, which could have a material adverse effect on our business. Past outbreaks of Severe Acute Respiratory Syndrome, avian influenza, or bird flu, or H1N1 across Asia and Europe have adversely affected a number of countries and companies. Although we have not been adversely impacted by these recent outbreaks, we can give no assurance that a future outbreak of an infectious disease among humans or animals or any other serious public health concerns will not have a material adverse effect on our business.

We are vulnerable to natural disasters that could severely disrupt the normal operation of our business and adversely affect our business, results of operation and financial condition.

India is susceptible to natural disasters, including typhoons, tsunamis, floods and earthquakes. Substantially all of our operations and employees are located in India. If our operations centers are damaged by a typhoon, tsunami, flood, earthquake or other natural disaster, our operations and our ability to provide services to our clients could be interrupted or delayed significantly. Our insurance coverage may not be sufficient to cover all of our potential losses. In addition, although all of our operations have access to other power sources, disaster management facilities in India may not be adequate to protect against potential losses. In addition, clients may terminate their contracts with us if we cannot resume providing services quickly enough. As a result, a natural disaster in India could have a material adverse effect on our business, results of operation and financial condition.

RISKS RELATED TO THE MARKET FOR OUR COMMON STOCK GENERALLY

Our common stock is quoted on the OTC Bulletin Board which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTC Bulletin Board maintained by the Financial Industry Regulatory Authority. The OTC Bulletin Board is a significantly more limited market than the New York Stock Exchange or NASDAQ. The quotation of our shares on the OTC Bulletin Board may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future. We plan to list our common stock as soon as practicable. However, we cannot assure you that we will be able to meet the initial listing standards of any stock exchange, or that we will be able to maintain any such listing.

We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

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The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

We do not intend to pay dividends for the foreseeable future.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant.

Certain provisions of our Articles of Incorporation may make it more difficult for a third party to effect a change-of-control.

Our Articles of Incorporation authorizes the board of directors to issue up to 10,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview

We are an information security company based in Mumbai, India. We provide advanced 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. Our current geographic focus is on India and surrounding countries in Asia, as well as Africa, the Middle East and South America.

In the telecom security market, we provide FMS, OSS and BSS solutions to major telecommunications service providers. Our telecom security customers include major telecom companies and organizations in India, such as BSNL, MTNL and 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 Mcel, Nepal Telecom, Nepal Satellite Telecom, Telecom Italia and Hutchison 3G.

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In the homeland security market, our security solutions are vital to governments and law enforcement agencies in their efforts to protect people and property and neutralize terrorism and crime. Our homeland security customers include the 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 (Special Task Force) in Uttarakand, and the Cyber Crime Division of Thane.

Many of our contracts are with government agencies, state-owned companies and large industrial concerns. These contracts generally are awarded after published requests for proposals, or tenders, and the submission of written bids. The requests for proposals generally set out qualifications which must be satisfied by all bidders; these qualifications are determined on the basis of technical qualification submissions. If a bidder is determined to be qualified, then a subsequent bid is submitted including price and other terms of performance. Competing bids are examined and evaluated by the prospective customer and a winning bidder is chosen. The time required for this process varies but can take several months and even years on larger projects. Once work is commenced, the customer generally is invoiced according to contractual milestones, with the final payment payable after commissioning, testing and acceptance by the customer.

We currently have seven projects under way, which represent approximately $6.5 million in original value. In most cases, our contracts provide for a payment of about 25% shortly after signature or on the first delivery of the products, 25% upon installation, 40% on acceptance of the project, and the final 10% one year after acceptance.

Our only government customers are the government of India and agencies or enterprises owned by the government of India. All our contracts with these customers are fully funded. There has been no default by our government customers under any of these contracts. Our collection history with these customers varies, from 30 days to more than 18 months in some cases.

Our corporate headquarters is located in Mumbai. We also have development centers in Mumbai and Bangalore and sales offices in Mumbai and New Delhi.

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.

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Taxation

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

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

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

Results of Operations

Comparison of Fiscal Years Ended December 31, 2010 and 2009

The following table sets forth key components of our results of operations during the fiscal years ended December 31, 2010 and 2009, both in dollars and as a percentage of our revenues. Since Xalted Networks was not established until March 14, 2011 and we did not acquire Xalted Information until May 13, 2011, the results of operations below refer only to that of Xalted Information.

		2010						2009
					% of						% of
		Amount			Revenues			Amount			Revenues
Revenues	$	7,922,315			100.0		$	5,309,083			100.0
Cost of revenues		4,075,434			51.4			2,278,196			42.9
Gross profit		3,846,881			48.6			3,030,887			57.1
Operating expenses
Research & development expenses		1,002,980			12.6			999,050			18.8
Selling and marketing expenses		418,451			5.3			509,287			9.6
General and administrative expenses		545,648			6.9			1,093,036			20.6
Total operating expenses		1,967,079			24.8			2,601,373			49.0
Income from operations		1,879,802			23.7			429,514			8.1
Other income (expenses)
Interest income
Interest expense		20,634			0.3			75,255			1.4
Other income, net		416,378			5.3			439,459			8.3
Total other income (expenses)		395,744			5.0			364,204			6.9
Income before income taxes		2,275,546			28.7			793,718			15.0
Provision for income taxes		276,175			3.5			-14,347			-0.3
Net income	$	1,999,371			25.2		$	808,065			15.2

Revenues. We generate revenues from sales of our integrated information security products and through the related after-sales services. Our revenues were $7.9 million for 2010, compared to $5.3 million for 2009, an increase of $2.6 million, or 49%. Such increase was primarily due to an increase in sales the telecom security market through a combination of increased sales to both new and existing customers. The most dramatic increase was seen in one of the Company’s existing telecom security customers, who’s sales increased by 187%. Accordingly, the single area of greatest increase was in the telecom security with existing customers. For 2010, sales from our telecom security solutions and homeland security solutions accounted for 69.9% and 30.1%, respectively, of our revenues, as compared to 53.7% and 46.3% for 2009. In 2009, the Company saw a significant increase in its homeland security products, primarily with existing customers. In 2010, the Company saw a shift in the revenue growth from homeland security products to telecom security. The Company believes that the shift in revenue was driven by the release of new products in 2009 and their initial deployment in late 2009 that carried through into 2010. We anticipate that we will see a significant increase in the homeland security products with the release of two new modules in the first quarter of 2011.

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Cost of revenue. Our cost of revenue primarily consists of the purchase of 3rd party software and deployment costs . Cost of revenue increased $1.8 million, or 79%, to $4.1 million in 2010 from $2.3 million in 2009. This increase was mainly due to the increase in the number of new installations, which required the purchase of larger quantities of 3rd part software and the more time-consuming installation and integration requirements of the homeland security product modules.

Gross profit and gross margin. Our gross profit is equal to the difference between our revenues and our cost of revenue. Our gross profit increased $812,000, or 27%, to $3.8 million in 2010 from $3.0 million in 2009. Gross profit as a percentage of net sales (gross margin) was 48.6% and 57.1% for 2010 and 2009, respectively. The increase in the gross margin was primarily due to the dramatic increase in the sales of telecom security products to existing customers.

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. Selling and marketing expenses decreased $91,000, or 17.8%, to $418,000 in 2010, from $509,000 in 2009. As a percentage of revenues, our selling expenses decreased to 5.3% for 2010 from 9.6% for 2009. The decrease was primarily due to the rapid increase in telecom security product sales to existing customers, while controlling certain marketing and sales expenses in 2010. There was no one dominate area of expense reduction versus an overall controlling of 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. General and administrative expenses decreased by $547,000, or 50%, to $546,000 in 2010, from $1.1 million in 2009. As a percentage of revenues, general and administrative expenses decreased to 6.9% for 2010 from 20.6% for 2009. Such decrease was primarily due to no reserves for bad debts being taken in 2010 versus a reserve of $589,000 in 2009. The Company was also able to control administrative expenses in 2010, which also helped. The combination of the increased sales for 2010, the elimination of the reserve for bad debts partially associated with the hardware business and the control of expenses in 2010; all aided in the improvement of the general and administrative expenses in 2010.

Total other income (expenses). We had $396,000 in total other income in 2010, as compared to other income of $364,000 in 2009. The largest component of other income is the currency fluctuation between the Indian Rupee and the U.S. Dollar. In both 2010 and 2009, the Indian Rupee strengthened against the U.S. Dollar providing us with additional income. The amounts of the additional income in 2010 and 2009 were very similar at $236,000 and $251,000, respectively. The one component providing the increase in other income between 2010 and 2009 was the reduction in interest expenses by $50,000 from 2009 to 2010.

Income before income taxes. Our income before income taxes increased by $1.5 million, or 186.7%, to $2.3 million in 2010 from $794,000 in 2009. Such increase was mainly due to the increased revenue from the telecom security product line; however, of secondary importance was the reduction in the Company’s operating expenses.

Income tax expense. Income tax expense increased by $291,000, to $276,000 in 2010, from ($140,000 in 2009. The increase was mainly due to the increase in revenue associated with the telecom security product offering.

Net income. As a result of the factors described above, net income increased by $1.2 million, or 147.4%, to $2.0 million for 2010 from $808,000 for 2009.

Liquidity and Capital Resources

As of December 31, 2010, we had cash and cash equivalents of $545,374. In addition, we had other financial assets available for sale of $172,538. To date, we have financed our operations primarily through cash flows from operations, augmented by equity contributions by our stockholders. As of December 31, 2010, $545,374 of cash and cash equivalents were held in India. We do not anticipate the need to repatriate any material amount of these 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.

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

Cash Flow

		Year Ended December 31,
		2010			2009
Net cash provided by (used in) operating activities	$	-1,006,014		$	1,207,076
Net cash provided by (used in) investing activities		1,136,793			-912,887
Net cash provided by (used in) financing activities		0			0
Effect of exchange rate changes on cash balance		16,608			3,792
Net increase in cash and cash equivalents		147,387			297,981
Cash and cash equivalents at beginning of the period		397,987			100,006
Cash and cash equivalents at end of the period		545,374			397,987

Operating Activities

In March 2010, Xalted Information sold certain assets relating to its former hardware business, having a value of $10,537,722, to Xalted Technologies Pvt. Ltd., or Xalted Technologies, in exchange for the payment to Xalted Technologies of $170,088 and the assumption by Xalted Technologies of certain related liabilities of Xalted Information in the amount of $10,707,810. Because our business no longer needed the assets which were transferred, and because the net cost of the disposal of the assets was not material, we do not believe this transaction had or will have a material impact on our business.

The Company currently has $ 2,728,869/- and $ 6,420,077/- of accounts receivable that has been outstanding for more than a year as on December 31, 2010 and December 31, 2009 respectively, out of which $ 216,284/- and $ 216,284/- is covered by the allowance for doubtful accounts as on December 31, 2010 and December 31, 2009 respectively. Our accounts receivable in India are entirely from customers which 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 used in operating activities was ($1.0 million) in 2010, as compared to $1.2 million net cash provided by operating activities in 2009. The decrease in net cash used by the operating activities was mainly due to the Company’s conclusion in the sale of its hardware businesses and the payment of the associated accounts payable to the various suppliers. While the completion of the sale of hardware business had a negative cash effect on the Company’s operations, the long-term financial benefits will be significant with the elimination of a business unit that consistently required cash investments. The greatest benefit associated with the completion of the sale of the hardware business is the Company’s profitability in 2009 and further improved profitability in 2010. The elimination of the hardware businesses and the Company’s ability to focus on its software businesses exclusively lead to the dramatic turnaround in the Company’s overall financial performance.

Investing Activities

Net cash used provided by investing activities in 2010 was $1.1 million, as compared to ($913,000) in net cash used in investing activities in 2009. The increase in net cash from investing activities in 2010 was mainly attributable to our reduction in financial assets.

Loan Commitments

The Company does not have any loan commitments.

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

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Obligations under Material Contracts

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

Inflation

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

Off Balance Sheet Arrangements

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

Seasonality

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

Critical Accounting Policies

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

Basis of preparation: The financial statements of Xalted are prepared in accordance with Generally Accepted Accounting Principles in the United States (“US GAAP”). The financial statements are presented in United States Dollars ($). The financial statements are prepared for the calendar year ended December 31, 2010 with comparatives for the previous calendar year (2009). The purpose of preparation of these financial statements is for submission to the parent company for consolidation purpose. It being the first time that the financial statements are prepared as per US GAAP, the balances of assets and liabilities as on January 1, 2009 have been reinstated to conform with the recognition and measurement principles of US GAAP.

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

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Foreign Currency:

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

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

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

• Assets and liabilities except equity and retained earnings are translated at the closing exchange rate at the date of the Balance Sheet.

• Income and expenditure for each income statement are translated at quarterly average exchange rate during each period.

• Equities are translated at the rate of date of acquisition. The retained earnings as at December 31, 2008 are translated at closing rate of December, 31, 2008 which is not expected to have any material variance.

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

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

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

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

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

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

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

Fair value of financial instruments: Effective April 1, 2009, Xalted adopted SFAS No. 157 (ASC No 820) limited to financial assets and liabilities, which primarily relate to Xalted’s investments. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consists of the following three levels:

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

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

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

Accounts Receivable: Accounts receivable represent trade receivables, net of allowance for doubtful accounts. The allowance for doubtful accounts represents the Company’s best estimate of receivables that are doubtful of recovery based on a specific identification basis. The Company currently has $ 2,728,869/- and $ 6,420,077/- of accounts receivable that has been outstanding for more than a year as on December 31, 2010 and December 31, 2009 respectively, out of which $ 216,284/- and $ 216,284/- is covered by the allowance for doubtful accounts as on December 31, 2010 and December 31, 2009 respectively.

Inventories: Inventories are work in progress, which are valued based on the percentage of work completed / consumption. Cost includes cost of hardware/ software, related employees costs and overhead costs up to the date of financial statement.

Premises, equipment and depreciation: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives. The estimated useful lives of assets are as follows:

Intangible Assets: Xalted amortizes intangible assets over their estimated useful life on a straight-line basis unless such life is deemed indefinite. The intangible asset of the Company comprises of internal use softwares. Software product development costs are expensed as incurred unless technical and commercial feasibility of the project is demonstrated, future economic benefits are probable, we have the intention and ability to complete and use or sell the software and the costs can be measured reliably. The costs which can be capitalized include the cost of material, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use. Research and development costs and software development costs incurred under contractual arrangements with customers are accounted as cost of sales. During 2010 and 2009, software amounts capitalized on account of internal use were $ 20,104 and $1,613 respectively. Amortization of internal use software begins when the software is placed in use and continues on the straight-line method generally over a life of five years.

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

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

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

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

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

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

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

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

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

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

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

Employment benefits:

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

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

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

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

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

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

Recent Accounting Pronouncements

In June 2009, the FASB issued authoritative guidance, “The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162” (the “Codification”). The Codification does not alter current U.S. GAAP, but rather integrates existing accounting standards with other authoritative guidance. Under the Codification, there is a single source of authoritative US GAAP for non governmental entities and it supersedes all other previously issued non-SEC accounting and reporting guidance. The Codification is effective for financial statement periods ending after September 15, 2009. Our adoption of the Codification did not have a material effect on our financial condition.

In May 2009, the FASB issued ASC Topic 855-10 “Subsequent events”, which is effective for interim and Annual periods ending after June 15, 2009. The guidance is intended to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations r cash flows. See note 29 for further details.

In December 2008, FASB issued FASB Staff Position (FSP) FAS 132©-1, Disclosures about Employers’ Plan Assets. Through this FSP, amendments were made in Statement 132 © (ASC Topic 715), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” The FSP enhances the disclosures required about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets, and valuation techniques used to measure the fair value of plan assets. This FSP is effective on December 30, 2008. An entity must provide the FSP’s disclosures in financial statements for fiscal years ending after December 15, 2009. Because the guidance applies only to financial statement disclosures, the adoption did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

On 30 September 2009, the FASB issued Accounting Standards Update No. 2009-12, “Investments in Certain Entities That Calculate Net Asset Value per Share.” ASU 2009-12 amends ASC 820 of the FASB Accounting Standards Codification (ASC) by providing additional guidance on measuring the fair value of certain alternative investments. Under the amended guidance, entities are permitted, as a practical expedient, to estimate the fair value of investments within its scope using the net asset value (NAV) per share of the investment as of the reporting entities measurement dates. The amended guidance applies only to investments in entities that calculate NAV consistent with the measurement principles of ASC 946 (i.e., entities that measure investment assets at fair value on a recurring basis). Our adoption of the ASU did not have a material effect on our financial condition or consolidated results of operations.

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PROPERTIES

We currently lease 10 different office properties in four different locations in India with a total of 43,700 square feet of space. Each property is under a separate lease agreement comprised of a combination of administrative offices and areas that operate the Company’s servers and computers systems. The various lease agreements begin to expire in June 2011 through March 2015. For leases expiring in 2011, we have already begun the renewal negotiations. Under the current lease agreements, we pay an aggregate monthly rent of Rs. 2.8 million (approximately $64,000) per month. We believe that all leased space is in good condition and that the property is adequately insured by the owner.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding beneficial ownership of our common stock as of May 16, 2011 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group. Unless otherwise specified, the address of each of the directors and officers set forth below is in care of the Company at the address on the front page of this filing.

* Represents less than 1% of our Common Stock.

(1)	Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table above have sole voting and investment power with respect to all shares of Common Stock that they beneficially own, subject to applicable community property laws.
(2)	A total of 6,648,125 shares of our common stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1) as of May 16, 2011. For each beneficial owner above, any options exercisable within 60 days have been included in the denominator.
(3)	Voting and investment authority with regard to the shares held by Xalted Holding Corporation are held by its board of directors, comprised of Ajay Batheja, Bob Kondamoori, Luigi Caramico and VR Ranganath. The foregoing directors of Xalted Holding Corporation may be considered as sharing voting and dispositive powers over the shares held by Xalted Holding Corporation. The address of the principal place of business of Xalted Holding Corporation is 1080 O’Brien Drive, Menlo Park, CA 94025.
(4)	Voting and investment authority with regard to the shares held by Imprenord ME is held by Jeetendra Chauhan, the Treasurer of Imprenord ME. The address of the principal place of business of Imprenord ME is LOB 15-117, PO Box 17870, Jebel Ali Free Zone, Dubai, UAE.
(5)	According to the Schedule 13G filed on July 1, 2011 by the Empire Affiliates (defined below), voting and investment authority with regard to the shares held by Empire Capital Partners, LP may be considered to be held by (1) Empire Capital Partners, LP (“Empire Capital”) and its affiliates, including: Empire GP, LLC (“Empire GP”), a Delaware limited liability company and Empire Capital Management, LLC (“Empire LLC”), a Delaware limited liability company. Scott A. Fine (“Mr. Fine”) and Peter J. Richards (“Mr.Richards”; collectively with Empire Capital, Empire GP, Empire LLC and Mr. Fine, the “Empire Affiliates”) are principals in the foregoing Empire Affiliates. As such, Mr. Fine and Mr. Richards may also be considered as sharing voting and dispositive powers over the shares held by Empire Capital. In addition, Mr. Richards also directly own 299,166 shares of our Common Stock, accounting for 4.5% of our Common Stock. Mr. Fine and Mr. Richards disclaim beneficial ownership of the shares of Common Stock reflected in this filing, except with respect to any respective pecuniary interest in such securities pursuant to Section 13 of the Act. The address of the principal place of business of Empire Capital and the Empire Affiliates is 1 Gorham Island, Suite 201, Westport, CT 06880.

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Changes in Control

We are aware of no arrangements which if consummated may result in a change of control of our Company.

DIRECTORS AND EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS

Directors and Executive Officers

The following sets forth information about our directors and executive officers as of the date of this report:

NAME	AGE	POSITION
Ajay Batheja	55	Chairman, Chief Executive Officer and President (1)
Edward Miller	59	Treasurer, Secretary, and Chief Financial Officer (2)
V.R. Ranganath	56	Director (3)
Luigi Caramico	45	Director; V.P., Corporate Strategy (3)

(1)	Became our Chief Executive Officer and a director upon our acquisition of Xalted Networks on May 13, 2011.
(2)	Became an officer upon our acquisition of Xalted Networks on May 13, 2011.
(3)	Became a director on June 4, 2011, the 10th day following our mailing of the Information Statement to our stockholders.

Ajay Batheja. Mr. Batheja became our Chairman, Chief Executive Officer and President upon closing of the acquisition of Xalted Networks on May 13, 2011 and has been the Chief Executive Officer of Xalted Information since 2003. He has over three decades of extensive international experience in sales & marketing, operations management and partnership development; within the telecommunications and software sector. Prior to joining Xalted in 2003, he had worked in various capacities at Rockwell International, OAZ Communications, Incoda Corporation, and Ricoh Corporation. Mr. Batheja holds an MBA Degree from Pepperdine University and an MSEE Degree in Electrical Engineering from the Clemson University.

Edward Miller. Mr. Miller became our Treasurer, Secretary, and Chief Financial Officer upon the completion of our acquisition of Xalted Networks on May 13, 2011. Mr. Miller has over 30 years of experience in both financial and operational management. Most recently, he was working as a management consultant to three different firms starting in June 2010. Previously, he was the CFO for INVENX, Inc. from April 2009. Prior to INVENX, he was the Controller for SemIndia USA, Inc. from April 2006 to March 2009. Mr. Miller holds a Bachelors Degree from Ohio University in Finance.

Luigi Caramico. Mr. Caramico became our Vice President Corporate Strategy upon closing of the acquisition of Xalted Networks on May 13, 2011. Mr. Caramico became a member of our board of directors on June 4, 2011. Mr. Caramico, prior to joining Kranem, was the Chief Executive Officer and Director with the Klaustech Group from December 2008. He was the president of Intelligentias Inc. from 2006 to 2008. Mr. Caramico is a graduate of the University of Rome and holds a degree in computer science.

V.R. Ranganath. Mr. Ranganath became a member of our board of directors on June 4, 2011. He has been a member of the board of directors of Xalted Information since 2000. Mr. Ranganath was the founder and president of Alliance Venture Management since 1997. Mr. Ranganath holds a BSEE from Bengaluru University in India and a MSEE from Utah State University.

Directors are elected until their successors are duly elected and qualified.

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Except as noted above, there are no other agreements or understandings for any of our executive officers or directors to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person.

Except as set forth in our discussion below in “Certain Relationships and Related Transactions, and Director Independence—Transactions with Related Persons,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

Significant Employees

In addition to the foregoing named officers and directors, the following employees are also key to our business and operations:

NAME	AGE	POSITION
G. Venkateswarlu	45	Director, Engineering, Xalted Information
Deepak Nandwani	38	Director, Program Management, Xalted Information
Hrishikesh Kulkarni	35	Principle Architect, Xalted Information

G. Venkateswarhu. Mr. Venkateswarhu has over 15 years in the field of Software Development Delivery & Project Management in the telecom industry. He is responsible for streamlining the development schedule and processes in Xalted while also managing the software development and QA teams. Mr. Venkateswarhu has previously worked with companies such as Teleonto Technologies, Metaminds Software, Kido Software, where he held various positions including General Manager – Software Delivery.

Deepak Nandwani. Mr. Nandwani has over 17 years of experience in managing and delivering software system, integration projects, implementation of OSS/BSS, applications and analytics in the telecom industry. Prior to joining Xalted, Mr. Nandwani was the Program Delivery Manager for Soma Networks, Project/Program Manager at Satyam Computers and worked in various capacities in software consulting firms in both the U.S. & India. He holds a Masters degree from Delhi University in Software Technology and an undergraduate degree in Systems Management from NIIT.

Hrisikesh Kulkami. Mr. Kulkami oversees the Technology Office Activities at Xalted Information Systems Pvt. Ltd. and has been involved with Xalted since 2003 in conception, development and implementation of Xalted products and solutions. Hrishi has been also involved in product and process innovation initiatives at Xalted. Prior to joining Xalted, Mr. Kulkami was the Senior Systems Engineer at Incoda Corporation and Software Elements India Pvt. Ltd. He holds a degree in Electronics Engineering from Mumbai University, Post Graduate Diplomas in Advanced Computing from CDAC, Embedded Systems from Department of Atomic Energy and certificates in Bio-Informatics from IIT Mumbai.

Family Relationships

There are no family relationships among our directors and executive officers.

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

• been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

• had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

• been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

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• been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

• been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

• been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

EXECUTIVE COMPENSATION

Summary Compensation Table — Fiscal Years Ended December 31, 2010 and 2009

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the noted periods. None of our executive officers received total annual salary and bonus compensation in excess of $100,000.

(1)	On May 13, 2011, in connection with our acquisition of Xalted Networks, Mr. Ajay Batheja became our Chairman, Chief Executive Officer and President. Mr. Batheja is also a consultant of Xalted Information. The annual, long term and other compensation shown in this table include the amounts Mr. Batheja received from both companies. Mr. Batheja did not receive a bonus because the mandatory bonus payment under the Indian law is not applicable to employees or consultants whose monthly compensation exceeds the maximum monthly cap of Rs.10,000 for such mandatory payment.
(2)	Stephen K. Smith resigned from all offices he held with us upon the closing of the acquisition of Xalted Networks on May 13, 2011.

Summary of Employment Agreements and Material Terms

Ajay Batheja, our Chairman, Chief Executive Officer and President has executed a Consulting Agreement with Xalted Information. A copy of Mr. Batheja’s Consulting Agreement with Xalted Information is filed as Exhibit 10.3 hereto.

Other than the salary and necessary social benefits required by the government, which are defined in our standard employment agreement, we currently do not provide other benefits to our officers at this time.

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Outstanding Equity Awards at Fiscal Year End

No unexercised options or warrants were held by any of our named executive officers at December 31, 2010. No equity awards were made during the fiscal year ended December 31, 2010.

Compensation of Directors

No member of our board of directors received any compensation for his services as a director during the fiscal year ended December 31, 2010.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE

Transactions With Related Persons

We did not have any transactions since the beginning of the 2009 year, or any currently proposed transactions, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”).

Promoters and Certain Control Persons

We did not have any promoters at any time during the past five fiscal years.

Director Independence

We currently do not have any independent directors, as the term “independent” is defined by the rules of the Nasdaq Stock Market.

LEGAL PROCEEDINGS

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

In April 2010, a petition was filed against Xalted Information Systems in the High Court of Karnataka at Bangalore by Arasor Corporation, a Delaware company. The High Court is the principal civil 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 Systems, based on allegations that Xalted Information Systems did not pay for communications equipment sold and shipped to Arasor. We maintain the Company never received the equipment which is alleged to have been shipped to us. This type of claim, and the type of relief sought, is not unusual in India.

The petition was heard by a single judge, sometimes also called a “single bench judge,” in the High Court in Karnataka. Any judicial panel comprised of fewer than all the judges in a given court is referred to in India as a “Division Bench.” The single-judge court found in favor of Arasor and against Xalted Information on November 10, 2010. On December 14, 2010, Xalted Information filed an appeal of that decision before a two-judge panel, or “Bench, of the same High Court. On January 19, 2011, the two-judge panel stayed the November 10, 2010 order of the single 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. Arasor has not objected to this request. The matter is expected to be heard during the summer of 2011.

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Our India lawyers have informed us that they believe Xalted Information has a reasonably strong legal position and a good chance of success in the present proceedings before the appellate court. However, if we are unsuccessful in defending ourselves against the claim, Xalted Information could be subject to judicial liquidation in India.

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.

MARKET PRICE AND DIVIDENDS ON OUR COMMON EQUITY

AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted under the symbol “KRAN” on the OTC Bulletin Board maintained by the Financial Industry Regulatory Authority, however there is not currently, nor has there ever been, an active trading market for our common stock, and no information is available for the prices of our common stock, as reported by www.quotemedia.com.

Holders

As of May 16, 2011 there were approximately 45 holders of record of our common stock. This number does not include shares held by brokerage clearing houses, depositories or others in unregistered form.

Securities Authorized for Issuance Under Equity Compensation Plans

We do not have in effect any compensation plans under which our equity securities are authorized for issuance and we do not have any outstanding stock options.

RECENT SALES OF UNREGISTERED SECURITIES

Reference is made to the disclosure set forth under Item 3.02 of this report, which disclosure is incorporated by reference into this section.

DESCRIPTION OF SECURITIES

Capital Stock

We are authorized to issue up to 50,000,000 shares of common stock, no par value. Each outstanding share of common stock entitles the holder thereof to one vote per share on all matters. Our bylaws provide that any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the board of directors. Stockholders do not have preemptive rights to purchase shares in any future issuance of our common stock.

The holders of shares of our common stock are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of directors has never declared a cash dividend and does not anticipate declaring a cash dividend in the foreseeable future. Should we decide in the future to pay cash dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiary and other holdings and investments. In addition, our operating subsidiary, from time to time, may be subject to restrictions on its ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to receive, ratably, the net assets available to stockholders after payment of all creditors.

To the extent that additional shares of our common stock are issued, the relative interests of existing stockholders will be diluted.

We are authorized to issue up to 10,000,000 shares of preferred stock, no par value, in one or more classes or series within a class as may be determined by our board of directors, who may establish, from time to time, the number of shares to be included in each class or series, may fix the designation, powers, preferences and rights of the shares of each such class or series and any qualifications, limitations or restrictions thereof. Any preferred stock so issued by the board of directors may rank senior to the common stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up of us, or both. Moreover, under certain circumstances, the issuance of preferred stock or the existence of the unissued preferred stock might tend to discourage or render more difficult a merger or other change of control.

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No shares of our preferred stock are currently outstanding. The issuance of additional shares preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock.

Transfer Agent and Registrar

Our independent stock transfer agent is First American Stock Transfer, Inc. Their mailing address is 4747 North 7th Street, Suite 170, Phoenix, AZ 85014 and their phone number is (602) 485-1346.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our bylaws provide for the indemnification of our present and prior directors and officers or any person who may have served at our request as a director or officer of another corporation in which we own shares of capital stock or of which we are a creditor, against expenses actually and reasonably incurred by them in connection with the defense of any actions, suits or proceedings in which they, or any of them, are made parties, or a party, by reason of being or having been director(s) or officer(s) of us or of such other corporation, in the absence of negligence or misconduct in the performance of their duties. This indemnification policy could result in substantial expenditure by us, which we may be unable to recoup.

Insofar as indemnification by us for liabilities arising under the Exchange Act may be permitted to our directors, officers and controlling persons pursuant to provisions of the Articles of Incorporation and Bylaws, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding, which may result in a claim for such indemnification.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

Our independent registered public accounting firm is De Joya Griffith & Company, LLC, or De Joya Griffith. De Joya Griffith’s reports on our financial statements as of and for the fiscal years ended December 31, 2010 and 2009 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except that its reports for the fiscal years ended December 31, 2010 and 2009 contained a qualification as to our ability to continue as a going concern.

ITEM 3.02           UNREGISTERED SALES OF EQUITY SECURITIES

Acquisition of Xalted Networks

On May 13, 2011, we issued 2,094,159 shares of our common stock to Imprenord ME, 598,331 shares of our common stock to Empire Capital Partners, L.P., and 299,166 shares of our common stock to Peter Richards to acquire from them convertible promissory notes issued by Xalted Holding, which we refer to as the Notes, in the aggregate principal amount of $2,500,000.

On May 13, 2011, we issued 2,326,844 shares of our common stock to Xalted Holding, the sole shareholder of Xalted Networks, and cancelled the Notes, in consideration for the acquisition of 100 shares of Xalted Networks, which is all the issued and outstanding capital stock of Xalted Networks

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The number of our shares of our common stock issued to Xalted Holding, Imprenord ME, Empire Capital Partners, L.P. and Peter Richards was determined based on an arms-length negotiation. The issuance of these shares was made in reliance on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering.

Our reliance upon Section 4(2) of the Securities Act was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the shares took place directly between the offerees and us.

ITEM 5.01           CHANGES IN CONTROL OF REGISTRANT

Reference is made to the disclosure set forth under Item 2.01 of this report, which disclosure is incorporated herein by reference.

As a result of the closing of the acquisition of Xalted Networks on May 13, 2011, Xalted Holding, the former shareholder of Xalted Networks, owned 35% , Imprenord ME owned 31.5%, Empire Capital Partners, L.P. owned 9%, and Peter Richards owned 4.5%, of our total outstanding common stock total voting power of all our outstanding voting securities. This constituted a change of control of Kranem Corporation.

ITEM 5.02           DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OFCERTAIN OFFICERS

Upon the closing of our acquisition of Xalted Networks on May 13, 2011, Michael Grove, our Secretary, Treasurer and Principal Financial Officer, resigned from all offices that he held; and Stephen K. Smith, our President and director, resigned from all offices that he held, and resigned as a director effective as of June 4, 2011, the tenth day following our mailing of an Information Statement to our stockholders. Such resignations were not in connection with any known disagreement with us on any matter.

On the same date, our board of directors increased its size from one to three members and appointed Ajay Batheja, Luigi Caramico and V.R. Ranganath, to fill the vacancies created by such increase and Mr. Smith’s resignation. Mr. Batheja’s appointment became effective upon the closing of the acquisition of Xalted Networks on May 13, 2011, and the remaining appointments became as of June 4, 2011, the tenth day following our mailing of an Information Statement to our stockholders.

In addition, our board of directors appointed Ajay Batheja as our Chairman, Chief Executive Officer and President, and Edward Miller as our Treasurer, Secretary, and Chief Financial Officer, effective immediately at the closing of the acquisition of Xalted Networks.

For certain biographical and other information regarding the newly appointed officers and directors, see the disclosure under Item 2.01 of this report, which disclosure is incorporated herein by reference.

ITEM 5.06           CHANGE IN SHELL COMPANY STATUS

Reference is made to the disclosure set forth under Item 2.01 and 5.01 of this report, which disclosure is incorporated herein by reference.

ITEM 9.01           FINANCIAL STATEMENTS AND EXHIBITS

(a)           Financial Statements of Business Acquired

Filed herewith are:

• Unaudited consolidated financial statements of Xalted Information for the three months ended March 31, 2011
• Audited consolidated financial statements of Xalted Information for the years ended December 31, 2010 and 2009

46

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(b)           Pro Forma Financial Information

Filed herewith is unaudited pro forma combined financial information of Kranem Corporation and its subsidiaries.

(d)           Exhibits

Exhibit No.		Description
2.1		Share Exchange Agreement, dated May 12, 2011, among the Company, Xalted Networks, Inc. and Xalted Holding Corporation [incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 16, 2011]
3.1		Articles of Incorporation of the Company [incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 filed on December 8, 2004]
3.2		Bylaws of the Company [incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form SB-2 filed on December 8, 2004]
10.1		Assignment of Note Agreement, dated May 13, 2011, among the Company, Xalted Holding Corporation, Imprenord, ME, Empire Capital Partners, L.P., and Peter Richards [incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 16, 2011]
10.2		Extension of Assignment of Note Agreement between Xalted Holding Corporation, Imprenord ME, Empire Capital Partners, LP, and Peter J. Richards, effective May 6, 2011
10.3		Consulting Agreement, effective on October 1, 2005, between Xalted Information Systems Pvt. Ltd. and Ajay Batheja
21.1		Subsidiaries of the Company [incorporated by reference to Exhibit 21.1 to the Company's Current Report on Form 8-K filed on May 16, 2011]

47

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: July 29, 2011

	KRANEM CORPORATION
	By: /s/ Edward Miller
	Edward Miller
	Chief Financial Officer

48

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INDEX TO FINANCIAL STATEMENTS

	Page
Unaudited Financial Statements of Xalted Information Systems (PVT.) Ltd. for the Three Months Ended March 31, 2011
Report of Independent Registered Public Accounting Firm	F-1 - F-2
Statement of Financial Position as at 31st March, 2011 (Unaudited)	F-3
Statement of Income for three months ended 31st March, 2011 (Unaudited)	F-4
Statement of Cash Flows for three months ended 31st March 2011 (Unaudited)	F-5
Statement of Stockholders' Equity and Comprehensive Income (Unaudited)	F-6
Notes to the Consolidated Financial Statements (Unaudited)	F-7 - F-17
Audited Financial Statements of Xalted Information Systems (PVT.) Ltd. for the Fiscal Years Ended December 31, 2010 and 2009
Report of Independent Registered Public Accounting Firm	F-18
Consolidated Balance Sheets	F-19
Consolidated Statements of Income and Comprehensive Income	F-20
Consolidated Statements of Cash flows	F-21
Consolidated Statements Equity	F-22
Notes to the Consolidated Financial Statements	F-23 - F-55
Unaudited Pro Forma Combined Financial Information	F-56 - F-57

We have presented financial statements for the years ended December 31, 2009 and December 31, 2010. During those periods, Xalted Networks, Inc., did not exist as it was incorporated on March 14, 2011. That entity therefore is not included in our 2009 and 2010 financial statements. Our pro forma consolidated financial information includes a column for Xalted Networks but no data since it was not formed until after the periods reported on. Xalted Networks is also included in our reviewed financial statements for the period ending March 31, 2011.

---

F-1

---

F-2

---

Xalted Information Systems Private Limited
Statement of Financial Position as at 31st March, 2011 (Unaudited)
		Note			31-Mar-11
					US $
ASSETS
Current Assets:
Cash and cash equivalents					767,071
Available for Sale Financial Assets					537,514
Financial Assets		1			1,006,514
Accounts receivable, net of allowance for doubtful debts		2			5,180,006
Accounts receivable - related parties		2			740,000
Inventories					145,543
Deferred tax assets, net		6			104,413
Current tax asssets net of provision for income tax					157,379
Prepaid Expenses and Other current assets					101,845
Total Current Assets					8,740,285
Non-Current Assets:
Property, plant and equipment, net		3			178,232
Intangible assets, net		4			43,372
Financial assets		1			285,420
Deferred tax assets, net		6			14,102
Other non-current assets					173,860
Total Non-Current Assets					694,987
TOTAL ASSETS					9,435,272
LIABILITIES AND STOCKHOLDER'S EQUITY
Currrent Liabilities:
Accounts payable					1,505,394
Accounts payable - related parties					1,079,136
Deferred Revenues					445,164
Short-term Loan - related parties					316,515
Other Current liabilities					543,147
Total Current Liabilities					3,889,356
Non-Currrent Liabilities:
Long- term Provisions		5			76,748
Total non-current liabilities					76,748
STOCKHOLDERS' EQUITY
Common Stock- par value Rs 10/- ($ 0.22) per share              (5,000,000 equity shares authorised and 2,205,000 equity               shares issued as of March 31, 2011 )		11			472,004
Retained Earnings					4,669,792
Currency Translation Reserve					299,771
Accumulated Other Comprehensive Income					27,601
Total Stockholders' Equity					5,469,168
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY					9,435,272

The accompanying Accounting Policies and Notes are an integral part of the Financial Statements

	For and on behalf of Board of Directors
	/s/ Ajay Batheja
	Ajay Batheja
Place : Mumbai
Date : July 23, 2011	Director & CEO

F-3

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Xalted Information Systems Private Limited
Statement of Income for three months ended 31st March, 2011 (Unaudited)
		Note			31-Mar-11
					US $
REVENUES					1,291,927
COST OF REVENUES					313,651
GROSS PROFIT					978,276
OPERATING EXPENSES
Research & Development Expenses					265,082
Selling and Marketing Expenses					68,848
General and Administrative Expenses					121,548
Total Operating Expenses					455,478
OPERATING INCOME					522,798
Finance Costs					(36,392	)
Non Operating Income					31,370
Income before Income Taxes					517,776
Tax Expenses		6			97,721
Net Income					420,055
Earnings per Equity share		7
Basic					0.19
Diluted					0.19
Weighted average number of equity shares used in computing earnings per equity share
Basic					2,205,000
Diluted					2,205,000

Xalted Information Systems Pvt. Ltd.
Statement of Other Comprehensive Income for the quarter ended March 31, 2011
		31-Mar-11
		US $
Net Income		420,055
Actuarial Gains /(Losses) on Employee benefits, net of income tax effects		12,586
Foreign Currency Translation Reserve		18,756
Total Comprehensive Income		451,397

The accompanying Accounting Policies and Notes are an integral part of the Financial Statements

	For and on behalf of Board of Directors
	/s/ Ajay Batheja
	Ajay Batheja
Place : Mumbai
Date : July 23, 2011	Director & CEO

F-4

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Xalted Information Systems Private Limited
Statement of Cash Flows for three months ended 31st March 2011 (Unaudited)
		Note			31-Mar-11
					US $
Cash flows from Operating Activites:
Net Income					420,055
Adjustments:
Depreciation and amortization					31,467
Loss on sale of Property, Plant and Equipment					22,376
Provision for Taxation					88,757
Deferred Taxes					8,964
Fair value Adjustments					16,523
Interest Accrued on Fixed Deposits					(4,940	)
Others
Changes in Asset / Liabilities
(Increase)/Decrease in other Non current Assets					(789	)
(Increase)/Decrease in Inventories					-
(Increase)/Decrease in Trade Receivables					(567,362	)
Increase/(Decrease) in Tax Assets					59,994
(Increase)/Decrease in Financial Assets					-
(Increase)/Decrease in Prepaid and other current
Assets					74,867
Increase/(Decrease) in Long term Provisions					(3,528	)
Increase/(Decrease) in Trade Payable					31,965
Increase/(Decrease) in Deferred Revenues					356,949
Increase/(Decrease) in Other Current Liabilities					(45,565	)
Net Cash from Operating Activities					489,733
Cash flows from Investing Activites:
Investments in Fixed Deposits placed with Banks					-
Withdrawal of Fixed Deposits placed with Banks					-
Investment in Mutual Fund Units					(985,442	)
Redemption of Mutual Fund Units					621,086
Proceeds from Sale of Fixed Assets					100,784
Expenditure on property, plant and equipment					(6,417	)
Net Cash from Investing Activities					(269,989	)
Cash flows from Financing Activites:
Net Cash from Financing Activities					-
Net Increase / (decrease) in cash and cash equivalents during the period					219,743
Cash and cash equivalents at the beginning of the period					545,374
Effect of exchange rate changes on cash and cash equivalents					1,954
Cash and Cash Equivalents at the end of the period					767,071

The accompanying Accounting Policies and Notes are an integral part of the Financial Statements

	For and on behalf of Board of Directors
	/s/ Ajay Batheja
	Ajay Batheja
Place : Mumbai
Date : July 23, 2011	Director & CEO

F-5

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Xalted Information Systems Private Limited
Statement of Stockholders' Equity and Comprehensive Income (Unaudited)

														Amounts in $
					Accumulated
		Common			Other			Currency						Total
		Stock			Comprehensive			Translation			Retained			Stockholders'
		Shares			Income			Reserve			Earnings			Equity
Balance as at 31 December 2010		472,004			15,015			281,015			4,249,737			5,017,771
Net Income		-			-						420,055			420,055
Other Comprehensive Income
Actuarial Gains and Losses on Employee benefits		-			12,586						-			12,586
Translation Effect of exchange rate changes		-			-			18,756			-			18,756
Balance as at 31 March 2011		472,004			27,601			299,771			4,669,792			5,469,168

The accompanying Accounting Policies and Notes are an integral part of the Financial Statements

	For and on behalf of Board of Directors
	/s/ Ajay Batheja
	Ajay Batheja
Place : Mumbai
Date : July 23, 2011	Director & CEO

F-6

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Xalted Information Systems Private Limited

Notes to the Financial Statements (Unaudited):

A. Description of business

Xalted Information Systems Private Limited (hereinafter refer to as “Xalted” or “the company”) was incorporated on September 12, 2001 in Bengaluru, Karnataka, India. Xalted is the wholly owned subsidiary company of Xalted Networks Inc., a company based in United States of America (USA). Xalted is engaged in providing Operation Support Systems (OSS) /Business Support Systems (BSS), Telecom Security and managed services to Telecom Industry.

The Corporate office of Xalted is situated at 2^nd Floor, MGM Building, Charni Road, Mumbai, India. The Company has got development facilities situated at Bengaluru, Baddi (Himachal Pradesh) and Mumbai in India.

Xalted brings several National Security offerings to the Law Enforcement / Intelligence Agencies to empower them with proactive intelligence. The National Security product portfolio of Xalted consists of Interception and Monitoring, Knowledge Curation, Tactical Analysis and Strategic Modeling systems. These solutions assist Law Enforcement/ Intelligence Agencies in their investigation as well as decision making process while equipping them with Information Superiority.

The Company provides solutions for managing increasing network complexities and reducing costs for leading telcos and communication service providers worldwide. With scalable and integrated 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 CAPEX without compromise on service quality standards

The Company is authorized to issue up to 5,000,000 shares having par value of Rs. 10 each ($ 0.22/ -).

B. Basis of preparation:

The accompanying condensed unaudited financial statements as of and for the three months ended March 31, 2011 have been prepared in accordance with generally accepted accounting principles in the United States of America (“USGAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for audited financial statements. In the opinion of the Company’s management, the interim information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The footnote disclosures related to the interim financial information included herein are also unaudited. Such financial information should be read in conjunction with the financial statements and related notes thereto as of December 31, 2010. The financial statements are presented in United States Dollars ($).

C. Significant Accounting Policies:

There have been no changes to the Company’s significant accounting policies from those described in Notes to the Financial Statements of the Company for the year ended December 31, 2010. These unaudited financial statements should be read in conjunction with such financial statements for the year ended December 31, 2010.

F-7

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D. Recent Accounting Pronouncements:

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220)—Presentation of Comprehensive Income (ASU 2011-05), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for the Company in its first quarter of fiscal 2013 and should be applied retrospectively. The Company currently believes there will be no significant impact on its consolidated financial statements.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820)—Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective for the Company in its fourth quarter of fiscal 2012 and should be applied prospectively. The Company is currently evaluating the impact of adopting ASU 2011-04, but currently believes there will be no significant impact on its consolidated financial statements.

E. Use of estimates:

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

F. Other disclosures:

1.	Financial Assets:
	The components of financial assets are given hereunder:

			As at March 31, 2011
			$
	1. Financial Assets-Current
	Interest free Loan given to Director (Note a)		440,534
	Fixed Deposits placed with Banks with residual maturity less than one year (Note b)		26,114
	Krishil TechPark Private Limited (Note c)		539,866
			1,006,514

F-8

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	2. Financial Assets-Non-Current
	Fixed Deposits placed with Banks with residual maturity more than one year(Note d)		86,704
	Krishil TechPark Private Limited (Note e)		198,717
			285,421
	Total Financial Assets		1,291,935

Note a: The Company has given Interest free loan to a Director, which is repayable in 2011. The Board of Directors of the Company has decided that no further loan will be granted to any of the Directors of the Company in the future.

Note b: Current Fixed Deposits amounting to $ 26,114/- as on March 31, 2011 are placed with Bank as margin for performance /financial guarantees given by the company, as such not considered as cash equivalents.

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

Note d: Entire amounts of Non-current Fixed Deposits as on March 31, 2011 are placed with Bank as margin for performance/ financial guarantees given by the company.

Note e: The amount due from Krishil TechPark Private Limited is on account of sale of Land which is recoverable after September 2012 based on net present value.

2.	Accounts receivable, net of allowance for doubtful debts
	Accounts Receivables consists of:

			As at
			March 31, 2011
			$
	Accounts Receivables
	-From customer		3,535,268
	-From Related Parties		740,000
	Accrued Income (Refer Note a)		1,861,022
	Total Accounts Receivables (Gross)		6,136,290
	Less: Allowance for Doubtful Debts (Refer Note b)		(216,284	)
	Accounts Receivable, Net		5,920,006

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

F-9

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

Xalted is exposed to foreign currency risk on its Account Receivables. Foreign currency risk is market risk due to effect of changes in foreign currency exchange rates. The contracts with some clients are typically priced in U.S. dollars which represents foreign exchange exposure. Net Foreign currency receivable aggregated to $ 748,750 as at March 31, 2011.

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

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

			$
	As on January 1, 2011		216,284
	Additions		-
	Deductions		-
	As on March 31, 2011		216,284

3.	Property, plant and equipment, net
	Property, plant and equipment consist of:

			As at
			March 31, 2011
			$
	Computer & Peripherals		1,124,044
	Communication Equipments		31,866
	Electrical Equipments		138,379
	Lab Equipment		78,669
	Office Equipment		9,151
	Motor Vehicle		38,783
	Air Conditioner		76,987
	Furniture and Fittings		95,995
	Digital Loop Carriers		74,113
	Leasehold improvements		34,031
	Total		1,702,018
	Less: Accumulated Depreciation		(1,523,786	)
	Property, plant and equipment, net.		178,232

Net Depreciation expense aggregated to $ 26,946/- for the three months ended March 31, 2011.

F-10

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4.	Intangible Assets, net
	The following table presents details of Xalted's total other intangible assets:

						As at March 31, 2011
			Gross Cost			Accumulated			Net carrying
						amortization			value
			$			$			$
	Software		305,704			262,332			43,372
	Total		305,704			262,332			43,372

Amortization of intangible assets aggregated to $ 4,521/- for the three months ended March 31, 2011.

5.	Long Term Provisions
	Long Term Provisions consists of:

			As at
			March 31, 2011
			$
	Liability Accrual for Gratuity		21,454
	Liability Accrual for Leave Encashment (Compensated Absences)		55,294
	Total		76,748

6.	Income taxes
	Income taxes consist of:

			Three months ended
			March 31, 2011
			$
	Domestic Income Taxes
	Current taxes		88,757
	Deferred taxes		8,964
	Aggregate Income taxes		97,721

Under Section 10A of the Indian Income Tax Act, 1961, Xalted is entitled to tax holidays for its Software Technology Park unit located at Bengaluru. 100% tax holidays of profits are available for a period of first five consecutive fiscal years from the date of commencement of operations and 50% exemption of profits for the next five consecutive fiscal years respectively. These holidays expire in fiscal 2011.

F-11

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

The components of net deferred tax asset are as follows:

			As at
			March 31, 2011
			$
	Deferred tax assets:
	Employee benefits
	Gratuity		7,126
	Leave Encashment		18,367
	Provision for Doubtful Accounts		71,844
	MAT credit available as per Income Tax Act, 1961		18,566
	Fair Value of Director’s Loan		14,226
	Fair Value of Receivables towards sale of land		8,386
	Fair Value of Rental Deposits		8,878
	Gross deferred tax assets		147,393
	Less: Valuation allowance		-
	Total deferred tax assets		147,393
	Deferred tax liabilities:
	Property, plant and equipment		21,640
	Prepaid Rent		7,238
	Total deferred tax liabilities		28,878
	Net deferred income tax assets/(liabilities)		118,515

7.	Earnings per share
	Basic earnings per share and Diluted earnings per share are computed on the basis of the weighted average number of shares outstanding
	The components of basic and diluted earnings per share were as follows:

			Three months
			ended
			March 31, 2011
	Net income attributable to Xalted Information Systems Private Limited’s shareholders ($)		420,055
	Average outstanding shares
	Basic		2,205,000
	Diluted		2,205,000
	Earnings per share
	Basic ($)		0.19
	Diluted ($)		0.19

F-12

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8.	Segmental reporting
	SFAS 131, "Disclosure about Segments of an Enterprise and Related Information" establishes standards for the way that public business enterprises report information about business segments and related disclosures about products and services, geographical areas and major customers.
	The Chief Executive Officer (CEO) of the Company has been identified as the Chief Operating Decision Maker (CODM) as defined by ASC Topic 280. The CEO of the Company evaluates the segments based on their revenue growth, operating income and return on capital employed. Management of the Company is of the view that Xalted 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:

			Three months ended
			March 31, 2011
			$
	India		487,106
	USA		775,220
	Nepal		1,248
	South Africa		28,353
	Total		1,291,927

9.	Related Party Transactions
	List of related parties where control exists and related parties with whom transactions have taken place and relationships:

F-13

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Transactions with related parties during the three months ended March 31, 2011.

Closing Balance of Related Parties as at March 31, 2011

F-14

---

Disclosure in respect of Material Related Party Transactions during the quarter ended March 31, 2011:

	1.	Revenue transactions (Service fees) include Xalted Holding Corporation (formerly known as Xalted Networks Inc) $ 748,659/- for the three months ended March 31, 2011.
	2.	Fair Value Income Include Director’s Loan (Pratap Kondamoori) $8,679/- and net Fair Value Expenses include Krishil TechPark Private Limited $ 25,201 for the three months ended March 31, 2011.
	3.	Loan and Advances given include Krishil TechPark Private Limited $ 80,595/- for the three months ended March 31, 2011.
	4.	Loan and Advances repaid include SEM India Systems Private limited $ 187,740 for the three months ended March 31, 2011.
	5.	Consultancy Charges include Ajay Batheja $ 10,060/- for the three months ended March 31, 2011.
	6.	Sales of land include Krishil TechPark Private Limited $ 782,473/- for the three months ended March 31, 2011.
	7.	Loans and Advance taken include Xalted Technologies Private Limited $ 4 for the three months ended March 31, 2011.

10.	Contingencies and commitments

Contingencies

i.

The Income Tax Assessing Officer has raised a demand for additional Tax liability for A.Y. 06- 07, AY 07-08 and AY 08-09. The Company is contesting the order of denial of section 10A benefits claimed by the Company in AY 2006-07, 07-08 and 08-09 under the Income Tax Act, 1961. The estimated contingency amounts to $ 225,755 as of March 31, 2011. The management believes that it has strong merits for this petition and hence it will not have the material adverse affect on Xalted's results of operations, liquidity or financial position and has filed an Appeal to the Commissioner of Income Tax.

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 Systems in the High Court of Karnataka at Bangalore by Arasor Corporation, a Delaware company. The High Court is the principal civil 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 Systems, based on allegations that Xalted Information Systems did not pay for communications equipment sold and shipped to Arasor. We maintain the Company never received the equipment which is alleged to have been shipped to us. This type of claim, and the type of relief sought, is not unusual in India.

F-15

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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 fewer than all the judges in a given court is referred to in India as a “Division Bench.” The single-judge court found in favor of Arasor and against Xalted Information Systems on November 10, 2010. On December 14, 2010, Xalted Information Systems filed an appeal of that decision before a two-judge panel, or “Bench, of the same High Court. On January 19, 2011, the two-judge panel stayed the November 10, 2010 order of the single 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 Systems 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. Arasor has not objected to this request. The matter is expected to be heard during July 2011.

The Company's lawyers have informed the Company that they believe the Company has a reasonably strong legal position and a good chance of success in the present proceedings before the appellate court. However, if we are unsuccessful in defending ourselves against the claim, Xalted Information Systems could be subject to judicial liquidation in India

11.	Stockholder’s Equity

Common Stock

As at March 31, 2011, Company has issued 2,205,000 equity shares of par value of Rs 10/- ($ 0.22) each to Xalted Networks Inc. (Parent company) and its nominees. The Company has not paid any cash dividends on common stock. There is no current anticipation of paying cash dividends in future.

12.	Subsequent events

Xalted Networks Inc. was formed on March 14, 2011 by Xalted Holding Corporation, which was formerly known as Xalted Networks Inc. Xalted Networks Inc is a holding company and does not have any operations. On March 16, 2011, Xalted Holding Corporation transferred to its 100% subsidiary, Xalted Networks Inc, its 45.87% record ownership of Xalted Information Systems Pvt. Ltd., the beneficial ownership of the remaining 54.13%, and all of Xalted Holding Corporation’s rights under a Share Exchange and Restricted Stock Purchase Agreement dated October 1, 2004, as amended, in exchange for the issuance to Xalted Holding Corporation of 99 shares of the common stock of Xalted Networks Inc. The transfer of the equity and other interests in Xalted Information Systems Pvt. Ltd. to Xalted Networks Inc will be presented in the consolidated financial statements as a recapitialization.

F-16

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On May 13, 2011, Kranem Corporation ("Kranem") executed agreements to acquire three convertible promissory notes issued by Xalted Holding Corporation, or the Notes, in exchange for the issuance of 2,094,159 newly issued shares of common stock of Kranem, to Imprenord ME, the holder of a Note in the principal amount of $1,750,000; 598,331 newly issued shares of common stock of Kranem, to Empire Capital Partners, L.P., the holder of a Note in the principal amount of $500,000; and 299,166 newly issued shares of common stock of Kranem, to Peter Richards, the holder of a Note in the principal amount of $250,000. On May 13, 2011, Kranem acquired the wholly-owned subsidiary of Xalted Holding Corporation, Xalted Networks Inc., in exchange for the issuance to Xalted Holding Corporation of 2,326,844 newly issued shares of common stock of Kranem, and the cancellation of the Notes.

The shares issued by Kranem to Xalted Holding Corporation and to the holders of the Notes constituted 35% (Xalted Holding), 31.5% (Imprenord ME), 9% (Empire Capital Partners, L.P.) and 4.5% (Peter Richards), of Kranem's issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the transactions contemplated by the Share Exchange Agreement. As a result of Kranem's acquisition of Xalted Networks, Kranem now own all of the issued and outstanding capital stock of Xalted NetworksInc., the holding company of Xalted Information Systems Private Ltd., India

	For and on behalf of Board of Directors
	/s/ Ajay Batheja
	Ajay Batheja
Place : Mumbai
Date : July 23, 2011	Director & CEO

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